Overpay mortgage or save

MattyNeth

Hi - I'm looking to overpay my mortgage by £100 a month if I can. My mortgage is fixed for another 4 years at 4.74%, but I can save this cash in my Icesave account which pays 5.7%. I am a tax payer - would I be better off savings and maybe paying a lump sum at some stage in the future?

MarkyMarkD

If you are paying savings tax at 20%, there's hardly any difference - it's slightly better to pay money off the mortgage, but only just. And this assumes that you are allowed to overpay without penalties on the mortgage.

kingkano

You have already maxed out your ISA allowance? and partners allowance if applicable? There is some excellent tax free rates around right now (barclays 6.5% for example) which would be a much better option.

Scott

Aside from the pure financial point of view, it's always good to have a reasonable amount of savings built up, just in case the worst happens.

MarkyMarkD

Scott

Thanks for making that point. There is a degree of obsession from some on this site about overpaying on their mortgage, but if your mortgage is not a flexible one and you overpay, such that you have no spare cash in savings, you are in a bad position if you suddenly find yourself short of cash to pay the monthly mortgage payments.