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Overpay or Save

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Am I missing something - currently paying extra £250 to repayment mortgage per month this reducing the term - but would I not be better saving this money in an ISA where I would earn interest and when I have a few years in the bag transferring over to the mortgage? Right now that £250 isn't working for me??

Tell me I'm wrong please!! Would hate to be losing interest on 3 grand a year.
[STRIKE]Mortgage End Date: April 2025[/STRIKE]
Mortgage End Date: Oct 2017


"A fool may earn money, but it takes a wise man to keep it."

Comments

  • what evers the favourable interest rate, eg

    mortgage 4.5% , savings 5.5% then you should save and not overpay
    mortgage 5.5% savings 5.5% then i would overpay to decrease risk of rate rises
    mortgage 6.5% savings 5.5% then i would overpay

    as my mortgage is 4.5% fixed for 5 years im saving at the moment ;)
  • maninthestreet
    maninthestreet Posts: 16,127 Forumite
    Part of the Furniture
    What rate of interest are you paying on your mortage, and what rate of interest is paid by the ISA account?
    "You were only supposed to blow the bl**dy doors off!!"
  • My overpayment is reducing the term, not the capital, so the interest charged each month remains unchanged. So what I'm saying is the extra £250 a month is earning me no interest.

    Would it be better for me to put the money in a savings account and when I get to a time (roughly 10 years) when the balance of the mortgage and my savings are the same, then pay off the mortgage?
    [STRIKE]Mortgage End Date: April 2025[/STRIKE]
    Mortgage End Date: Oct 2017


    "A fool may earn money, but it takes a wise man to keep it."
  • save-a-lot
    save-a-lot Posts: 2,809 Forumite
    1,000 Posts Combo Breaker
    Yant1 wrote: »
    what evers the favourable interest rate, eg

    mortgage 4.5% , savings 5.5% then you should save and not overpay
    mortgage 5.5% savings 5.5% then i would overpay to decrease risk of rate rises
    mortgage 6.5% savings 5.5% then i would overpay

    as my mortgage is 4.5% fixed for 5 years im saving at the moment ;)

    Overpaying reduces the total interest you pay on the outstanding balance of your mortgage by drawing down the term. The above post is absolutely correct. I have a mortgage fixed for 10 years at 4.67% so I too am saving. If I had a mortgage rate of 6% plus for example, I would be overpaying on the mortgage.
  • Thanks for all your replys - as long as I'm not losing out (phew).
    [STRIKE]Mortgage End Date: April 2025[/STRIKE]
    Mortgage End Date: Oct 2017


    "A fool may earn money, but it takes a wise man to keep it."
  • dang
    dang Posts: 157 Forumite
    You are losing out - if you could get a higher rate (after tax) on your savings.Look at the best isa rates - if they are more than your mortgage you would be better paying into them.
  • greyteam1959
    greyteam1959 Posts: 4,710 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Only other point is that you cant suddenly release some money if you have invested it in property by overpaying your mortgage.
  • save-a-lot
    save-a-lot Posts: 2,809 Forumite
    1,000 Posts Combo Breaker
    Hi

    If you plan from now onward to build an emergency blanket savings pot then you can switch to overpaying on the mortgage always knowing you have savings if they are ever needed. That is how I have it. We overpay slightly, but we do have extensive savings aswell.
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