Overpay extra with spare cash?

newtoitall

My mortgage rate will be fixed for 4 years (18 years remaining) making the monthly payments less. So I am better off by about £90.

I have already been overpaying £300 a month for two years.

Going off the overpayments calculator, the current overpayments clear the mortgage 10 years early. If I add the £90 on top it clears it 12 years early.

Is the extra 2 years worth if or is it better to save the spare cash elsewher

Thrugelmir

Do you have savings that you can access in the event of unforeseen circumstances?

If you do. Then paying down the mortgage makes sense.

Low interest rates aren't going to last forever.

newtoitall

I have enough to last a year (as advised on this site). Also have the option of drawing back the overpayments already made.

When we were fixing the mortgage rate, an advisor suggested we invest the extra cash instead of overpaying as we would not have anything to show for it once the mortgage was paid off. Whereas if we had invested it we woul have something. Not sure if that makes sense.

Agrajag

By the sound of it, you have good savings, and have the option to 'claw back' any overpayments, as an extra safety net.

So it is just an 'investment issue'

Can you find a tax free savings vehicle which gives you MORE than the interest rate you are paying on your mortgage? If not (and it seems unlikely), then you should definitely overpay as much as you can (ensuring of course you maintain your safety net savings).

The only (very minor in my mind) considerations are these:

a) If you stay as you are, and save the excess elsewhere,your mortgage will be paid off in, say, 2020, and you will have 8 years savings at that point

Alternatively if you overpay more and don't save, you will pay off your mortgage in 2018, and have no extra savings. At this point, having paid off the mortgage, you will no longer have that extra safety net of reclaiming the overpayments - which may make you vulnerable to unforseen events. I believe some people reduce their mortgage to something low without finally paying it off to avoid this sudden change.

b) If you save in an ISA rather than overpay, that money can accumulate in that isa, and will remain tax free interest savings long after you have paid off the mortgage, which may suit you. This is only a consideration because of the yearly limit for paying into ISAs.

Eellogofusciouhipoppokunu

newtoitall wrote: »

I have enough to last a year (as advised on this site). Also have the option of drawing back the overpayments already made.

When we were fixing the mortgage rate, an advisor suggested we invest the extra cash instead of overpaying as we would not have anything to show for it once the mortgage was paid off. Whereas if we had invested it we woul have something. Not sure if that makes sense.

This is all supposing that whatever you invested in had a better tax free return than overpaying your mortgage. If your mortgage was fixed at 2% then it's likely you'd get a better return by not overpaying. If your mortgage was fixed at 5% then it's unlikely you'd get a better return by not overpaying. This is then reviewed once your fix ends to see if you still better off overpaying or not. The final result is the same though - clearing the mortgage. You just need to the route that gets you there quicker.

As far as having 'nothing to show for it', I'd suggest that a mortgage free house and financial security was plenty to show for it, without even mentioning the amount you'll have saved in interest payments.

Essex22011

If you definately wont need the spare cash I would overpay the mortgage

newtoitall

Thanks for all your help.

kidmugsy

Agrajag wrote: »

The only (very minor in my mind) considerations are these:

a) ... Alternatively if you overpay more and don't save, you will pay off your mortgage in 2018, and have no extra savings. At this point, having paid off the mortgage, you will no longer have that extra safety net of reclaiming the overpayments - which may make you vulnerable to unforseen events. I believe some people reduce their mortgage to something low without finally paying it off to avoid this sudden change.

b) If you save in an ISA rather than overpay, that money can accumulate in that isa, and will remain tax free interest savings long after you have paid off the mortgage, which may suit you. This is only a consideration because of the yearly limit for paying into ISAs.

Point (a): we have found it convenient to keep a small balance on our flexible mortgage when we could have paid it off. I warmly recommend it.

Point (b): Another good point - you might at least want your year's worth of "rainy day" savings safely tucked up in Cash ISAs.