Overpaying mortgage vs saving

drjones

Hi all,

I'm interested in opinions on a sensible ratio of saving to overpaying on my mortgage.

I'm currently in my mid 20s and earn £33k with good future job prospects. I have savings around £15k, of which around £10k is potentially available for overpaying my mortgage (£6.4k 3.1% ISA, £3.6k 3% 123 current account). The only debts I have besides the mortgage are a £13k student loan and £2200 happily stoozing away on a 16 month 0% credit card.

I've had my mortgage for around 9 months and owe ~£99,500 with a reaming term of ~33.5 years (original amount was £103,000 over 35 years, and so far I've overpayed £2k). The monthly payment is ~£450 and the rate is ~3.5% fixed for 2 years and my flat is worth £140k. I deliberately went for a long term mortgage, with the intention of overpaying to shorten the term; I can overpay up to 10% of the amount at the start of the year, each year, without extra fees.

I'm trying to decide what level of savings I should maintain, and whether I should make an additional £2-5k overpayment in the very near future. Besides the fact that my mortgage rate is higher than the interest I'm getting from my savings accounts, overpaying more now will save me more interest over the life of the mortgage, compared to overpaying later. The main downside I can think of is that I would would have less of a financial buffer if anything went wrong.

So what do you guy reckon? In my position, how much of a savings buffer would you maintain and how much would you overpay?

Thanks in advance.

Thrugelmir

Buffer, enough to survive for 6 months.

Plus hold sufficient cash to clear the credit card.

jimjames

Can you get the money back out on the mortgage from the overpayments? Some allow, some don't. If they do allow then it would be worth paying in any amounts that pays less than the mortgage rate plus tax.

If not then retain enough as above to cover you for 6 months as well as being able to pay off the card. Keep the student loan as the rate is so low on that.

atush

How many months of living expenses (incl debt repayments) will 15K last?

Do you belong to your employers pension? If so, what do the both of you put into it total?

do you have a partner/potential spouse? Are you looking for one? will you ever have dependents?

I might split my extra cash (as I actually do lol) between cash, pension, overpaying mtg and investments. I would vary this (as I have) due to circumstances. No need to pick only one or two places to put your money as each has its own place in your financial picture.

drjones

Thanks all for the replies.

I can't get the overpayments back out, so can't use the mortgage as a 'savings' account unfortunately.

I think I could get by for 6 months on around £7-8k, and already have the £2k set aside to clear the card. I have a public sector pension and make a £50 additional contribution each month. I'm single and have no immediate plans to produce any dependants!

This leaves about £4k that I have 'spare'. I'm definitely going to use some to overpay the mortgage (perhaps another £2k?), and maybe put some in an S&S ISA aswell. The student loan certainly won't be in line for any overpayments

Thrugelmir

Rather than a lump sum. Personally I would drip feed into a S&S ISA.

atush

I must admit, I prefer drip feeding over LS (but LS can be better if you find the market bottom) as I don't have a guide to future events.

Pound Cost Averaging is my friend.