Overpay with savings?

TheGoober87

Me and my girlfriend are currently deciding whether to use our savings to overpay the mortgage a bit in the next few months. We have about 8k stashed away (which isn't earning a great deal of interest at the moment either) and was wondering whether it's worth overpaying.

The maximum without incurring a charge is 500 per month which is what we'd do. The reason we haven't done it so far is that we wanted some rainy day money incase anything happened.

I spoke to a friend yesterday who used to work in the Nationwide mortgage section (where my mortgage is from), and he said you can take out any overpayments from the mortgage if you needed it.

Anyone know if this is true, if it is it seems like a no-brainer for us to do it. We'll save much more on interest than we would having it in savings, and it would be there for when we needed it.

Sparx

I think it is only Nationwide that offer the ability to withdraw your overpayments. Other than offset mortgages which kind of work in that way anyway.

getmore4less

How many months expences is £8K.
What if you lost one or both incomes
How long to replace

How much do you save each month.
How much could you save each month.

What rate is the mortgage.

Relying on NW to let you have the money back does have a risk.

Any known expences coming up that will need some of the cash.

a good solid budget and some cash kept back so you don't get caught out with cash flow.

Some surplus income so you can save/overpay/replace savings.

Check with nationwide the process for asking for money back.

Harry_Boyle

Often its quite difficult to get the money back out of a mortgage, especially if you need it quickly. You may have to fill in forms and wait for it to be processed. I would only look at mortgage overpaying if you already have all the higher priority bases covered. A couple of these are:

1. Three to six times your monthly outgoings placed into Cash ISAs. This allows easy and quick access if required, but also shields your money from tax.

2. Sufficient pension savings each month to provide a comfortable retirement. There are plenty of pension calculators that will show you how much you need to be saving each month to achieve this.

A lot of people who overpay their mortgage think that they can save for their pensions once they are mortgage free. They often forget that their income may go down in future or they may get ill and not be able to work and so won't have spare cash for their pension fund. Also, every financial advisor will tell you that the longer the period you are saving the higher the return you will get and the cheaper it will be.

TheGoober87

I've emailed them asking about the possibility of the withdrawal of funds. I might actually give them a ring later and see.

I reckon we could just about survive on 1k a month, we currently live very comfortably on around 650 a month each put in to a joint account but there are areas we could cut back if anything did happen.

I currently pay into a work place pension which should cover me for later life.

Maybe a better option will be to use any we have left over in the joint account to put in there and just leave our money in ISAs.

Harry_Boyle

Just to play devil's advocate....

Are you sure you want to 'just about survive' in order to pay off a loan that will get paid off eventually anyway (unless you're on interest only with no repayment vehicle).

Are you sure your workplace pension will provide for your retirement (including state pension)? It might be worth making sure before decades pass and you start running out of time. I was shocked when I discovered that I'd have to have a £100k pot to provide a measly monthly income of £375.

TheGoober87

Haha you certainly know how to get me thinking.

I'm think at the moment of setting up a direct debit to pay an extra 50 a month. Won't affect us too much, and using an overpayment tool i've just found, it will take 5 years off the mortgage and save nearly 15k in interest!

Harry_Boyle

ADChick wrote: »

Haha you certainly know how to get me thinking.

I'm think at the moment of setting up a direct debit to pay an extra 50 a month. Won't affect us too much, and using an overpayment tool i've just found, it will take 5 years off the mortgage and save nearly 15k in interest!

Thanks.

I don't want to put you off overpaying, just making sure you've thought of the alternatives. Let's be honest, it's far better to put your spare cash onto a mortgage than to waste it buying junk, etc. Just make sure you have the right definition of 'spare cash'.

We've paid a lot of money off our mortgage over the last few years using spare cash. Our definition of 'spare cash' is whatever is left out of our monthly income after household bills/expenses, pension contributions, holiday savings and fun money (you're a long time dead!!)

alwaystryyourbest

Hi i think everyone who can afford to should overpay on there mortgage, the banks get so much intrest over the life of your mortgage,so any overpayment big or small i think is a good thing...