Advice please to save or pay extra off the mortgage?

je123

Hello All

This is my first thread - so please be gentle. I have a dilemma, I have worked hard to save approximately 10% of my morgage, now do I pay this off bearing in mind my mortgage is fixed (phew!) at 4.99% for a further 4 years or do I put this money into savings?. I know in the longterm it will save additional interest, but with rate rises will I be better saving?

Lotta_Littlies

Yes. Since your mortgage is fixed at a lower rate of interest than you'd get within an ISA for example, you'd be better off saving any overpayments there then paying off as a lump sum plus interest earned once your fixed rate period is up (or if the interest rate on your savings goes down to below the 4.99% that you're paying on the mortgage).

Lotta

Penelope_Penguin

Hello je123 and welcome to MSE!

The disadvantage of making a payment to your mortgage is that you can't (easily) get it back again.

The advantage is that you can't (easily) get it back again - so won't be tempted to spend it

You will be able to get a higher rate of interest in a bank, but it might be lower once you've paid tax on your saving interest. Also, you can only put £3000 cash into an ISA (tax-free interest) - you say you've saved 10% of your mortgage - probably more than £3000.

For what it's worth, for us, the thrill of seeing our mortgage reduce was better than increasing our saving account balance. When we made overpayments, we kept the monthly payments the same, so reducing the term of the mortgage.

Edit - how about using your £3000 tax-free ISA allowance, and putting the rest as a mortgage overpayment - best of both worlds???

HTH, Penny. x