Confused!

MonkeyLady

I hope someone out there can help me. We're currently ttc so I'm looking at our budget and seeing where we can reduce costs in preparation for the future when I'm not earning as much. We're currently saving a little over £800 a month and I'm wondering if we'd be better off putting £500 of that to overpay the mortgage each month? Another factor I'm considering is that our fixed rate ends in February and as interest rates are now that bit higher having less to remortgage would be a good thing - wouldn't it?

ThankYouAndEnjoy!

what are your savings/mortgage APR??

MonkeyLady

Thanks for replying!

Mortgage is currently 4.84%, ISA is 5.55% and savings account is 5.05%.

An alternative I'd thought of was to pay into my ISA until I hit the limit, which should be August/September then start feeding the mortgage. Or considering the interest rates should I not bother with the mortgage at all?! Something else I'd considered is just chucking it all into ISA and savings then in February paying off a chunk of the mortgage then - the only problem with that is once I see all that lovely money in my account am I really going to be able to hand it over?! :rolleyes: Can you tell I really am confused?! :rotfl:

Kaz2904

I would think that you could beat 4.84% interest rate with savings even if you are paying tax. For example there is the A&L premier direct account paying 12% on savings for £250 per month for 1 year and many other accounts.
To beat your interest rate then you need an account which pays 6.05% gross. Many current accounts near this amount already. HTH, Kaz.

ThankYouAndEnjoy!

Hello

Definately Max out your ISA, its TAX Free and is 0.71% more profitable to you!!

As Kaz2904 said, try and get yourself a savings account that pays more than 6.05% Gross, as this will also be more profitable to you.

Are there any restrictions/penalties in making o/payments on your mortgage. You may need to factor this in when looking to use the savings to make o/payments.

MonkeyLady

There aren't any penalties as long as I don't pay over £500 a month. I think I'll stick with that plan. Cheers!

Lotta_Littlies

Icici HiSave savings account pays 6.05% AER so that's an option for you.
Here's the link: http://www.icicibank.co.uk

Lotta

jamesd

With your low mortgage rate you're definitely better off saving in the tax free ISA. Save whenever your after tax savings interest rate is greater than the mortgage rate. You can also find better savings deals than those you're currently using so it's worth a look at the savings best buy tables. Icesave's 6.05% rate isn't good enough for a basic rate tax payer since that's only 4.84% after tax, no higher than the mortgage rate. For higher rate, it's lower and you lose money by using it instead of overpaying.

If either of you isn't working remember that you have your own individual tax allowances so saving in the name of the one not making more than the personal allowance can let you get tax free interest on savings. That would make the Icesave account a good deal.

When remortgaging the key question is whether your deposit plus equity puts you below one of the thresholds, like 75%, 80%, 85%, 90% or 95%. It's definitely worth finding out whether you can get a lower interest rate on the mortgage by using more of the savings to get below a threshold. It may not be possible, but checking is good.

For the long term you need to decide between investing and saving/overpaying. Investing is likely to deliver returns greater than saving or overpaying over the long term, if you can accept the down times as well as the up ones.

MonkeyLady

Thanks James & Lotta that's really helpful. I'm too cautious (or scared if you like!) to look into investing plus we will need our savings to pay the bills when (if) our family expands.

Our mortgage is about 38% of the value of our property.