Overpay mortgage or not??? Please help

affordmylife

I wonder if you good people out there could give me some advise.

We currently have a fixed rate mortgage until 2011 of approx £100,000.

Very shortly (due to paying off all our overdrafts and store cards etc) we will be in a position to have either a new car and more holidays and generally a much better standard of living or continue with our frugal (ish lifestyle) and overpay the mortgage.

I am keen to perhaps do a combination of both. We have about £500 per month to use?

What I am wondering is it worth paying off this extra chunk each month or should we just save it in an ISA or something.

We intend to sell up and downsize and be mortgage free when our mortgage comes up for renewal in 2011.

So really the question is should we bother or just enjoy the money now?

I would really appreciate some advise. Many thanks for taking the time to read this.

Lazy_Runner

My first question is would you be able to overpay? Many lenders have terms and conditions that limit the amount you can overpay, especially during fixed interest periods.

If I had this money, my current approach would be 10% to charity, 20% to savings that I can never touch and the remainder to do with what I want. In this case, I would overpay.

Just me though.

Received wisdom suggest that very few savings will have a higher interest rate than a mortgage. Some investment products may promise a higher return, but obviously that is not guaranteed. So most people do overpay.

HTH

affordmylife

Thanks for that. We do already do charity so that is covered. Also regularly saving £100. per month currently within budget so this £500 is what is in question.

I will find out if we can overpay. I have a feeling its a once a year thing so I could save it until date payment could be made and then pay off a lumpsum in one go.

What if we downsize in 2011 and are mortgage free anyway should I bother.

Leighthal

Hi,what is the rate at which your deal is fixed?

affordmylife

Leighthal thanks for the question we took it out in 2004 at 5.2

Jonbvn

It really depends on the rate of your mortgages and any early redemption charges on your fixed rate.

As an example, say your mortgage was fixed at 5%. You can currently beat this rate with some ISA's at around 6%. However, they allow you to only invest £3000 per year (£250 per month). The rest you could put into a regular saver at say 7% before tax (5.6% after 20% tax). Therefore, in this case it would be better to save!

affordmylife

Yes Jonbvn thats what I was thinking. I could be wasting my time. As we intend to downsize in 2011 when we remortgage I think well save and maybe have another trip to Florida instead.

JoeK_3

Go for lifestyle, as you only live once.

JoeK

affordmylife

Cheers for that JoeK thats what my husband said he'd rather go for more fun and worry bout mortgage later lol