A better way to use £400/mnth other than overpaying 2.59% mortgage?

It_Aches

I've recently remortgaged to a 3 year fixed deal at 2.59%.

I'm going to try to clear the mortgage at the end of the fix.

Its approx an £80k challenge and I'm wondering if there is a better way of going about things than my current plan.

My plan is simple - overpay approx £430 a month (in the 1st year). I am allowed 10% overpayments of the capital owed at the start of a calenday year without charge. During the 3 years I should receive bonuses/shares that I can also use to overpay the mortgage to the 10% level and then save any surplus for a final repayment at the end of the fix.

Is there a more efficient way to go about things and/or to use the £430/mnth to achieve my goal?

3 years seems too short a period to confidently invest the overpayments and planned lump sums.

I pay 40% tax and so I also seem to be struggling to find a mainstream way to get a better effective interest rate on savings than the net position of the 2.59% overpayments.

Any thoughts on this? any one been a similar position?

Would appreciate any input. Thanks.

YorkshireBoy

As you'll have realised, you need a gross return of around 4.4%, so that limits you to a pair of TSB Plus accounts and a Nationwide FlexDirect. But these will take care of only £6.5K of your savings, and generate only a very small 'profit' so you may feel they're not worth the effort/hassle?


Are there two of you? If so, then that may open up other options, especially if the other's tax situation is better.

mike88

Overpaying on your mortgage is a no brainer for a 40% tax payer and given the duration of the fix. I would forget about other options.

It_Aches

Thanks YB

You're right there are 2 of us - she works in childcare and currently earns well within her personal allowance.

Obviously now its been pointed out to me I can see how that might open some other courses of action if she saves in her name...!

Any specific areas for me to investigate do you think?

I have time as my first 'new' payment wont be made until 7th May so I have a couple of weeks to decide if there's a more attractive option than just overpaying the mortgage.

Thanks again.

It_Aches

understood mike88 - but having a currently non tax paying wife might just make it a little more interesting.

YorkshireBoy

It_Aches wrote: »

Any specific areas for me to investigate do you think?

Aside from those mentioned above...

Lloyds Club (and monthly saver) 4%

...in her name

You could also go joint on some of the current accounts.

It seems like, with only £4-500 a month to play with, you have lots of options to beat 2.9%.

The only issue could be your wife's low income, preventing her being accepted for some of the accounts as they might feel they couldn't cross-sell her much?

Archi_Bald

mike88 wrote: »

Overpaying on your mortgage is a no brainer for a 40% tax payer and given the duration of the fix. I would forget about other options.

An alternative could be upping pension contributions. Or a mixture of both.

It_Aches

Thanks both

Is there a calculator I could use to determine how much I'd be better off by monthly saving in one account compared to another?

My O level maths is starting to be stretched.

fiendishlyclever

We started over paying our mortgage (a base rate tracker - 20 yr term) and fixed then upped our payments as rates fell. We might not have saved a huge amount of money over putting out money in savings while we accrued enough to pay off, but the feeling of paying your mortgage off half way through the term is worth more than the few extra pounds I could have made.

I would overpay any day (I'm a 40% tax payer like you btw)

It_Aches

Thanks for that - and I agree entirely - before this question, one of the things I was most looking forward to was watching my 18 years term and debt (ie what's officially left) hopefully dwindle away over just the next 36 months - not sure I could beat that for inspiration...and if that costs me a few hundred pounds in missed interest over the next 3 years then it might be a price worth paying.

thanks for dropping by.