Overpay or save

fitterastra

Hi,

Me and my girlfriend are 21 and have just remortgaged, we have around 100k left to pay over 23 years and are fixed for the next 2. We have the option to pay £500 extra each month.

My question is what to do with the spare cash we have left each month around £300, is it best to keep ploughing it off the mortgage each month. Will this make the most of our finances or save it into an account.

Any ideas

Kind Regards

dunstonh

look at the savings rate, look at the mortgage rate. If the savings rate is higher, then save, if not pay off mortgage.

Remember to leave yourself an emergency fund of around 6 months income before you start paying off the mortgage as it can be hard to get the money back if you need it.

Tim_L

I agree very much with the previous poster, providing you can actually earn more on savings than you pay on your mortgage, which possibly is not that easy these days.

However if you can't, bear in mind that overpaying mortgages does lock your cash away where it's difficult to get at. On the other hand, it will save a lot of money over the term, particularly now when you have a low initial rate and a lot of time for the interest on the loan to compound.

You need to be sure you can get out of the overpayments instantly if you need to - for example if you start a family and need more cash. If you can do this, then personally in your situation I'd chuck everything I could afford at the mortgage early on. Ideally you do need an emergency float, but you could get around having this by shrewd use of 0% deals

The alternative is to save hard at roughly equivalent rates to your mortgage rate (a couple of cash ISAs would be ideal given the amounts), then consider reducing your mortgage using this cash when you remortgage. The advantage to this is that you have an emergency fund in the interim.

mountainofdebt

If you have enough savings to cover any emergency (experts reckon you should have savings to equivalent of 6 months salary) and you have no other debts attracting interest at a higher rate then I would look at your interest rate that you are paying on your mortgage.

If you can get a higher rate of interest by saving the money and then paying it towards your mortgage in a lump sum then I would do that. Otherwise I would pay it off your mortgage