Wait until remortgage or over pay now

dendes

Hi,

I was hoping for a bit of advice please.

I've had my mortgage for just over a year now. I paid the 10% maximum off in January '14, so it's coming closer to the time where I can pay the same chunk off in January '15. BUT we're going to remortgage in July '15 anyway, as our 2 year fixed rate deal is up (Santander 1.98%)

So my question is, would it be better off to pay the 10% maximum chunk off in January again, or just save it and wait until we remortgage and just borrow less?

Mortgage is 105k over 25 years.

Thanks in advance.

pete-20-11

Overpay in January, unless you can find a savings account with a higher rate than your mortgage (don't forget any tax implications on the savings too).

Thrugelmir

Overpay in January.

See what is on offer closer to next July.

dendes

Thanks for your responses, both. I've got the maximum in the Santander 123 account @ 3% but obviously paying tax on it. So not sure which is best?

Thrugelmir

As long as the Santander account pays more after tax (2.4% if you are basic rate taxpayer) then keep it there.

stator

You don't say how much savings you have. I wouldn't pay against your mortgage unless you have a decent amount in savings. Enough to live on for 6 months - 12 months or replace your car etc, you neverk now what's going to happen and if you overpay the mortgage you can't get that money back.

dendes

I have just over 20k in savings. But also have another revenue stream if I did get cut from work.

So it's best to keep it in the Santander account as it's paying 2.4% after tax and my mortgage is 1.98%?

steeeb

dendes wrote: »

I have just over 20k in savings. But also have another revenue stream if I did get cut from work.

So it's best to keep it in the Santander account as it's paying 2.4% after tax and my mortgage is 1.98%?

Correct.

And then revisit the situation when you come to remortgage (Ie. paying off may change LTV and enable better rate, may not). Is the 3% (2.4%) on amounts up to 20k? If so, any extra money find another bank account offering a better rate than your mortgage, if not start overpaying the mortgage.

dendes

steeeb wrote: »

Correct.

And then revisit the situation when you come to remortgage (Ie. paying off may change LTV and enable better rate, may not). Is the 3% (2.4%) on amounts up to 20k? If so, any extra money find another bank account offering a better rate than your mortgage, if not start overpaying the mortgage.

Yes it's up to 20k. Do many savings accounts pay more than 2% now a days?

JimmyTheWig

dendes wrote: »

So my question is, would it be better off to pay the 10% maximum chunk off in January again, or just save it and wait until we remortgage and just borrow less?

No reason to wait until you remortgage. If it is worth paying a chunk off it is worth doing so now.

But...

dendes wrote: »

I have just over 20k in savings. But also have another revenue stream if I did get cut from work.

So it's best to keep it in the Santander account as it's paying 2.4% after tax and my mortgage is 1.98%?

As has been said, it's silly to overpay a 1.98% mortgage when you can earn 2.4% after tax on your savings. If you compare the APR of the loan and the AER of the savings (after tax), it's just a case of seeing which is the bigger number to see where the money is better off from an interest point of view.

Santander don't pay interest on any money over £20,000 so you may as well use that to make an overpayment now (unless you want to find another account for it to earn interest in).

JimmyTheWig

The other thing that you may want to consider is reducing your mortgage term. This will increase your monthly payments.
You should think carefully about this before doing it as you will then be committed to those higher payments for the rest of the mortgage - which could be a problem if rates go up or your income goes down, etc.

The benefit of reducing your term over making overpayments is that you get 1% cashback on Santander mortgage payments from a Santander 123 account. So might be worth paying more this way rather than overpayments that you don't get cashback for.