Overpayment vs Saving

MoneyDummy

I wonder if anyone can help. My husband & I have just moved and now have a much larger mortage than before. We would like to overpay but can not make up our minds whether to do it monthly or save up and make a lump sum. Our mortgage is approx. 1.8% for 2yrs (variable after that, approx. 4.3%) and we have a 123 a/c which earns 3% (before basic rate tax). Do we keep our overpayments in the 123 a/c and earn more interest or do we make monthly overpayments? I have tried to work out the difference using mortgage calculators but because we only have this rate for 2yrs it is difficult to work it out. Which would mean we pay less interest in the long run? Any advice?

greatone

Hi MoneyDummy,

Firstly I would consider keeping some money in cash anyway, just in case you have a family emergency or the worst happens.

The rate on your 123 account (after tax) is more than your mortgage rate. so not really much of decision to make as long as you are disciplined with funds. Keep it in 123 a/c.

dimbo61

Yes build up Emergency funds of 3/6 months of Income and 9/12 months if self employed.
If you can get into the habit of overpaying every month it will all help
Even £25/50/100 a month now will make a HUGE difference over 20/25 years.

MoneyDummy

Thanks guys,

We already have a little put aside for emergencies which is why we were considering to start overpaying.

We think for now, while rates are low, we will keep our money in our 123 a/c and earn a bit more on it and then pay it off in a lump sum or when the rates start rising then pay it off.

Froggitt

While the mortgage interest rate is less than 1-2-3, save in 1-2-3. When it is higher, save in a linked offset account.