Should I Overpay a Lump Sum or Leave in Savings?

dlewis1966

Help. I have bee reading Martin's advice in Should You Overpay Article but am a bit confused. We have recently moved and taken on a new 2.19% mortgage fixed until September 2016. We currently owe just over £ 103,000, payable in 19 1/2 years. We have just had an old endowment payout of £14,800 and have been told by the Coventry we can pay £10,400 without incurring a penalty. They have also said we can continue to pay the same amount every month, therefore overpaying on a monthly basis by £40 (after the lump sum overpayment). Which I am unsure this is correct as the £10k is equal to the annual overpayment limit of 10%.

We were thinking of my husband opening a 123 account which would pay him 2.4% interest after tax. By Martin's calculations it would seem sensible to put the £14,000 endowment payout in this account as we are only paying 2.19% on the mortgage currently. However would it not make better sense to make the lump sum overpayment on the mortgage, therefore lowering the mortgage payments to £500 per month but keeping the direct debit at the same amount and therefore overpaying by £40 per month In addition to the lump sum.

At the moment we can comfortably afford mortgage payments but would want to guard against huge mortgage payments when the interest rates inevitably rise. We are both pretty much debt free and have a decent amount of savings to fall back on should we need them.

Please help resolve my confusion!

ViolaLass

Makes more sense to put it in Santander as the rate is higher.

edinburgher

You could also open current accounts that pay considerably higher than 2.4%. TSB and Lloyds offer such accounts (5% and 4%, respectively, although they pay interest on lower total amounts and may require some Direct Debit shifting).

dlewis1966

I thought about opening a higher interest paying current account before opening my 123 account as I have more than £10,000 in Savings. I will have to have another think about whether or not I can manage with direct debit switching money between accounts. I know my hubby would never get around to organising that and it is his account we are paying the endowment proceeds into.