Overpayment vs Savings?

Jasheman

In the lucky enough position to be able to do some significant overpaying of my mortgage, which is great

My new mortgage rate though, is 1.8% and my savings rate (athough capped) is 3% .... even with the new tax free savings scheme going live this year, is continuing to service the mortgage debt the best idea?

In my head it is, but would welcome any thought? (Mortgage is currently circa 70K)

Thrugelmir

Which scheme are you referring too.

Pocketsaver

Personally I feel with introduction of the no tax paid on the first £1,000 of interest and the higher interest rates available on some current and savings accounts it makes more sense to not overpay the mortgage until a time you think the mortgage rate will increase. I have an idea on how you feel though. I initially overpaid my mortgage by £110 every month, but I've stopped that now and am putting money into accounts that will beat the rate of interest on the mortgage.
Having said all of that... How long do you have left on the mortgage? If you are near the end of your mortgage or have a relatively low number of years left it may be tempting to overpay just to realise that mortgage-free dream especially as you can make significant overpayments. I know it would strongly influence me if I were to be in that position.

Jasheman

Thrugelmir wrote: »

Which scheme are you referring too.

The interest free savings

ViolaLass

Jasheman wrote: »

The interest free savings

I think you mean tax-free interest.

Jasheman

ViolaLass wrote: »

I think you mean tax-free interest.

Oops yes ha ha, forums are so small on the phone I didn't see what I'd typed

Jasheman

Pocketsaver wrote: »

Personally I feel with introduction of the no tax paid on the first £1,000 of interest and the higher interest rates available on some current and savings accounts it makes more sense to not overpay the mortgage until a time you think the mortgage rate will increase. I have an idea on how you feel though. I initially overpaid my mortgage by £110 every month, but I've stopped that now and am putting money into accounts that will beat the rate of interest on the mortgage.
Having said all of that... How long do you have left on the mortgage? If you are near the end of your mortgage or have a relatively low number of years left it may be tempting to overpay just to realise that mortgage-free dream especially as you can make significant overpayments. I know it would strongly influence me if I were to be in that position.

It's a tricky one eh

It has til around 2030 to run but I'm aiming to knock it off in they six or seven years

To me it's still tempting to get rid of it, the tax free savings will only apply to my first £500 and it feels like it's a good time to make hay while the sun shines given the rock bottom rates

Thrugelmir

Interest free savings already exist through ISA's. Paying no tax is not a guarantee that rates will be better. Particularly as banks are awash with cash at the moment.

ThePants999

Personally I see no reason to overpay on a mortgage while you can earn more interest than you're paying. Saving the money instead (a) gives you more money overall and (b) gives you more flexibility, as if you have a sudden need for funds, they're already at your disposal, instead of having to arrange to re-borrow them.

There are always exceptions, but you haven't provided any information that would indicate one.

Jasheman

ThePants999 wrote: »

Personally I see no reason to overpay on a mortgage while you can earn more interest than you're paying. Saving the money instead (a) gives you more money overall and (b) gives you more flexibility, as if you have a sudden need for funds, they're already at your disposal, instead of having to arrange to re-borrow them.

There are always exceptions, but you haven't provided any information that would indicate one.

And that's what i did prior to changing mortgage as my old rate was 3.99%, but i tend to agree with you now, it's probably best using the 'space' in my Santander 123 account to earn more interest rather than make the overpayment .... if rates suddenly rocket up or gets higher at the end of my two year deal then the money is there to take a chunk out of it

dano17439

ThePants999 wrote: »

Personally I see no reason to overpay on a mortgage while you can earn more interest than you're paying. Saving the money instead (a) gives you more money overall and (b) gives you more flexibility, as if you have a sudden need for funds, they're already at your disposal, instead of having to arrange to re-borrow them.

There are always exceptions, but you haven't provided any information that would indicate one.

A big thing for me in overpaying a mortgage is that is heavily reduces the temptation to have a splurge on non essential items as the money is just not sitting in your bank account

However with the new tax on interest rules coming in April, I am sorely tempted to start saving my overpayments at 3%+ rather than reducing the mortgage quicker