Overpaying vs saving

MrsSippi

I hope I've posted this on the right board....

I have a very very general query (ie I know there probably are lots of different factors to consider but I just wondered if I can get a very generalised response)


We currently have a new mortgage deal which is fixed for 5 years (I am currently a stay at home mum and will be for the next 4 or so years until youngest starts school so this is the best option for us while finances are tight).

When I return to work we are hoping to remortgage in order to do a loft conversion (we will save whatever we can in the meantime but obviously it will be a tiny portion of what we need so remortgaging is our only option). Again this is dependent on what the mortgage company says at the time but I wondered if it is better for us to save what we can separately and then put it towards the work when the time comes or put it all on the mortgage now as overpayments as that might help us more when it comes to remortgaging. Any thoughts would be hugely appreciated

swindiff

Really depends on what the interest rate is on your mortgage. For me it is a no brainer, my mortgage interest rate is 2% and I can get between 4% and 5% on savings. So my money is going into high interest current accounts rather than paying off my mortgage.

hildosaver

As the poster above has stated it can depend on your interest rate however you should also think about how if you do overpay the mortgage and bring down your LTV then you could get a better deal when you do re-mortgage which could save you thousands over the course of the mortgage term so it's not as simple as all that.

swindiff

If you were to re-mortgage you would have the cash you had saved which you could use to reduce the LTV, plus a bit more if the interest rate on your savings was greater than that of your mortgage.

fewcloudy

My thoughts.


If saving the money, you will have access to it, therefore need to be sure you are the sort of person who is strong willed enough to leave it well alone, whatever you would like or need. (I'm not).


If overpaying, the money is gone and should be considered as such, even if they do say you can borrow it back. Some have found that is not straightforward.


If overpaying, you will have the satisfaction of watching your mortgage balance reducing.


Mathematically, if your interest rate is lower than possible savings rate, then you should save.


fc

MortgageMamma

Very much dependent upon your savings level now. Do you have enough spare cash to pay for a broken or written off car? is your partner covered for accident, sickness ad redundancy through work or would you rely on your savings if partner could not work? have you got any big financial commitments coming up? Before you consider overpaying your mortgage I always think its a good idea to have 4-6 months normal expenditure saved up and ensure you have adequate income protection in place