Overpay mortgage or save elsewhere

hufc2002

Hi all

Hoping to move to bigger house so trying to save for a 10% deposit (max £20k).

Currently owe circa £80k on mortgage with house probably worth £85-90k. Mortgage is on variable rate of 2.49% and have been over paying £220 per month for the last 3.5 years. Mortgage payment without overpayment is £449. Rather than overpay (to build up equity) would I be better off saving this in i.e. Club Lloyds Monthly saver (4%) (we have 2 of these accounts)?

Currently have £11k saved.

Any advice would be welcome.

justme111

Math is simple. 4%is better than 2.49%

YorkshireBoy

Well 4 is bigger than 2.49, so there's your answer!

As a couple you can get £13.5K making 5% AER in current accounts (Nationwide & TSB), so unless you've both already had a year with Nationwide FlexDirect that's where your £11K should be to get the best return.

As you know, you can also get another £15K making 4% at Lloyds.

So a total of £28.5K at 4-5% AER against a mortgage rate of around half that. Even more if you use regular savers.

Stop overpaying/start saving! Can you get back what you've already overpaid? If so, maybe consider that too.

FrankRizzo

YorkshireBoy wrote: »

As a couple you can get £13.5K making 5% AER in current accounts (Nationwide & TSB), so unless you've both already had a year with Nationwide FlexDirect that's where your £11K should be to get the best return.

How much can each person save in how many accounts for Nationwide & TSB?

Eco_Miser

£2.5k/£2k per account. one sole, one joint each, making three per couple, per bank.

hufc2002

Of the £11k, £10k of this is split between 2 Club Lloyds accounts (£5k per account) and the remainder in Club Lloyds Monthly Savers (again we have 2 of these).


I think I will cancel the monthly overpayment and put the £220 in the Club Lloyds Monthly Saver instead.

justme111

Ps. Curious - your ltv are high but mortgage rate is low. You sure you given us right numbers?

elwappo

Hang on. A Club Lloyds Monthly Saver will give you around £80 interest for the year saving the maximum of £4800 based on a monthly compound interest.

I think I'd rather be paying off the mortgage balance (and the interest saved), compared to the measly interest gained on £4800? Am I missing something?

YorkshireBoy

elwappo wrote: »

Hang on. A Club Lloyds Monthly Saver will give you around £80 interest for the year saving the maximum of £4800 based on a monthly compound interest.

The interest is £104.

And it doesn't compound monthly. How can it?...it's paid annually.

I think I'd rather be paying off the mortgage balance (and the interest saved), compared to the measly interest gained on £4800? Am I missing something?

Each day the money in the regular saver earns 4% / 365, but costs you only 2.49% / 365 on the mortgage.

So you borrow at 2.49% APR and save it at 4% AER. Even if there's BR tax due (there may not be), you're still up!

Even better if OP was to save it at 5% as I said earlier, rather than settling for 4%.

FrankRizzo

Remember that the more u pay into mortgage the better likely hood of getting a better mortgage rate when the time comes. So long term saved by mortgage vs savings acc would prob be better.

bowlhead99

FrankRizzo wrote: »

Remember that the more u pay into mortgage the better likely hood of getting a better mortgage rate when the time comes. So long term saved by mortgage vs savings acc would prob be better.

Well, "when the time comes" and your mortgage deal expires or you're getting a new deal on a new bigger house and mortgage, if you have a big pile of cash saved( including all that nice interest), you can easily choose to pay off more of the mortgage and access that lower mortgage rate that comes with a lower loan-to-value ratio.

If instead you wanted/needed the cash in your hand you would have to go to a lender and politely ask then to loan it you back.

You have a greater flexibility of choice if you save the cash instead of overpay.

If your overpaying now would let you access a better loan rate on your whole mortgage now, then that's probably worth doing!