overpay on mortgage instead of saving?

fenwick458

I have £5000 in lloyds, £4000 in TSB, £2,400 in FD reg saver, and £14,500 in santander 123.
as per my other thread from a few weeks ago I'm looking into HSBC 6% regular saver and santander 5% regular savers to maximise the interest i'm getting and we worked out that drip feeding from the santander into those 2 regular savers is worth it , but I just had a thought...
I took out a mortgage last August and it says I can repay 10% each year without penalty. total mortgage amount was £52,125 when i took it out, and it's almost bang on 50k now (not sure which figure the 10% will be taken from? )The rate on the mortgage is fixed at 2.25% for 2 years

how do I work out which is the better deal? I know the mortgage interest is less than the savings interest, but the mortgage amount is almost 3.5 time the amount. I would just like to weight things up really, having the money in a current account or a reg saver for a year means i's readily available If i wanted a lump sum of money for something. but in the back of my mind I want rid of that mortgage!

Startup1985

I guess it's depends on your mentality really. If having a mortgage looming over you in the back of your mind bothers you then pay it off quicker, although I personally would prefer my money to be making extra money when the mortgage interest rate is so low

Startup1985

Or thinking about it why not go 50/50 ? Then you ease your mortgage worried and still save a bit

atush

Why are you only saving in cash? Why not pensions and S&S isas?

Dird

atush wrote: »

Why are you only saving in cash? Why not pensions and S&S isas?

He's got £25k not £250k. Pension presumably covered with work

@OP don't overpay. There's no reason to as you are saving well so you can have the peace of mind that if you needed to pay a lump sum suddenly you can, but in the mean time take advantage of the higher interest rate.

You could lump sum that £25k then the next day your car could get totalled, then because you don't have the flexibility of cash you're paying 2.25% on a lower amount but have some car on 4% finance or whatever rate they charge because you used up your savings

jimjames

Dird wrote: »

He's got £25k not £250k. Pension presumably covered with work

Why do you need £250k to start using a S&S ISA?

Dan83

It's easy, do you spend £5000 to save 2.25%, or do you keep £5000 and make 3%, 4% or what ever % you are saving at.

Bear in mind, nothing stays the same for ever, so when your mortgage interest rate change in 2 years or your saving interest rates change, you may have to to think about it again.

For me it's a no brainer, but I can also see why people want to pay the mortgage off.

Dird

jimjames wrote: »

Why do you need £250k to start using a S&S ISA?

Personally I wouldn't invest any of the £25k as a lump sum but instead keep it as an emergency fund making guaranteed returns; he could always start drip feeding new savings from now though, probably should have been more specific OP never mentioned how much extra he has spare each month though

Personally I'm waiting until I hit £40k cash then will lump sum invest £10k (who knows where) in December then see it drop 20% in January no doubt :mad: my £1210 from last December is currently up by a whole £7 though so positive thoughts :money:

atush

He's got £25k not £250k. Pension presumably covered with work

That is a big presumption.

With that much cash, sure keep it that was as an emergency slush fund.

But ongoing, equities in some form should be considered.

So no, dont overpay at todays rates. But you need cash, property and equities.

Dird

atush wrote: »

That is a big presumption.

You now have to opt out of your pension scheme every year. Even my mom couldn't be bothered to do it

cloud_dog

fenwick458 wrote: »

how do I work out which is the better deal? I know the mortgage interest is less than the savings interest, but the mortgage amount is almost 3.5 time the amount.

Weighing up the factual pro or con of the situation is fairly simple. As you mention, your current savings IR is far more than the mortgage IR; so you are financially better off retaining / continuing with your savings (cash) approach. The size of the mortgage in these calculations is not strictly relevant; the relevance is to the cash amount and the IR that receives.

fenwick458 wrote: »

I would just like to weight things up really, having the money in a current account or a reg saver for a year means i's readily available If i wanted a lump sum of money for something. but in the back of my mind I want rid of that mortgage!

Soooo, leave the RS and cash etc until they complete and then if you cannot find a home for the resulting cash with a higher IR than your mortgage you can use it to pay it down.

Remember that when your 2yr deal coms to an end you are likely (don't know all the details) to be able to repay whatever capital (lump sum) you want to.