Ye Olde Regular Saver vs Overpay Mortgage with a twist

TheShape

eddyinfreehold wrote: »

If you calculate the interest you will pay on your mortgage over the full term then is is utterly depressing. For us it was a no brainer to overpay the mortgage as far as we could every month. We paid a 25 year term off in 11 years by eating away at the capital as fast as possible. Over that time it reaps more benefits than investing money as long as property prices remain stable.

With interest rates as low as they are currently (OP is paying 1.5%) you're likely to make a far better return by investing the money. Plenty of current accounts and regular savers would also give a better return.

Eco_Miser

KCailey wrote: »

Yes, assume regular saver is 5% and mortgage is 1.5% for the next 15 years.

You don't need to make that assumption, just that those rates will hold for the length of the regular saver.
Then do the calculations again when the RS pays out or the mortgage rate rises.

Eco_Miser

Cardinal-Red wrote: »

Also remember that a 5% regular saver only really delivers about 2.5% interest over the sum for the whole year.

But 5% pa on what has been saved at any point in time.

Equally, overpaying the mortgage only cuts about 0.75% of the overpayment for the whole year.

katejo

KCailey wrote: »

So my regular saver is coming to an end, £250 for 12months results in £3080.

Then I got thinking.

I have £200 000/20 years left on my mortgage, current interest rate is 1.5%.
If I overpay £250pm, MSE's overpayment calculator says:Overpaying would save you £7,561 in interest alone, and mean you pay the debt off in full 4 years & 7 months earlier.

Would It be better for me to overpay the mortgage £250pm for 15 years
or
Once a year do a lump sum overpayment of £3080 for 15 years?

thank you

Check that your mortgage doesn't charge a penalty for paying more than a certain amount. Mine does but I can't remember the actual limit now without checking. I have been paying just under double the required amount for several years and that has no penalty. My interest rate in currently 0.77% Other money saved in regular savers goes to home improvements/maintenance.