Mortgage Overpayments

Drucifer

Hello,

My fiance and I are setting aside money each month to overpay the mortgage, currently £100.00 a month.

The idea is to save the £100.00 a month up until our first mortgage term is over (August 2022), then remortgage with the money saved as another "deposit" to reduce the term of the mortgage.

We're currently saving it in premium bonds, just so that it's set aside from the rest of our money and there's the, albeit minuscule, chance of winning the million.

There's a lingering feeling in the back of my mind that saving the overpayments in premium bonds isn't the best idea, as of course it earns no interest and the chances of winning anything are slim.

I've considered investing it, (I'm already investing separately for retirement), but with less than 5 years I'm not 100% sure on this idea either, as it could drop a lot in value when I need it & I'm not sure what level of risk is advised for a 5 year time frame with money I will need.

Or should I just phone up the lender and overpay the mortgage each time there's enough money to cover another payment?

Is there a best choice here or is it down to personal preference?

I appreciate any input.

AlexTheLion

Have you not considered saving your extras in cash accounts? 3-5% interest accounts available from various providers with instant access if required. Or at least filling up the larger paying ones before heading towards the PB. I like the idea of the 'in it to win it' with premium bonds, but would be disappointed with no returns at all that could have been in a cash account.

Drucifer

AlexTheLion wrote: »

Have you not considered saving your extras in cash accounts? 3-5% interest accounts available from various providers with instant access if required. Or at least filling up the larger paying ones before heading towards the PB. I like the idea of the 'in it to win it' with premium bonds, but would be disappointed with no returns at all that could have been in a cash account.

Thank you for your input.

I did briefly consider saving it in a cash account, I've already got many accounts each with a specific purpose and to my knowledge, though could be wrong, I'd need a particular amount of Direct Debits to pay out or a certain amount to pay in to qualify for interest, just too much juggling around for my liking and extra things to track, and I prefer my Direct Debits to be at an absolute minimum.

So not my first choice, but can be done if this is the best option.

kezzygirl

Drucifer wrote: »

Thank you for your input.

I did briefly consider saving it in a cash account, I've already got many accounts each with a specific purpose and to my knowledge, though could be wrong, I'd need a particular amount of Direct Debits to pay out or a certain amount to pay in to qualify for interest, just too much juggling around for my liking and extra things to track, and I prefer my Direct Debits to be at an absolute minimum.

So not my first choice, but can be done if this is the best option.

Nationwide flexdirect have 5% interest and you only have to pay in £1000 per month- no direct debits. You font have to keep the 1k in there, I just do it by standing order and transfer it straight back out

bertpalmer

Personally I would invest it. My thoughts are that you could easily make 10% a year on it. Minimum. But that’s just my attitude to risk - assuming 3 year minimum period.

Premium bonds wouldn’t be on my radar as an option.

atush

If you have emergency cash, cosider a s&s isa as well

What are your pensions like?

LHW99

What is the current mortgage interest rate? If that is more than about 3%, and you are able to overpay without penalty, then overpaying as you have funds could be a good option, as you would then be reducing the interest you pay overall and will build up equity in the current property to rollover.

Drucifer

Our mortgage rate is 2.80%, I'm a basic rate taxpayer on a relatively "low" Income, I've a pension that my employer contributes to (4%) and I salary sacrifice 3% for my own contributions, at the rate that I'm contributing to my Vanguard ISA my pension is looking like the supplement to my retirement.

We've been buying PB's thus far and we've won nothing, pretty much 5 months so far without any growth, so I've been thinking about investing, anyone got any suggestions for the timescale? (August 2022)

As mentioned I do have a Vanguard ISA so I'd prefer to invest within there.

kidmugsy

About four-and-a-half years? Then regular savers yielding 5% p.a. are your best bet.

justme111

depends on the mortgage terms. you can phone tgem and ask if you can increase your payments by £200 a month and avoid faff and temptation to use that miney cor other purposes - that is if you are allowed to . If not - regular saving accounts as suggested.

ValiantSon

Drucifer wrote: »

Hello,

My fiance and I are setting aside money each month to overpay the mortgage, currently £100.00 a month.

The idea is to save the £100.00 a month up until our first mortgage term is over (August 2022), then remortgage with the money saved as another "deposit" to reduce the term of the mortgage.

We're currently saving it in premium bonds, just so that it's set aside from the rest of our money and there's the, albeit minuscule, chance of winning the million.

There's a lingering feeling in the back of my mind that saving the overpayments in premium bonds isn't the best idea, as of course it earns no interest and the chances of winning anything are slim.

You have that lingering feeling because premium bonds are an almost completely pointless product for the vast majority of people in this country. You earn no interest and, as you have said, have only an infinitesimally small chance of winning £1 million. The chances of you winning enough to break even compared to a normal easy access savings account are also stacked against you.

Premium bonds are rubbish.

Drucifer wrote: »

I've considered investing it, (I'm already investing separately for retirement), but with less than 5 years I'm not 100% sure on this idea either, as it could drop a lot in value when I need it & I'm not sure what level of risk is advised for a 5 year time frame with money I will need.

Five years is too short to be looking at an investment. There is a very high chance that your investments will have lost significant value over such a short timeframe.

Drucifer wrote: »

Or should I just phone up the lender and overpay the mortgage each time there's enough money to cover another payment?

This would save you more in interest than just paying a chunk off at the end of your fix. Double-check how much you are allowed to overpay each year (often it is no more than 10% of the outstanding value).