Overpaying Mortgage VS Savings

MoneyEM

So question -

I have a mortgage of £128,000 and I'm currently paying 1.85%. My 2 year fix runs out on 30th June so I'm about to remortgage (hopefully to another 2 year fix at a similar or even slightly lower rate). I currently have 71% LTV in my property.

I'm trying to weigh up whether it would be better to overpay my mortgage or save. I am able to save £500 a month.

The two options are:
Overpay mortgage at £500 a month (I can repay up to 10% without penalty) so that's fine. Using the overpayments calculator:
Year 1 - £118,428 remaining (£124,480 without) + £6052
Year 2 - £108,678 remaining (£120,894 without) + £12216
2 year saving of £18268

Putting the £500 per month into a savings account at daily interest at 5%
Year 1 - £6165
Year 2 - £12646
So the end of the 2 years I would have £12646.

I'm not the best at maths so please correct me if I am wrong, but it still works out a bigger saving by repaying the mortgage even though the savings account is at 5%?

Dazed_and_confused

Have you double counted something as part of the year 2 benefit of overpaying the mortgage?

Fatbritabroad

Use the mortgage over payments calculator as part of this website .

Personally id try and get your ltv down to 65% which gets you the best rate with most companies. Then fix for as long as possible and invest. Ive just done this and fixed at 2.4% for ten years with santander

louloubelle79

Hi
Yes I would save into high interest savers 5% and pay what else can afford into overpayments.

Fatbritabroad mentioned investing- do you suggest S&S isas?

louloubelle79

Also post in mortgage free forum for more advice

jimjames

louloubelle79 wrote: »

Also post in mortgage free forum for more advice

Only problem there is the bias to paying off mortgage. There will be little or no discussion of the benefits of saving or investments instead of the mortgage.

AnotherJoe

jimjames wrote: »

Only problem there is the bias to paying off mortgage. There will be little or no discussion of the benefits of saving or investments instead of the mortgage.

Or pensions.

The well meaning folk in there are obsessed with paying off their mortgage at all costs and there is very little discussion about the merits of other ways to apportion your money. There are some high rate tax payers in particular who literally will lose many tens of thousands of pounds due their blinkered approach of paying off mortgage above all else.

will-he-payitoff

MoneyEM wrote: »

So question -


Putting the £500 per month into a savings account at daily interest at 5%
Year 1 - £6165
Year 2 - £12646
So the end of the 2 years I would have £12646.

Please tell what savings account is paying 5%

YorkshireBoy

will-he-payitoff wrote: »

Please tell what savings account is paying 5%

First Direct, HSBC, M&S, Nationwide (x 2), Santander.

trevman

i've asked this same question before which might help you https://forums.moneysavingexpert.com/discussion/5787605

surreysaver

AnotherJoe wrote: »

Or pensions.

The well meaning folk in there are obsessed with paying off their mortgage at all costs and there is very little discussion about the merits of other ways to apportion your money. There are some high rate tax payers in particular who literally will lose many tens of thousands of pounds due their blinkered approach of paying off mortgage above all else.

I agree with this. A mortgage will be the cheapest long-term loan you will ever have, and it will often be cheaper to invest or save money in accounts that pay a higher amount of interest than you will save by paying off your mortgage. As as long as you are disciplined enough to manage your money in this fashion, that may well be a better option.

If you save money in savings accounts, don't forget to factor in the fact you may end up paying tax on some of the interest.