Help to Save NOW OPEN: when it's worth it, and when it isn't!

supermonkey

This is an interesting thread.

What I'm not sure on is whether to save the max £50 a month, or just overpay on the mortgage instead.

Using the MSE overpayment calculator, it shows that by overpaying £50 a month:
-Save £3611 in interest
-Pay off the debt 7 years earlier
-Total Mortgage payment until paid off £38,696

If I use the Help to Save, then after the 2 years, deposit the full £1800 (eg the monthly payments plus the £600 bonus:
-Save £1324 in interest
-Pay off the debt 1 & a half years earlier
-Total Mortgage payment until paid off £40,983

That obviously makes overpaying the mortgage look more attractive, but there are a few things making me wonder:
-The saving by overpaying is spread over many years, whereas with the help to save, the bonus is after 2 years
-My mortgage provider don't reduce mortgage term unless over payment is over £500, so with a £50 monthly over payment they will keep the term & reduce my monthly payments.

bowlhead99

supermonkey wrote: »

This is an interesting thread.

What I'm not sure on is whether to save the max £50 a month, or just overpay on the mortgage instead.

Using the MSE overpayment calculator, it shows that by overpaying £50 a month:
-Save £3611 in interest
-Pay off the debt 7 years earlier
-Total Mortgage payment until paid off £38,696

If I use the Help to Save, then after the 2 years, deposit the full £1800 (eg the monthly payments plus the £600 bonus:
-Save £1324 in interest
-Pay off the debt 1 & a half years earlier
-Total Mortgage payment until paid off £40,983

That obviously makes overpaying the mortgage look more attractive,

No it doesn't, because you're not comparing like with like.

With the help to save, you are telling us that after two years of £50pm your £1200 of savings is boosted by a magic bonus of £600 so you can throw that into your mortgage and reduce what you owe on the house by £1800. That's an amazing return, you give them £1200 and magically you have cut down your mortgage by £1800.

With the extra mortgage repayments after two years at £50 you will have paid off only £1200. You will have also saved the mortgage interest on the £1200 that you would have needed to pay if you hadn't paid it off early. The mortgage interest over the two year period on that £1200 of cleared debt is not going to be very much, because half of the £1200 isn't even paid off until the second year so saves less than a year's worth of interest. So the interest saving during that first two years is in going to be less than £100 in total (depending on your interest rate, quite likely to be less than £50 in total).

So the real comparison is, do you want to be able to knock your mortgage down by £1800 in a couple of years time using the maturing Help to Save? Or do you want to chip away at the mortgage and pay off only £1200 and avoid £100 of mortgage interest. The second route is only knocking £1300 of your mortgage at the most over the next two years, while the first route was offering to knock £1800 off your mortgage.

Your comparison from the 'calculator' was bogus because in one example you were paying £50 extra a month off your mortgage *forever* while in the other example you were paying £1800 once and then never making any more overpayments.

If you look at the numbers from the calculator you can see they don't make sense for a comparison. You are looking at whether to put away £50pm on your mortgage which will be £1200 paid off over two years and some interest saved as a result. The interest over the first two years can't possibly be £3611, as you've only given them £1200, and two years of interest on £1200 is not going to be £3600, it's under £100.

The £3611 comes from making those overpayments on and on for many years into the future. If you did the help to save and put the £1800 into the mortgage two years from now there is nothing to stop you still making overpayments on and on into the future. The bottom line is that getting a huge boost from the government to allow you to pay off £1800 in two years time is much better than not getting the boost and paying off £1200 over the course of the two years (even though the latter would save a *bit* of interest).

chiefnoodle

I haven't worked through all your numbers - see previous post for that - but I absolutely don't believe paying off your mortgage early could come anywhere close to Help to Save

supermonkey

Hi both,

I just realised my mistake (overpayment for mortgage duration rather than just 2 years) and came back to update my post! I was being rather silly.

Thanks for your replies - seeing the explanation of reducing morgage by £1200 or reducing by £1800 in 2 years time makes a lot of sense.

I think I've got it now:
No Overpayments made means mortgage will cost: 42,307
With £50 overpayment for 2 years, then standard payment after: 41,877
With £1800 from help to save overpaid after 2 years: 40,976

Thanks

OurTraceyLove

Help to Save v Council Tax Reduction
I earn so little that I get council tax reduction - I am on Working and Child Tax Credit and will be until my 12 year old is 16 (4 years) - it's a very fine line for council tax to refuse my claim IE: I earned £5pw too much last year for them to decline my discount of £30pm - I don't claim Housing Benefit however, I can see no reference to Council Tax reduction anywhere which is very very means tested as they really really do not want to give it - If I do do Help to Save will my Council Tax reduction be declined?