Mortgage vs Savings

tony863

Hi all,

I've got 25yrs left on my mortgage having originally taken out a 120% Northern Rock mortgage over 35yrs. I'm living in a house valued £367k to £386k with a £272k mortgage outstanding. I think it's around 70-74% LTV.

My mortgage fixed rate of 1.74% ends in December and my plan is to move to another fixed rate. My broker suggests I'll get 1.59% as a guesstimate. My long term mortgage plan was to reduce the term by 1 year every 2 years that I mortgaged, so it would look like this:

instead of settling for 25yrs I'd go for 24yrs.
At 22yrs I'd go for 21yrs
19yrs, I'd select 18
16yrs, I'd select 15
13yrs, I'd select 12
10yrs, I'd select 9
7yrs, I'd select 6
4yrs I'd select 3 and get it paid off ASAP.

In theory this would knock off around 7 or 8 years of my mortgage. Questions are:

1. Does this sound like a good idea?
2. Should I opt to overpay instead?
3. Which would save me more money out of options 1 and 2?

Its worth noting that I currently have a LISA with Hargreaves and Lansdowne which is only in its second year. I've topped it up to the max that I can hold in there (£4k each year) but that's just been from lump sums and not because I'm flush with money and can afford to do it every month. I've got another account with Nutmeg which currently has my slush fund of £5.5k. I top this up £200 per month and use it to drop the £4k into the HL account each year. The HL account is invested into the VLS60.

The reason I mention it is to ask advice on whether I should divert the £200 per month I'm saving into overpaying the mortgage. If I did, obviously it chips away the amount owed, but it means I'm not topping up my slush fund and the LISA wouldn't get topped up either.

I feel like I've got too many options spinning round my head so I'd really appreciate a neutral view if anyone is willing to help.

Thanks in advance

xyz123

tony863 wrote: »

Hi all,

I've got 25yrs left on my mortgage having originally taken out a 120% Northern Rock mortgage over 35yrs. I'm living in a house valued £367k to £386k with a £272k mortgage outstanding. I think it's around 70-74% LTV.

My mortgage fixed rate of 1.74% ends in December and my plan is to move to another fixed rate. My broker suggests I'll get 1.59% as a guesstimate. My long term mortgage plan was to reduce the term by 1 year every 2 years that I mortgaged, so it would look like this:

instead of settling for 25yrs I'd go for 24yrs.
At 22yrs I'd go for 21yrs
19yrs, I'd select 18
16yrs, I'd select 15
13yrs, I'd select 12
10yrs, I'd select 9
7yrs, I'd select 6
4yrs I'd select 3 and get it paid off ASAP.

In theory this would knock off around 7 or 8 years of my mortgage. Questions are:

1. Does this sound like a good idea?
2. Should I opt to overpay instead?
3. Which would save me more money out of options 1 and 2?

Its worth noting that I currently have a LISA with Hargreaves and Lansdowne which is only in its second year. I've topped it up to the max that I can hold in there (£4k each year) but that's just been from lump sums and not because I'm flush with money and can afford to do it every month. I've got another account with Nutmeg which currently has my slush fund of £5.5k. I top this up £200 per month and use it to drop the £4k into the HL account each year. The HL account is invested into the VLS60.

The reason I mention it is to ask advice on whether I should divert the £200 per month I'm saving into overpaying the mortgage. If I did, obviously it chips away the amount owed, but it means I'm not topping up my slush fund and the LISA wouldn't get topped up either.

I feel like I've got too many options spinning round my head so I'd really appreciate a neutral view if anyone is willing to help.

Thanks in advance

Good that you are thinking actively to reduce mortgage debt.

Interest is accrued in mortgage and savings in daily basis. So in terms of mortgages savings its all down to how much interest rate are you paying vs how much interest rate are you getting. This is of course assuming you have set aside emergency fund at lest 6 months worth of payments /bills and any thing else you may feel comfortable with.

In terms of getting years reduced it is good to do it and your plan sounds good but also note that overpaying had the same effect, as when you come to remortgage you can make the choice of term. So keep overpaying whatever you can in parallel with reducing term as per your plan.. Good luck