Mortgage vs Save

torla

Hello, I have a flexible tracker interest only mortgage currently at 1.74% (99% above base rate. Outstanding balance currently around £77500 and I pay £1000 a month (interest paying around £120 currently). I also have spare saving from 123 Santander account at 1.5% and only cover about £2.50 of the fee with the cash back. Would I be better shifting the saving account to the mortgage account or better shift it elsewhere, like in my private pension which isn't much at the moment.


Many thanks in advance.

Zero_Sum

How much do you have in the 123 account? As once you factor in the extra £4 fee that you pay over the lite version, the interest you get net of fees can be pretty rubbish if you dont have near the £20k in.

pinknsparkly

if considering simply mortgage vs savings (title of your thread) then you are right in thinking that you would be financially better off each month if you used your savings to overpay your mortgage. HOWEVER, it is always recommended to have an emergency fund of savings available so it wouldn't be a good idea to throw all your savings at the mortgage in case you have an emergency!!

Coming onto your pension.... Whilst it will be lovely having a fully paid off house, and no mortgage payments to pay in retirement, you will still have other costs to pay for! It sounds as if your current pension will not be sufficient to cover your costs in retirement which I would be more concerned about than being mortgage free.

My suggestion would be the following:
- work out how much of your savings to keep as emergency savings and move them somewhere with a better interest rate than you're currently getting. Put the rest into your retirement savings.
- change your mortgage payments back down to the minimum (£120/month)
- save the remaining £880 that you are currently overpaying on your mortgage into retirement savings instead
- at retirement, you can consider down sizing to pay off the mortgage, use your pension lump sum to reduce it or simply continue paying £120/month. Keep in mind that inflation will make the £120 monthly payment less and less significant as time passes.

If you are uncomfortable with not making any over payments on your mortgage then work out what monthly payment you need to make to get you mortgage free by the time you retire and make that payment only, putting the remainder in your retirement savings.

getmore4less

Find better savings accounts there are some paying 5% on regular savers.

torla

I have considered that but I find it too much to open these savers accounts for perhaps no more than a total saving of between£1500 and £3000 in total. Thank you.

torla

Thank you for your reply. I do feel more comfortable with the latter but it also makes sense what you say in your first option. I'll be retiring in 10 years in February. What I haven't mentioned is that I have other savings. £10k in post office account easy access at 1.4%. Also an ISA (£65k). In the mortgage account there is £26k credit (which I can get access without penalties).

System

Whilst it will be lovely having a fully paid off house, and no mortgage payments to pay in retirement, you will still have other costs to pay for! It sounds as if your current pension will not be sufficient to cover your costs in retirement which I would be more concerned about than being mortgage free.

I'd be concerned with being mortgage free on the day of retirement depending on when the current mortgage is due to end if it is before the statutory retirement age of the OP. Very few lenders any more will give mortgage periods which extend into retirement.