Worth overpaying?

Ojb

Hi all
I remortgaged a few months ago as I was looking to buy another property. However I have changed my mind due to stamp duty etc and wondered if I should over pay.
My current mortgage is 150k at 2.69% .
I am allowed 10% penalty free. 4% fee after that for the whole 5 year term.
I have 80k in my bank.
Should I just pay the 10% a year or take the hit and pay more?
I ask as the best ISA is 1.45% which is lower than my mortgage interest.
Thanks for any help

AnotherJoe

I would overpay but not beyond the penalty limit.

Ojb

Ok thanks what would you do with the other 65k?

Thrugelmir

If you are a basic rate taxpayer. Then shopping around should earn you 2% on a 1 year fix. After tax that's 1.6%. Which is better than an ISA.

ISA's cost money to adminster. Not the be all and end all in the savings market.

Jaykay369

Yeah I agree with Thrugelmir - worth overpaying the 10% each year, and then put the remaining money into a 1 year fixed savings account for better a interest rate.
You could keep doing this every year with over paying 10% and put the remaining savings into a 1 year fixed account (best interest rates 2%). Or you could put say £30k into a 1 year fixed account at 2% and the remaining £35k into a 2 or 3 year fixed account to maximise interest on that proportion of your savings.
The best interest rate for a 2 year fixed account is 2.28%, and the best 3 year fixed accounts are paying 2.4% - MSE Best Savings Accounts guide. Obviously got to be happy with locking away all that money for the whole length of the fix without having access to it.

Ojb

So definitely not worth paying the penalty of 4% to overpay and then save 2.69 % on future interest payments?

pjcox2005

I'd probablys say to go wider than the suggestions above. Overpaying is great, but fairly pointless for example if you don't have adequate pensions in place as you'll get a much greater return there from tax savings and potentially employer contributions. This is an even bigger point if you're closer to retirement age.


I'd also look at more than just ISA/savings account and consider investments as long term that is likely to be more profitable than overpaying a mortgage (thereby actually allowing you to pay off a mortgage earlier which some people don't get). I appreciate though that comes with risk so you need to assess that.


Finally, I think it would be a very rare set of circumstances when triggering the 4% penalty would be in your interests.

Ojb

Thanks I was just wondering if a 4% one off fee would be outweighed by the 2.69% interest only which I'm paying every month for nearly 5 years.

AnotherJoe

Ojb wrote: »

Ok thanks what would you do with the other 65k?

My assumption, possibly wrong ,was that you could pay down 10% a year so that would take a fair chunk of the rest over the subsequent 4 years.

I'd also look at pension.

Socajam

I overpaid between 50 and 150 pounds per month and that helped me to get my mortgage down in no time.
I have now been mortgage free since 2004 and it's the best thing I have ever done.
I also changed my mortgage from endowment to repayment, but kept the endowment going. I was lucky that I only came up about 4,000 short from the endowment shortfall.

lvm

In your position, unless you're in London, I'd revisit buying another property. The returns *should* far outweigh overpaying your mortgage or sticking the funds in a savings account.