savings vs credit cards vs mortgage

MrsOs

Hi everyone, just after a bit of advice.


We recently did up our house and I put some stuff on 0% credit cards so have a bit of debt there which I could pay off with my savings easily. Although I quite like having my savings at the level they are at but I am also now wondering if I should really be trying to overpay on my mortgage which I could clear in about 5 years if I use the money I was going to be paying off the Credit cards with ..


Does any of that make sense.


If I overpaid on the mortage I could be mortgage free in 5 years and save about 37,000 in interest. The interest on my mortgage is currently more than any of my savings accounts so I figure this makes sense. What do people think? When i'm mortgage free I will then be able to top up my savings account back up to where it is now..


not sure what to do.. but I think I know what makes more sense? I've just got used to having my savings at a certain level and I quite like it there (got a bit addicted I have to admit).. but in the long term I really want to be mortgage free and surely saving 37k in interest is gotta be the way to go.

[Deleted User]

As long as you have sufficient back up funds, and ignoring any other priorities such as pensions, keeping savings earning a lower rate than you're paying on the mortgage would certainly appear to be a small indicator of financial madness.

But have a look at the wider picture.

MrsOs

Deleted_User wrote: »

As long as you have sufficient back up funds, and ignoring any other priorities such as pensions, keeping savings earning a lower rate than you're paying on the mortgage would certainly appear to be a small indicator of financial madness.

But have a look at the wider picture.

Yes, I think I am a bit bonkers :-)

etienneg

There are several factors to consider here. Comparing mortgage and savings rates is one of these, but not the only one. For example, whilst you have savings you have flexibility, particularly if your circumstances should change unexpectedly (redundancy, ill health, etc.). If you use your savings to pay off some or all of your mortgage, you can't get at that money again (at least not easily - you would need to remortgage). Of course, your mortgage repayments will fall, and so over time you will have more uncommitted income. You need to balance all the pros and cons of different scenarios.

What would concern me is the credit card debt. It's not a problem at the moment as it's 0% interest, but you will need to pay it back at some point. Whilst you have savings to cover this, you have this as an easy option. If the savings go towards paying off the mortgage, how could you pay off the CC if this was necessary in the short term? Maybe you are thinking you will do a balance transfer to another 0% CC before the 0% term on the first runs out. That's fine if you can get another at that point, but what if they aren't on offer then, or you are refused (perhaps because it looks as if you are taking on too much debt, as the new CC company wouldn't know you just want to move existing debt but not increase it)? Paying CC interest will cost a lot more than you would be saving on the mortgage.

Only you know all your circumstances (e.g. if there is a MrOs with regular income this obviously affects the broader picture). What I'm really saying is you should consider all possibilities for the future, including the ones you hope will not happen. See how you would be able to respond, particularly to the bad ones (i.e. don't assume your current good fortune will necessarily continue). Then look at how a change now (such as using savings to pay down mortgage) would impact your options then.

Looking at the broad picture, if you are able to plan a realistic path out of the CC debt whatever happens, and have a fund for emergencies, then by all means pay off some (or all) of the mortgage. But don't give up the flexibility that savings provide without thinking it through first.

MrsOs

etienneg wrote: »

There are several factors to consider here. Comparing mortgage and savings rates is one of these, but not the only one. For example, whilst you have savings you have flexibility, particularly if your circumstances should change unexpectedly (redundancy, ill health, etc.). If you use your savings to pay off some or all of your mortgage, you can't get at that money again (at least not easily - you would need to remortgage). Of course, your mortgage repayments will fall, and so over time you will have more uncommitted income. You need to balance all the pros and cons of different scenarios.

What would concern me is the credit card debt. It's not a problem at the moment as it's 0% interest, but you will need to pay it back at some point. Whilst you have savings to cover this, you have this as an easy option. If the savings go towards paying off the mortgage, how could you pay off the CC if this was necessary in the short term? Maybe you are thinking you will do a balance transfer to another 0% CC before the 0% term on the first runs out. That's fine if you can get another at that point, but what if they aren't on offer then, or you are refused (perhaps because it looks as if you are taking on too much debt, as the new CC company wouldn't know you just want to move existing debt but not increase it)? Paying CC interest will cost a lot more than you would be saving on the mortgage.

Only you know all your circumstances (e.g. if there is a MrOs with regular income this obviously affects the broader picture). What I'm really saying is you should consider all possibilities for the future, including the ones you hope will not happen. See how you would be able to respond, particularly to the bad ones (i.e. don't assume your current good fortune will necessarily continue). Then look at how a change now (such as using savings to pay down mortgage) would impact your options then.

Looking at the broad picture, if you are able to plan a realistic path out of the CC debt whatever happens, and have a fund for emergencies, then by all means pay off some (or all) of the mortgage. But don't give up the flexibility that savings provide without thinking it through first.

The plan was to pay off the credit card debt with my savings, I'd still have 70k in savings left. then I would use what I usually save per month to overpay on the mortgage every month. I can always get these overpayments back if necessary and I can stop the overpayments at any stage if necessary. We have just completely renovated our house so I don't see any big bills (god willing) in the foreseeable future. Paying off the mortgage means I can then secure the financial future of my young son, as my mother has done for me.