Mortage overpayments vs Savings

rjmachin

I am currently paying off a credit card which is on 0% interest until 1 May 2020. After reading on the MSE forum, I am now paying the minimum payment each month and putting the remaining monthly amount that would be needed to finish payments by April in to a savings account with Tesco earning 1.46% interest, which will then be withdraw to pay off the remaining balance next April (2020)

The CC is currently at £4,922.77, with the minimum payment being between £110 and £115 (depending on days in the month). I am saving £550 per month in to the 1.46% Tesco account.

My mortgage is currently at £80,396, with monthly payments of £475 (interest is 3.04% until 31 Oct 2023).

My plan was from next May, to start paying this £550 in to the mortgage as overpayments to get the mortgage paid off and be mortgage free a lot sooner (currently 19 years left), with the payments gradually reducing to keep under the 10% overpayment allowance.

Apart from the savings for the credit card, I have no savings.

Should I build up some savings first? Is it worth considering some regular savers accounts (First Direct being one) for after the CC is paid off? Any other suggestions?

Thrugelmir

Worth having emergency savings to call on. Little point in overpaying the mortgage to borrow money on credit cards/overdrafts to fund short term issues.

With £550 available you could split the money between savings and the mortgage.

atush

over 3% mtg interest is on the cusp of consideration of overpaying eh mtg on general.

But yes as above, you need emergency savings. Of at least 1K min but 3-6 months outgoings is better.

But do not neglect pensions. if you are overpaying mtg over pensions- not a good idea.

enthusiasticsaver

Yes you need emergency savings. £1000 is the usual amount if you are in debt but as you are saving anyway to repay the credit card you could draw on those in an emergency. You can get better rates with regular savers although you may have a few hoops to jump through.

So after the credit card is gone I would save up an emergency fund then targe5 the mortgage.

rjmachin

Thank you everyone.

I currently have two pensions, one being the auto enrollment one which currently has around £200 per month with both my contribution and my employers contributions. I also have my old company pension, which I still contribute to as well as the newer auto enrollment pension, which has £150 before tax relief and £182.50 after tax relief, plus my employer is paying £30 into that one as well.

In total, this is about 15-20% of my monthly salary after taxes.

As advised, I will change to save up my savings once the credit card is sorted.

Thanks
Robert

justjohn

We are in the same situation with the same bank.


I don't see any point in saving in Tesco if you are paying more interest on your mortgage. We have started paying the allowed 10% each year of our mortgage.(your actually loosing X% per annum by not paying of you mortgage with savings)

surreysaver

Don't forget interest earnt from savings is potentially taxable, whereas interest saved paying off the mortgage isn't

Wildsound

We save/invest the difference in what we could afford to overpay instead of paying into the mortgage. Reason being, it gives us a lot more flexibility as once the money goes into the mortgage, it's not coming back out necessarily, and if we could take it back, it would come with hassle. We already have an emergency fund, but this flexibility falls nice in terms of our short/medium term goals. If they materialise, we use the money for that and keep paying the normal premium. If they don't, then we have the option to do a lump sum overpayment in the future (and will have hopefully made more interest/growth than the mortgage interest rate).

girlfriday09

In your situation, I'd feel very worried if I didn't have at least 3 months of reserved savings in case of emergency, ideally 6 months. If you lost your job, or got very ill and couldn't work, or needed emergency work doing on your house, how would you cope? I had a neighbour who became homeless after his job unexpectedly collapsed and he had no savings behind him.



I'd prioritise an untouchable reserve of emergency savings, then focus on whether you want to build up further savings or overpay the mortgage, or a bit of both.