Is it always worth overpaying mortgage?

kittykat7210

So a bit of background, we have a 3 bedroom property that we will be looking to sell in about 6 years. We have 2 daughters (currently 3 and 13 weeks) so will need a bigger property before they are teenagers. We aim to be completely mortgage free in our forever home by 50. We currently have £1000/month spare income but only £2000 savings (we’ve just purchased a car) so we were thinking of overpaying £400/month and putting the rest in savings. Our mortgage was taken out 20 months ago with 5 years fixed rate (1.84%) £130,000 over the course of 35 years (as recommended by our mortgage advisor) we are 24 so have plenty of years left, my husband is becoming a teacher and I hope to become a midwife. Whilst I’m training we will have the same income due to student finance so that’s not a worry. Would we be better overpaying the mortgage or saving it up as additional deposit? We will move when we’re 30 hopefully into our forever home (we should in theory have a £100,000 deposit, depending on what the housing market is doing, and be earning nearly double what we currently do) we are naturally frugal people so don’t normally have trouble saving. Would we be doing the right thing? 

badmemory

Your fixed rate is going to run out before you are ready to move so getting your LTV down to get a better rate before you need to re-fix would probably be a good idea.  So maybe overpay enough for that but no more.  Savings would mean that you would have the cash to do any improvements to your new house immediately or pay more to have a smaller mortgage.  It is more questions than answers really.  Can you get as much interest on your savings as you are paying in interest on your mortgage?  Have you got enough emergency savings first?  I personally believe in six months but many on here think 3 months expenses is plenty.

kittykat7210

badmemory said:

Your fixed rate is going to run out before you are ready to move so getting your LTV down to get a better rate before you need to re-fix would probably be a good idea.  So maybe overpay enough for that but no more.  Savings would mean that you would have the cash to do any improvements to your new house immediately or pay more to have a smaller mortgage.  It is more questions than answers really.  Can you get as much interest on your savings as you are paying in interest on your mortgage?  Have you got enough emergency savings first?  I personally believe in six months but many on here think 3 months expenses is plenty.

Thank you for your reply! The next step down for LTV would be 60%, we should be at about 55-60% LTV when we need to remortgage in 3 years under our current plan so that’s fine, we would also have around £20,000 in savings by that point, our savings interest is only Like 0.01% or something so not great, obviously things go wrong sometimes so we might not be able to save quite that much alongside the mortgage overpayment. Currently we have £2000 in savings which is just over 2 months expenses for us would you recommend not overpaying anything until we have 6 months worth then? Our house was £174999 when we bought it but god knows what’s happening at the moment! We would be looking at spending around £250,000 on the next one, obviously that’s in todays house prices so that may change! It’s very confusing! 

regularsaver

Hi there @kittykat7210 , I think as has been said before, having an emergency fund between 3-6 months at least is a great idea as it gives some comfort to know should anything happen, job loss, big repair etc or whatever, you have a decent amount of money to fall back on, or to last you whilst new jobs are found. 

For me, I have combined building up my emergency fund, alongside making mortgage OP and saving. It is and has been a tricky balancing act for sure but it can be done. I personally would suggest building up savings and EF for you based on the fact you have mentioned you only have £2k saved, and £1k spare a month. If you are saying a months worth of expenses is about £1k, then spend the next 4 months saving it into your EF, to have 6 months expenses in total, then perhaps look to split the £1k spare then across normal savings and mortgage OP's?