While rates are low... do you overpay or save? 5 November 2020 at 10:44AM in Mortgage-free wannabe 6 replies 271 views

miss_undastood

So we owe a lot of money on the house. My thoughts are that while rates are low we should really hammer the mortgage to reduce our financial liabilities and we can’t get any decent return on our savings anyway. 

We currently have about 60k in savings. I propose to keep about 50k and continue to overpay the mortgage (we can manage about 10k a year)

Husband says there’s no point paying off the mortgage as the debt “decreases” over time due to inflation and so as a % of take home pay it should go down in time. 

Our blended interest rate is about 1.55% which isn’t a high rate, but we are still paying about £12 a day in interest. I think that hammering the mortgage now would reduce our liabilities in the future. 

I’m probably asking in the wrong place as ultimately you’d all agree that clearing the mortgage is better and will give us financial freedom sooner. 

But while mortgage rates are low what am I best to do - overpay or build up savings? Ultimately if savings = mortgage then I’m mortgage neutral anyway and it’s just making sure the interest is in my favour!

jammerr

I overpay, I just want it paid off so I can put my mortgage payments into savings. Though I can only overpay off 10% as in the middle of a fix so anything else gets rolled over. 
I think it comes to do a psyhycological thing - though if you have that much in savings it probably is worth contiuning to save in your instance, that could result in some decent compound interest (though not sure how much you have left on your mortgage)

DayDreamerandGeneralWaster

It's in the sig, it's a pretty hefty mortgage but we don't know what your income is. It depends if you think your income is secure as well. I would keep an emergency fund then overpay. It's always worth it as the interest will keep reducing as the capital does.

caeler

I overpay.  I have an emergency fund in place but everything else goes on the mortgage.  I have one savings account paying 0.15% and one paying 0.03% so there is no contest! 

miss_undastood

Joint income is 70k so not huge. But both have reasonably secure jobs. 

Interesting we have fixed mortgages but we can make capital reductions of 10% without penalty AND make overpayments monthly up to 3x the normal payment. 

I had them tell me this 3 times before I increased the DD this month slightly to test this out. We have already maxed out our Capital Reduction allowance and now I’m overpaying a bit a month on top - total game changer!!

But I wondered if I was doing the right thing. 

We took out 120k extra borrowing late last year to buy 2 BTL’s but only took one on with the current climate. So we still have half the money accessible - and the rate we got was pretty low too. 

If you take that 120k off we only owe about 180k which isn’t quite as scary  
we net out at owing 240k at the mo - plus an IO BTL

Mrs_Binxtoria

Interesting we have fixed mortgages but we can make capital reductions of 10% without penalty AND make overpayments monthly up to 3x the normal payment. 

Could I ask if you are with Barclays for your mortgage?  

I am also on a fixed rate but can only overpay by 5% but also 3x normal payments by debit card.  I also had to phone up a number of times to make sure that this was correct and got a different answer each time.  The first person I spoke to said that I could make as many payments as I like via debit card, the second person said it went towards my allowance and the third person told me it was all down to a computer glitch and that they could withdraw this at anytime and potentially be stung for exceeding my annual allowance.

It worried me at first that I might have to pay a penalty but I have changed my strategy for overpaying this (next) year.  This year I am aiming to pay £5000 (minimum) but will be paying £2500 straight to the mortgage once my premium bonds have cleared into bank account and will then drip feed the other £2500 (plus any extra) into investments.  I am aiming to do this as a minimum until my fix ends in 2025 when I will be able to remortgage and reduce the term of the mortgage.  My ultimate goal is to be either mortgage neutral or pay off the mortgage in 7 years.

Grogged

Your mortgage seems to be a core part of your overall financial strategy, funding your BTLs.
If you're still comfortable with your strategy, then you should view over payments in that light.
If you repay the money, will you be able to borrow it again for BTL2, either at all or as cheap?
If you're strategy has changed, then review it in that light.
ATB, G.