High inflation - overpay mortgage

JasonlehJasonleh Forumite
1 Post
MoneySaving Newbie
I currently have savings from the past 18 months during Lockdown just sat in a low interest account. I have an emergency pot and money invested - currently not showing amazing returns. 

With all the news predicting a raise in inflation, is it worth over paying my mortgage? I have 3 years left, fixed at 1.7% with my logic being to increase the LtV before I have to remortgage at what will probably be a much higher interest rate?

Replies

  • WindofchangeWindofchange Forumite
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    Nobody knows what is going to happen to rates, and so remortgaging at a much higher rate is no more guaranteed than rates staying low. Pay your money, take your guess....

    Not sure anyone can really tell you what to do. A better LTV might save you a bit of money a month, but it isn't likely to be grands a year. Would the money you could potentially invest somewhere make a better return? I've seen 18% on my ISA over the last 18 months which is way ahead of inflation even as it is now. Property has of course seen similar returns, so again, is ahead of inflation. If it were me, it would depend entirely on what amount we are talking. You can presumably only overpay your mortgage by a certain percentage, so you are going to be limited by that unless you want to incur a fine. I'd be inclined to stick it all into shares in all honesty unless you've maxed your ISA allowance already? The other thought is what is your pension pot like? If poor, that could probably use a top up. 

    Really, who knows what's going to happen - most people were calling for a full on property market meltdown 18 months ago and where are we now!? 
  • edited 14 October at 9:22AM
    TrickyDicky101TrickyDicky101 Forumite
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    edited 14 October at 9:22AM
    Just a general comment but if your expectation is for inflation to rise then you should invest in assets (that will rise in price as a result) and not pay down debts (that will shrink in inflation-adjusted terms)...
  • ThrugelmirThrugelmir Forumite
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    Once you've an adequate emergency pot. Then chipping away the mortgage debt has a number of benefits. As the long term future is full of uncertainies. Life can throw curved balls when you least expect them. 
    It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." — George Soros
  • edited 14 October at 1:05PM
    steampoweredsteampowered Forumite
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    edited 14 October at 1:05PM
    Overpaying your mortgage once you get down to a healthy LTV is not the best use of funds, in my honest opinion.

    Topping up your pension or investing in a stocks & shares ISA is a far more productive use of money which you want to put to work over the long term.

    What LTV are you on currently? If you are already below 70%, the advantage of reducing your LTV further is minimal. 

    As TrickyDicky pointed out, inflation would shrink the value of your mortgage and shrink your LTV, so if you are expecting inflation you should really be investing rather than paying down, and certainly not leaving cash in a savings account beyond an emergency pot. 
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