Saving for lump sum
My wife was working and my savings meant we just paid the bills as usual with no issue other than me seeing all my savings dwindle.
I now have a job and I want to save as much as possible to get the mortgage paid off as that is by far the most expensive monthly outgoing.
I’ve never liked spending money for some reason so I can save very easily.
I know I’m being ambitious as we have £222k left on the mortgage, but as it roughly goes down £6k a year in 2027 give or take should be £192k left, which is exactly what we need to save between us in 5 years (most likely 6 years tbh).
Now the question, what are the cons of saving for a lump sum? I can’t think of any
thanks
Comments

Saving and paying off the mortgage in one lump sum means that you won't be saving the mortgage interest on that amount. Whilst you might earn a pittance in interest in a savings account it is unlikely to equal the interest on your mortgage so essentially waiting to make 1 lump sum will cost you more in interest.
If you are worried about having a safety net should circumstances change in the next 5 years why not ensure you have a good emergency fund of 6 months expenses to tide you over. Once this is saved I personally be sending over payments to my mortgage as often as possible in order to reduce the interest paid (up to any over payment limit). If there are early repayment charges or penalties of any sort it is worth factoring that in also. Most mortgage companies allow you to make 10% over payments per year without penalty so I would be aiming for this and looking to avoid any early repayment charges.
It's all about choice and personal preference though.
 Original mortgage end date: March 2041
 Current mortgage end date: Dec 2032 (aiming for October 2025)
 MFW 2024 #15 £446.24/ £2500 /// MFW 2023 #15 £8,617.84/ £10,000 /// 2022 #15 £7,315.24/ £7250 /// MFW 2021 #15 £8,530.07/ £8500
 Daily interest is currently £4.44
1 
Our mortgage (when it comes through) will tie us to 10% penaltyfree overpayment, with a penalty on the rest, for two years, so our cunning plan is to overpay those 10% for the two years, and as soon as the fixed term period ends, throw any surplus at it. It will mean we should be able to build up at least a bit of an emergency fund, and when the time comes, we might decide to hold some back. I totally get needing the knowledge that there will be funds for emergencies  good luckDeclutter challenge: List 312 things in 2022: 45/312
Mortgagefree Wannabe: Remortgage at start: £131,423 (27th Jan 2022)
OP since remortgage: £15001 
Moneyminded said:Saving and paying off the mortgage in one lump sum means that you won't be saving the mortgage interest on that amount. Whilst you might earn a pittance in interest in a savings account it is unlikely to equal the interest on your mortgage so essentially waiting to make 1 lump sum will cost you more in interest.
If you are worried about having a safety net should circumstances change in the next 5 years why not ensure you have a good emergency fund of 6 months expenses to tide you over. Once this is saved I personally be sending over payments to my mortgage as often as possible in order to reduce the interest paid (up to any over payment limit). If there are early repayment charges or penalties of any sort it is worth factoring that in also. Most mortgage companies allow you to make 10% over payments per year without penalty so I would be aiming for this and looking to avoid any early repayment charges.
It's all about choice and personal preference though.For instance if I can save enough to pay off in 5 years, then I’d have enough to lump sum pay and paid mortgage 20 years earlier, which would mean a huge saving on interest as well
The problem with overpayment in my mind is the 10%, it’s fine at the moment as I have over £200k left, but when my mortgage gets down to £100k I could only overpay £10k and that decreases each year and drags on.1 
From frequenting this forum, I've come to learn there's no "right" way to pay off your mortgage, it's whatever works for you and your unique circumstances.
There is, however, a mathematically optimal way to pay off your mortgage if you have plenty of excess income to save and it's not to save a lump sum. Say you have a mortgage rate of 2% and receive savings interest of 0.5%. Making overpayments is clearly better for your bank balance as 2% is bigger than 0.5%. How much better depends on the mortgage and savings interest rates that you are talking about and can easily be calculated using some of the free tools on this website.
While the amount that you can repay with a 10% annual penalty free overpayment allowance will reduce each time you pay off 10%, there's nothing to stop you saving at the same time in the highest interest rate savings accounts that you can find. Keep paying the 10% chunks off and one day your savings balance will exceed the mortgage balance. At that point you're best to let your current mortgage rate run its course and then repay once you move onto the bank's variable rate.
You might want to consider your pension provision as part of these sums too  having low outgoings is great, but you'll need an income in retirement too
1 
danoid said:The problem with overpayment in my mind is the 10%, it’s fine at the moment as I have over £200k left, but when my mortgage gets down to £100k I could only overpay £10k and that decreases each year and drags on.
OR, if you're worried you won't be able to OP as much as you'd like, you could always check out what the fees would be if you exceeded your OP allowance  I paid the ERC's on mine, as my mortgage was relatively small and the 10% was too restrictive for me. I didn't enjoy paying the fees, but at £10/£20/£30 per £1000 (depending on how long was left of the fix) it was worth it to save on the 20 years of interest I should have paidMortgage start: £65,495 (March 2016)
Cleared 🧚♀️🧚♀️🧚♀️!!! In 5 years, 1 month and 29 days
Total amount repaid: £72,307.03. £1.10 repaid for every £1.00 borrowed
Finally earning interest instead of paying it!!!0 
Just given this advice elsewhere!
My bank does a fixed term with unlimited overpayment. It’s a tad more interest but not stupid. I’d see if that’s an option and do the maths to work out if it’s cheaper to pay the charges. You can do a mix as well, OP your max and then save to be mortgage neutral.I second the advice about looking at your pension provisionMFW 2021 #76 £5,145
MFW 2022 #27 £5,300
MFW 2023 #27 £2,000
MFW 2024 #27 £1,350 /£3,6001 
danoid said:Moneyminded said:Saving and paying off the mortgage in one lump sum means that you won't be saving the mortgage interest on that amount. Whilst you might earn a pittance in interest in a savings account it is unlikely to equal the interest on your mortgage so essentially waiting to make 1 lump sum will cost you more in interest.
If you are worried about having a safety net should circumstances change in the next 5 years why not ensure you have a good emergency fund of 6 months expenses to tide you over. Once this is saved I personally be sending over payments to my mortgage as often as possible in order to reduce the interest paid (up to any over payment limit). If there are early repayment charges or penalties of any sort it is worth factoring that in also. Most mortgage companies allow you to make 10% over payments per year without penalty so I would be aiming for this and looking to avoid any early repayment charges.
It's all about choice and personal preference though.For instance if I can save enough to pay off in 5 years, then I’d have enough to lump sum pay and paid mortgage 20 years earlier, which would mean a huge saving on interest as well
The problem with overpayment in my mind is the 10%, it’s fine at the moment as I have over £200k left, but when my mortgage gets down to £100k I could only overpay £10k and that decreases each year and drags on.
In terms of overpayments some people (like me) invest the money rather than overpaying and then end up with a pot of money that they could clear the mortgage with if they wanted. Investments should grow faster than the mortgage rate so long term should be better but it's not guaranteed and some people prefer to know/see that the mortgage is decreasing.Remember the saying: if it looks too good to be true it almost certainly is.1
Categories
 All Categories
 343.7K Banking & Borrowing
 250.2K Reduce Debt & Boost Income
 450K Spending & Discounts
 235.9K Work, Benefits & Business
 608.9K Mortgages, Homes & Bills
 173.3K Life & Family
 248.4K Travel & Transport
 1.5M Hobbies & Leisure
 15.9K Discuss & Feedback
 15.1K Coronavirus Support Boards