Save £500pm or overpay Mortgage?

boomboomboom

Hi, do I overpay my mortgage to reduce the term to 10 years from 14 remaining. Or do I save the money somewhere else?

1. I am on a fixed rate mortgage (1.64%). 4 years remaining. 14 years/term total 'left to go' so to speak. I like the idea of paying my mortgage off in 10 years. Our current mortgage we are locked into (with a big 5 figure charge if we leave early and we can overpay by 10% each year, which £500pm is easily under currently).
2. I could overpay by £500pm, but a) don't want to 100% commit the money into the mortgage 'just in case', and b) wondered if the simple maths of putting the £500pm  somewhere that earns more than the interest I pay on my mortgage would make sense.
3. At the very worst I could put the money in a savings account earning zero interest and if after the remaining 4 years interest rates are higher, I could deduct what I will have saved (£24k) off the mortgage total and continue the cycle again saving £500pm.
4. I have researched investing in Corporate Bonds or Goverment Bonds as a lower risk place to put the £500pm as part of my ISA.

I prefer point (4) than point (3) and technically I could 'afford' to lose the money, but obviously that's not attractive.

I have a pension and other stocks and shares in my ISA that I don't want to withdraw of course (nor can I do re pension).

I also read the MSE article on ten year fixed mortgages too!

Thank you

P1Fanatic

Depending on your Mortgage terms & provider you may not have to commit the money each money month. I'm with HSBC and I can overpay as much or as little as I like every month so its very flexible. I just cant exceed the 10% annual overpayment allowance (at least not without incurring charges).

I don't know anything about bonds but as you need the excess money in 4yrs time you need a no risk option. Work out how much interest you will save over the 4yrs and whatever investment / savings you are thinking of using needs to better that. Also think worst case if in 4yrs time when you want to remortgage and rates are a lot higher, have that lower mortgage balance and better LTV will help mitigate that.

Bravepants

There is talk of the BoE rate going up another 0.5% in August (but who knows?). It may be that instant access savers become available with higher rates than your fixed rate mortgage. In which case it could make sense to pay your £500 a month into a savings account, and then in four years time pay a big chunk off the mortgage with those savings.

I would probably hold fire for a month and see what happens.

You could always pay £250 a month off the mortgage and save the other £250 if you don't want to commit more to the mortgage.

Some people advocate investing for the long term rather than paying off the mortgage since mortgage rates are so low. But who knows what rates will be in four years. My partner and I are mortgage free, having paid it off when Mark Carney was still in charge of the BoE. It's a great feeling and psychological boost to have absolutely no debt. But at the same time we haven't scrimped on long term investments.

Brie

Bravepants said:

There is talk of the BoE rate going up another 0.5% in August (but who knows?). It may be that instant access savers become available with higher rates than your fixed rate mortgage. In which case it could make sense to pay your £500 a month into a savings account, and then in four years time pay a big chunk off the mortgage with those savings.

I would probably hold fire for a month and see what happens.

Some people advocate investing for the long term rather than paying off the mortgage since mortgage rates are so low. But who knows what rates will be in four years. My partner and I are mortgage free, having paid it off when Mark Carney was still in charge of the BoE. It's a great feeling and psychological boost to have absolutely no debt. But at the same time we haven't scrimped on long term investments.

1 - Agree as long as this wouldn't exceed any limits that would cause fees to be charged.
2 - Agree too that being mortgage free is great.

Bridlington1

I would agree with the above comments and save £500/mth. If I were you I would probably save into regular savers. A lot of these offer more than 1.64% now anyway and are often variable so should continue to rise with future base rate rises.

Bravepants

Brie said:

Bravepants said:

There is talk of the BoE rate going up another 0.5% in August (but who knows?). It may be that instant access savers become available with higher rates than your fixed rate mortgage. In which case it could make sense to pay your £500 a month into a savings account, and then in four years time pay a big chunk off the mortgage with those savings.

I would probably hold fire for a month and see what happens.

Some people advocate investing for the long term rather than paying off the mortgage since mortgage rates are so low. But who knows what rates will be in four years. My partner and I are mortgage free, having paid it off when Mark Carney was still in charge of the BoE. It's a great feeling and psychological boost to have absolutely no debt. But at the same time we haven't scrimped on long term investments.

1 - Agree as long as this wouldn't exceed any limits that would cause fees to be charged.
2 - Agree too that being mortgage free is great.

I think that once the 4 years is up, then the OP would be looking for a new mortgage deal, and that could be with any provider. Once the current deal has expired one is free to ask for whatever they need to borrow and use savings as a new deposit.

Linton

(3) does not make sense tpo me - boomboomboom said:

Hi, do I overpay my mortgage to reduce the term to 10 years from 14 remaining. Or do I save the money somewhere else?

1. I am on a fixed rate mortgage (1.64%). 4 years remaining. 14 years/term total 'left to go' so to speak. I like the idea of paying my mortgage off in 10 years. Our current mortgage we are locked into (with a big 5 figure charge if we leave early and we can overpay by 10% each year, which £500pm is easily under currently).
2. I could overpay by £500pm, but a) don't want to 100% commit the money into the mortgage 'just in case', and b) wondered if the simple maths of putting the £500pm  somewhere that earns more than the interest I pay on my mortgage would make sense.
3. At the very worst I could put the money in a savings account earning zero interest and if after the remaining 4 years interest rates are higher, I could deduct what I will have saved (£24k) off the mortgage total and continue the cycle again saving £500pm.
4. I have researched investing in Corporate Bonds or Goverment Bonds as a lower risk place to put the £500pm as part of my ISA.

I prefer point (4) than point (3) and technically I could 'afford' to lose the money, but obviously that's not attractive.

I have a pension and other stocks and shares in my ISA that I don't want to withdraw of course (nor can I do re pension).

I also read the MSE article on ten year fixed mortgages too!

Thank you

I dont  understand why you would do (3), surely you can get some worthwhile interest.   If you have £6K/year available to save why not each year put it in a fixed term savings account which matures near the time when your mortgage expires.

I would not recommend (4).  Unless you are careful with your bonds you could make minimal returns or even lose money.  Do you have the gilt knowldge to make the choice?  If you do the results may not be very different to the fixed term savings account idea.

Interest rates are still very low.  If the central banks are going to extract themselves from the after-effects of the 2008 crash it would not be surprising for mortgage rates to reach say 5% . From 1960-2001 average mortgage rates did not drop below 6%.  See https://www.bsa.org.uk/BSA/files/5c/5c180498-5e52-4a41-b022-5821c25f3cbd.pdf

boomboomboom

Linton said:

(3) does not make sense tpo me 

I think I was under the assumption that there aren't any savings accounts paying any interest at the moment lol - so much so that I have no even looked!! So, thanks Linton, I will go and do some research now. Appreciate that, cheers.

boomboomboom

Bravepants said: I think that once the 4 years is up, then the OP would be looking for a new mortgage deal, and that could be with any provider. Once the current deal has expired one is free to ask for whatever they need to lend and use savings as a new deposit.

Correct, yes. Thanks Bravepants

boomboomboom

Bridlington1 said:

I would agree with the above comments and save £500/mth. If I were you I would probably save into regular savers. A lot of these offer more than 1.64% now anyway and are often variable so should continue to rise with future base rate rises.

Thank you, I hadn't even considered such savings existed anymore, assumed they were all zero percent. I am on it cheers

boomboomboom

Thanks everyone, really appreciate the input, it really helps to get a sanity check and I had become so focused on my ISA longer term savings I hadn't even thought savings accounts 'existing' (in any meaningful % way).

So, off to the MSE site I go to investigate what's out there.

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