Save £500pm or overpay Mortgage?

P1Fanatic

Say you get 3% savings rate fixed. Saving £500pm thats £1,465.60 interest over the 4 years. Just as an example if your mortgage balance was £130k and overpaying you would have saved approx £786 in interest (column a - column b - total payments):

Year	Without Overpayment	With Overpayment
0	£130,000	£130,000
1	£121,669	£115,624
2	£113,201	£101,011
3	£104,594	£86,157
4	£95,844	£71,058

Which confirms saving works better over the 4yrs. Problem you may find is regular savings options that allow £500 per month. Max on this list is £300pm:

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/#banklinkedtable

So the suggestion above of splitting it e.g. £250 mortgage and £250 savings could be the best of both worlds.

Bridlington1

P1Fanatic said:
[...]
Problem you may find is regular savings options that allow £500 per month. Max on this list is £300pm:

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/#banklinkedtable

So the suggestion above of splitting it e.g. £250 mortgage and £250 savings could be the best of both worlds.

You can get a regular saver with Coventry BS that lets you pay £500/mth but it only pays 1.8%. The alternative is to open multiple regular savers with smaller monthly deposit limits.

For a more up to date list I would recommend:
https://moneyfacts.co.uk/savings-accounts/regular-savings-accounts/?quick-links-first=false

Albermarle

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.

However we do not know the OP's situation with regard to long term investments/retirement planning, such as a pension.

If they have 'scrimped' on these ( unlike yourself) then there could be mileage in improving pension provision, at the expense of not paying off the mortgage earlier than necessary.

Maybe they have a public sector pension, so they have less to worry about in this area.

Bravepants

Albermarle said:

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.

However we do not know the OP's situation with regard to long term investments/retirement planning, such as a pension.

If they have 'scrimped' on these ( unlike yourself) then there could be mileage in improving pension provision, at the expense of not paying off the mortgage earlier than necessary.

Maybe they have a public sector pension, so they have less to worry about in this area.

Indeed. And I hinted at that in my last paragraph, without explicitly stating it in great detail. If your mortgage rate is only a couple of percent and it's locked in for 10 years or so, then long term investing, or buying extra index linked DB pension during periods of high inflation, is probably better.

enthusiasticsaver

I would hedge my bets and pay £250 off the mortgage and maybe do a regular saver for the other £250. 

boomboomboom

Update: because I am paying the additional rate of tax it seems a cash ISA is the best for me. It’s tough because rates are low but thanks to MSE the Marcus cash ISA from Goldman Sachs seems to be the best flexible. Thanks again everyone.

dunstonh

Additional rate taxpayer.   What about pension contributions?

Are you focusing too much on repaying the mortgage and cash savings and missing the best option of all?

Growingold

boomboomboom said:

Update: because I am paying the additional rate of tax it seems a cash ISA is the best for me. It’s tough because rates are low but thanks to MSE the Marcus cash ISA from Goldman Sachs seems to be the best flexible. Thanks again everyone.

The Marcus Cash ISA is NOT a flexible ISA.

boomboomboom

dunstonh said:

Additional rate taxpayer.   What about pension contributions?

Are you focusing too much on repaying the mortgage and cash savings and missing the best option of all?

Thanks Dunstonh, I already pay in the max £40k into my pension each year and with this £500pm I may want to dip into it and pay myself back periodically, which I see @Growingold in the next reply mentions re Marcus' Cash ISA not being 'flexible'.

boomboomboom

Growingold said: The Marcus Cash ISA is NOT a flexible ISA.

Thank you Growingold, I realised this last night and saw that the Tesco Cash ISA is the next best. It's only 1.32% which a huge 1.07% is a first year offer! I suppose I could just move it after a year.

Still, it seems to satisfy my needs so I am greatful I got there in the end

Thanks again.