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Paying off lump sum of mortgage vs putting money in savings
We3
Posts: 66 Forumite
We have a mortgage (200k) over 20 years. We have around 20k in cash which we were going to use to overpay. However the interest on our mortgage is 1.39% (3 years left of a 5 year fix). Are we actually better now putting the 20k in a savings account because the interest would be higher than 1.39%? I've used the calculator on this site and it would indicate so. However it seems somewhat counterintuitive to me.
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Are we actually better now putting the 20k in a savings account because the interest would be higher than 1.39%?
Yes. Why does it seem counterintuitive?
If interest rate is higher than mortgage interest then will make more from interest than will save in interest. Only risk is discipline, risk by not overpaying you spend on something else.
Over 3 years you can get an interest rate of 3%.
If you pay off the mortgage now you will save yourself ~£1000 in interest (1.39% of 20,000 is £278)
3% of 20,000 is 600 so you would get ~£1,800 in interest by saving.
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