Pay off morgage or put in savings? also question about LTV

Woodsy

Hello!

Back in Feb I secured a mortgage with a 1.44% interest and I was looking into making additional payments on it but then I realised that the interest rate on my ISA is currently 1.50%

Is it better to put the money I was going to over-pay with into my ISA and earn the interest since I benefit more from the ISA interest than the mortgage interest? Is it that simple?  (I didn't envisage paying more than 10% a year off my morgage)

Also I see a lot of people talking about paying off their mortgage to combat the higher interest rates when their fixed rates end but what happens if there is a house price drop?

Will that affect my LTV negatively when I come to re-mortgage in the next few years? If house prices drop a few percent am I right in saying that the mortgage company take this into account when they offer a re-mortgage?

Thanks!

K_S

@woodsy Comparing your 1.44% mortgage interest rate vs the 1.50% Cash ISA rate is a good way to look at it. By saving in the ISA instead of overpaying the mortgage, you end up +0.06% on the interest with the flexibility to access the funds if you need to. Depending on your tax-band and the amount, it may be worth looking at non-ISA savings accounts as well.

When it comes to a re-mortgage (changing to a new lender) or a product-transfer (staying with the same lender), if house prices have gone down, that will indeed be taken into account when deciding what LTV band you fall in.

Tom_Ballard

@Woodsy can you let us know how long your fix is for? This would likely impact the throughs I would share - we just tied into a 1.71% 3Y fix, and will look to be paying off the additional capital where we can since rates for a 2Y fix are now in the 3.5% range

Woodsy

Tom_Ballard said:

@Woodsy can you let us know how long your fix is for? This would likely impact the throughs I would share - we just tied into a 1.71% 3Y fix, and will look to be paying off the additional capital where we can since rates for a 2Y fix are now in the 3.5% range

Sorry Tom, only just saw your reply.

Unfortunately my fix is only for two years which means there's no a lot of breathing room for things (inflation / interest rates / house prices) to normalise (if they ever will) by the time I re-mortgage.  I will be trying to make as big as overpayments as I can to try and offset everything that is going on to make it easier on myself in two years time. 

My question was around whether I should put the money I would overpay into a savings account paying over 1.50% interest and pay a lump sum near the end of the 2 year term (ensuring its not 10% of the total owed otherwise I will get  a fee which will make the idea useless) or actually pay the money monthly to the mortgage company every month.