What to do with Overpayments

iazcac

In the fortunate position of being able to overpay mortgage a few hundred pounds a month.

We are on a low fixed mortgage rate for the next couple of years, meaning we can earn more in an easy access savings account than the mortgage interest right now

At the moment, not actually overpaying the mortgage and putting the "overpayment" money into a savings account each month.

Mulling whether I should be investing this money or, putting into fixed rate savings, with a thought that rates on these will soon increase given interest rises and isn't a lump sum as adding to it each month, so nervous of committing. Any advice?

RobM99

Investments or savings? The former can (and do) go down, also it's long-term and not covered by FSCS.

K_S

iazcac said:

In the fortunate position of being able to overpay mortgage a few hundred pounds a month.

We are on a low fixed mortgage rate for the next couple of years, meaning we can earn more in an easy access savings account than the mortgage interest right now

At the moment, not actually overpaying the mortgage and putting the "overpayment" money into a savings account each month.

Mulling whether I should be investing this money or, putting into fixed rate savings, with a thought that rates on these will soon increase given interest rises and isn't a lump sum as adding to it each month, so nervous of committing. Any advice?

@iazcac Overpaying on a mortgage is a guaranteed return of whatever rate your mortgage is on. So comparing it like-for-like, one way of looking at it is comparing it to what you can get in an FSCS protected savings account (like all the best-buy accounts featured here https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/ ) . When it comes to remortgage time, you can always use the saved up funds to reduce the size of your mortgage.

Deedoodee

I’ve been thinking about this. My mortgage rate is 1.63 and my saving account is 1.81 so I’ve been putting the money into the savings account. But the MSE overpayments page suggested unless I get 2% on a savings account I’m better off overpaying. Not sure why. 

K_S

Deedoodee said:

I’ve been thinking about this. My mortgage rate is 1.63 and my saving account is 1.81 so I’ve been putting the money into the savings account. But the MSE overpayments page suggested unless I get 2% on a savings account I’m better off overpaying. Not sure why. 

@deedoodee If you're a basic-rate taxpayer and do not expect to earn more than 1k in interest over the tax year, then all your interest earnings will be tax-free (inside the Personal Savings Allowance), so you should select PSA/non-taxpayer to get the right answer on the MSE o/p calculator.

Also, the best-buy instant access savings account (as of today) pays 1.95% as per the MSE savings page https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/ so it might be worth switching.

Deedoodee

K_S said:

Deedoodee said:

I’ve been thinking about this. My mortgage rate is 1.63 and my saving account is 1.81 so I’ve been putting the money into the savings account. But the MSE overpayments page suggested unless I get 2% on a savings account I’m better off overpaying. Not sure why. 

@deedoodee If you're a basic-rate taxpayer and do not expect to earn more than 1k in interest over the tax year, then all your interest earnings will be tax-free (inside the Personal Savings Allowance), so you should select PSA/non-taxpayer to get the right answer on the MSE o/p calculator.

Also, the best-buy instant access savings account (as of today) pays 1.95% as per the MSE savings page https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/ 

Ah that makes sense! Thanks