Over pay on my mortgage while I’m still on a lower fixed rate for a year or keep adding to savings? 29 September 2022 at 2:04PM in Budgeting & bank accounts 8 replies 492 views

Faff2345

Hi all, 

with the mortgage rates going up so much next year. Is it worth me overpaying as much as possible now while I can afford it and I’m on a lower fixed rate? Or keep adding to my savings account each month? 

Thanks 

Van_Girl

I think it really depends what your savings rate is compared to your mortgage rate. I'm also pondering the same - my mortgage rate is 1.49% for 4 more years, so if I put my monthly "overpayment" amount into a regular saver earning more than 1.9% interest, then it's better than overpaying directly 

I think haha

saajan_12

Depends on the below questions..

1. Whats your mortgage interest rate? 
2. Whats your savings interest rate? 
3. Whats your income tax band and how much savings interest per year?
4. Can you trust yourself to not touch the savings between now and when you remortgage? 

If you pay tax on savings, then take the rate after tax. If that's higher than your mortgage interest rate, then keep the money in savings, perhaps in a separate account. When your current mortgage deal ends, you can use the lump sum from savings to pay down the mortgage, and remortgage for a smaller amount. There's nothing to say you have to keep the amount the same. 
The added benefit is if there's a real emergency, you have the money in your account instead of needing to borrow, but you need to be disciplined to not touch it unless it is an emergency. 

phillw

Van_Girl said:

so if I put my monthly "overpayment" amount into a regular saver earning more than 1.9% interest, then it's better than overpaying directly 

I think haha

How did you calculate 1.9%?
If you have an early repayment charge over a certain amount and you are planning on maxing it out, then it depends on when your regular savers expire and when the mortgage year is calculated

I would run it so the regular savers finish just before mortgage year end, though a couple of the regular savers on the market allow withdrawals anyway

TheBanker

I am in the position where savings accounts are better than my fixed rate mortgage, even taking tax into account. I had planned to make mortgage overpayments this year following a pay rise, but I'm holding onto the funds in regular savings accounts for now. I'll switch to mortgage repayments if circumstances change. If not then I'll have a nice lump sum to pay off the mortgage when the fixed rate ends, which will make moving to the new rate slightly less painful! 

In the mean time the savings will be a welcome safety net, given the cost of borrowing will be a lot higher (e.g. if boiler breaks down, I can use the accrued savings towards a replacement). 

Van_Girl

phillw said:

Van_Girl said:

so if I put my monthly "overpayment" amount into a regular saver earning more than 1.9% interest, then it's better than overpaying directly 

I think haha

How did you calculate 1.9%?
If you have an early repayment charge over a certain amount and you are planning on maxing it out, then it depends on when your regular savers expire and when the mortgage year is calculated

I would run it so the regular savers finish just before mortgage year end, though a couple of the regular savers on the market allow withdrawals anyway

@phillw I used the calculator on this site

Bigwheels1111

I overpaid and overpaid, don’t think I took any notice of savings rates.
11 years 4 months to clear it.
Owned the house for 20 years, rented for 9 years, got back 4.2 time what I paid for it.
Better than any interest rate.

Shakin_Steve

On the personal side of the discussion, no one knows what's coming down the line, and you just can't beat that feeling of paying your last mortgage payment and knowing, no matter what, you own that place you come home to.

phillw

Van_Girl said:
@phillw I used the calculator on this site

I guess it's the income tax? You could fund a cash isa > than your mortgage rate for example.
Or if you or your partner don't use up all your income tax allowance then you can save tax on the interest that way.