Timing of lump sum Mortgage Overpayment - when on low or high interest deal?

JohnnyCarwash

So my mortgage is due for renewal early next year and I have approx £70k left.  I'm currently on 3 year fixed @ 1.7% interest and with the rates rising am looking at about 4.5% for a 5 year fixed. 

I have sufficient savings to overpay 10% of the balance, but I can't work out whether I should do that now while on the low rate, or overpay once I move on to the high? In both cases I will be looking to reduce the term.

Does either or make a fundamental difference or is it negligible?  My head says wait till on the higher rate but now I'm doubting myself. 

Someone must have asked the question before, so any advice welcomed, thanks. 

Soot2006

Always overpay what you can, when you can. By waiting you're simply paying more interest right now, even if it's a more beneficial rate. By overpaying you won't ever have to pay interest on that bit again.

ETA: unless your money can earn more than the mortgage interest rate, of course!

JohnnyCarwash

@Soot2006 - good call, savings currently earning 1.98% so that would suggest wait till I switch, thanks!

gih

If overpaying now moves you into a lower LTV band (e.g. it brings you from >60% LTV down to <60% LTV) before you remortgage, then you'll probably get a better interest rate on your new deal and it would be worth overpaying now.

If that's not a factor, then you could probably get a savings account with an interest rate higher than 1.7%, so your money could earn you more in interest as savings than it would save you in interest as an overpayment on your current deal. Once you move over to a new deal with a higher rate, then it will probably be the other way round, i.e. using the money to overpay will likely save you more than you'd earn in interest in savings.  However, overall I doubt it would make a lot of difference, depends what interest rate you can get on a savings account (that doesn't penalise you when you need to withdraw when your new mortgage deal starts).

JohnnyCarwash

@gih LTV no difference as quite low anyway at under 30% already, and my savings is one of the best rates for instant access and unlimited withdrawals, so I think I will continue putting away in there until the new product starts and them make a full 10% overpayment once the new mortgage deal kicks in, thanks.  

gih

Looks to me that the benefit of using £7k as savings vs overpaying mortgage is less than £20 (0.28% of 7k = £19.60), so not really much in it.  You can't go wrong!