Do I save or pay of the mortgage

lsrih

Hello, I was looking for some views on this as I’m a little torn on the right approach. 

I’m fortune to be in a position that I have a really low fixed rate mortgage for the next 4 years, also I can afford to save.

I’ve read Martins section over save vs. Pay off mortgage but it doesn’t make sense to me. The guidance is to save as I make more interest on the savings, but surely knowing that mortgage interest rates are currently predicted to be about 6% then I should hammer down the mortgage debt as fast as possible whilst it’s hitting the debt and not the interest. 

Or have I miss interpreted it… should I save the money, earn interest and pay it off my mortgage before the current low fixed rate deal ends. Have I over complicated this? Logical responses to my chaotic thoughts are welcome

simon_or

The last paragraph. Save up and make the most of the high interest savings Vs low interest mortgage. Then when it comes to the end of your current mortgage fix you can use the savings to reduce the size of your mortgage.

london21

Whichever interest is higher should be priority.

If you have really cheap mortgage rates, then leave it and if you can get better rates with your money then can pay it off when the cheap fix ends. 

zathrasB5

london21 is right.  I have a good IFA and he has been earning on average 8-10% per year on my ISAs and OIECS.  Why would I spend money clearing off a debt which I am paying interest on of say 4-5% when I can earn twice as much in investments?  If things swap round drastically then I can use the money I have saved to look at overpaying the mortgage.  But for that to happen then the country/world will be in a very serious position which will make the current climate look great!

kev2009

Hi all,

I'm currently on a fixed rate mortgage due to end in 2025.

I've been considering the same, do I OP the mortgage or save the money in a savings account.  For me, when I OP the mortgage, I've been keeping the term the same and just reducing my monthly payment which gives me a little extra cash as I have always been concerned if interest rates went up, I wanted to keep the term to avoid a even higher monthly payment if I'd reduced the term.

So based on this, I've worked out *IF* I OP the mortgage this year, I'd have an extra £35 (for round figures) per month in my hand.  Which works out to £420 for the year.  Now, if I took the OP lump sum and placed it in a savings account at say 4% or even 5%(if rates get that high), it would make less than £420 in 1 year so to me it looks like I would be better off OP the mortgage? As this would reduce my monthly mortgage payments and also give me £35 to put towards other bills which are all going up?

Perhaps I've miss understood but that's how I'm viewing it at the moment.

What do people think?

Thanks

Kev

sancahojo

kev2009 said:

Hi all,

I'm currently on a fixed rate mortgage due to end in 2025.

I've been considering the same, do I OP the mortgage or save the money in a savings account.  For me, when I OP the mortgage, I've been keeping the term the same and just reducing my monthly payment which gives me a little extra cash as I have always been concerned if interest rates went up, I wanted to keep the term to avoid a even higher monthly payment if I'd reduced the term.

So based on this, I've worked out *IF* I OP the mortgage this year, I'd have an extra £35 (for round figures) per month in my hand.  Which works out to £420 for the year.  Now, if I took the OP lump sum and placed it in a savings account at say 4% or even 5%(if rates get that high), it would make less than £420 in 1 year so to me it looks like I would be better off OP the mortgage? As this would reduce my monthly mortgage payments and also give me £35 to put towards other bills which are all going up?

Perhaps I've miss understood but that's how I'm viewing it at the moment.

What do people think?

Thanks

Kev

This sounds like you are reducing your monthly mortgage payments not overpaying? Can you clarify. Would help to know the terms of your current mortgage too. I think you speculating what interest rates will be should not be part of your decision making at the moment but on what you could currently get.

kev2009

HI, Thanks for your reply.  I am overpaying the mortgage each year and I am doing it by overpaying in 1 lump sum as opposed to overpaying each month.  I effetively save the money and if I don't need it come the end of the year, I then overpay the mortgage.  I havn't done this every year but for the last few years i've started to overpay each year.

When i overpay, I have the option to either:-

Reduce the term and keep monthly payments the same
Keep the term the same and reduce monthly payments

So I choose the option to keep the term the same and reduce my monthly payments.  My mortgage allows up to a 10% overpayment each calendar year and if I go above that then I have to pay a fee so obviously I don't go over the 10% limit.  Mortgage is fixed until 2025.  As mentioned when comparing how much I'd save in mortgage payments vs putting the lump sum in a 4% or 5% savings account for 1 year, overpaying the mortgage come out on top so looks to me like the best option at least this year.

Thanks

Kev