Should I overpay or save? 27 October 2022 at 10:53AM in Mortgages & endowments 2 replies 254 views

tanyasharma

Hi all,
I hope you can help. I am normally pretty financially savvy, but I am a little confused here.
I have a new mortgage starting 1st Nov. We are in the lucky position (at the moment) to be able to overpay.
I'm trying to understand if I should overpay monthly or save and overpay in one lump sum.
I have tried the calculators but I just want to clarify.
So, details:
Mortgage rate = 2.99%
Overpay monthly £300 = £3650 in 1 year (£50 interest)
Regular savings account £300 @ 5% = £3697 in 1 year (£97 interest)

There doesn't seem to be much in it, but am I right in thinking I am just about better off putting it into a savings account?
If so, do I repay just before the 12 month anniversary (so this time next year)?

Thanks in advance

jrawle

If the interest rate on the savings account is higher than that on your mortgage, you will be slightly better off saving the money. As you have calculated, this is only likely to be around the £50 mark, but as they say, look after the pennies, etc.

It's likely your next mortgage deal will have a much higher rate on interest, so at that point you must use the money you've saved to pay off a chunk of the mortgage. Otherwise the gain will be more than wiped out by subsequent interest payments.

tanyasharma

Ok thank you. So perhaps I save there for 5 years (when fixed rate ends), and then use it as a lump sum to reduce term.
Thanks for the help