Mortgage overpayment or something else...

Marmot

Hi, apologies because I know there have been a lot of posts about whether to make mortgage overpayments or not but just hoping I can get some collective wisdom on something....

So I have a mortgage on a 2 year fix rate @ 1.19% which runs out June 2023.  By June I'll have £135k left on the balance and it will have 18 years term left.  By June I will have a largish amount of £25k available to me.  I'll be looking to sort out my new mortgage deal spring next year (glad to see rates calming down a bit....)  So I'd initially thought to take the £25k and knock that off my balance so I'm remortgaging needing only £110k.  Obviously, I don't know what rate I'll be getting then but I'm hoping it might be under 5% (and I can't decide whether to go with a tracker or fix again but that's another topic) then I'll have close to the same monthly mortgage amount which is manageable for me at the moment.

But....someone has suggested to me that I could remortgage at £135k say on a 5 year deal and then take £15k from the £25k and put it in a 3 Year Fixed Rate Bond, there are some with rates like 4.3% and then with the remaining £10k put it into an easy-access saver paying say 2.75% and then draw down from that £10k amount a couple of hundred pounds a month to make the £135k mortgage @ 5% monthly cost more manageable for me.

Interest will accrue on the £15k in the bond - so by year 3 it will be £17k then take that £17k and perhaps do something similar and split the £17k and put some into a 2 year bond and the rest into savings and do the same again.

I'm a bit bamboozled by this and I don't know if I'm just being stupid.  

I've put into a spreadsheet if I pay off the £25k and start with a mortgage balance of £110,000 and worked out what I'd have remaining on the balance after 5 years and I've tried to work out where I'd be if I did the bond/savings option but I keep getting a bit stuck on that one, I'll try it again tomorrow.   But I can't get my head around the bond/savings idea?  Unless it means that I have a chunk of cash accessible to me (although some is tied up in the bond)....whereas if I put it into the mortgage that money isn't accessible to me anymore...

And the bond/savings option would make more sense to me if the bond rate was higher than the potential mortgage rate...but currently that doesn't look like it would be the case...

Sorry if this doesn't make much sense I'm just trying to get my head around it....

Thanks for any opinions/thoughts!

Marmot

ElwoodBlues

All that sounds very complicated, and I'm not sure you'll be any better off. The crux of it is if your mortgage rate is higher than your savings are earning, you're better off putting the money towards the mortgage. Right now, with your current fixed rate, you're better off saving. But if mortgage rates are 5% next summer, it's likely to reverse the situation and at that point you should use the savings to overpay the mortgage (before you take another fix).

Marmot

Thanks, yes that's kind of what I thought so I'll see how the land lies next summer.