To overpay or not to overpay?

DireEmblem

My current mortgage rate is 1.09% until November and a quick search suggests the best fixed rate I can find at the end of term is 4.54%, so my monthly payments will increase from £548 to £793, or an extra £245 a month.

My monthly interest payments will go up by £396 on 138k.

I like having a good free cash flow although I almost always invest anyway.

To keep my monthly payment around £548, I would need to find and overpay £42k.

Simply put £245x12/42000 = 7% which initially seems a good saving/return on 42k instead of the traditional investing to keep my remaining cashflow from my wage the same.

Then when I think about it more, I would only be saving 4.54% interest on any overpayment, right?

So my head is trying to get happy with the thought that I should not overpay, given investments in the FTSE all world have averaged 8.4% since 2005, and this should prove better long term than overpaying, unless I have missed a trick?

MorningcoffeeIV

You're missing a trick.

What are YOUR savings and investments currently returning? Not someone else's from 2005.

DireEmblem

MorningcoffeeIV said:

You're missing a trick.

What are YOUR savings and investments currently returning? Not someone else's from 2005.

90% of my investments are in VWRP, hence I’m using that as a baseline.  Not sure how that’s missing a trick?

Lord_e55ex

What option did you decide to go with?

I'm a small way into a 5 year fixed at .99%. My every instinct is saving overpay before getting smashed with 4-5% when i come to remortgage. 

However, its the usual argument of better putting in a high interest savings account…..

K_S

Lord_e55ex said:

What option did you decide to go with?

I'm a small way into a 5 year fixed at .99%. My every instinct is saving overpay before getting smashed with 4-5% when i come to remortgage. 

However, its the usual argument of better putting in a high interest savings account…..

@lord_e55ex I'm probably saying something you already know but I can't think of any good financial reason to overpay in your case compared to just dumping any excess cash in the best savings account you can access. To avoid the temptation of accessing the savings, you could periodically move the funds into a fixed term bond (for a duration which matures before the end of your mortgage fix) as well.

When it comes to re-mortgage time at the end of your fix, you can always use your savings to then reduce the size of your mortgage when it moves to a higher rate.

DireEmblem

@K_s I'm going for extending the mortgage term ad putting the difference between keeping the same term and the extended term in a regular saver at 6-7%.  Its not going to build up enough in 2 years to generate more than my tax free interest allowance so I am better off slightly.