Best way to overpay mortgage.

Quixoticity11

I got my first mortgage (90%LtV) in August 2022.
It’s fixed for 5 years until 2027, interest rate of 2.69% No doubt when I come to remortgage it will be higher.

I can afford to overpay £100 per month.

I also have a savings account paying 3.25% interest.

What is better, regularly overpaying by £100 a month thereby saving compound interest on the total amount borrowed, or putting £100 into savings account with the higher rate of interest, then use savings to pay off in a lump at the end of 5 years? 

Sorry but I can’t work out how to calculate this for myself, can anyone tell me the answer or how to do the maths? Thanks

lspell1

If I was in your position, i'd take out a regular savings account: https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/ 

Then pay off at the end of the 5 years. 

dimbo61

Have you got a good emergency pot ?
Just in case the boiler needs replacing or the car goes Pop ?
If you have savings why not do a bit of both.
Chip away at overpaying each month and save into a regular saver.
I am a huge fan of being Mortgage Free ASAP  and have saved hundreds of thousands of pounds by Overpaying every month but I am to coin an American term a Cheap skate 

Zerforax

Will this help?

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

You didn't provide your house/equity value so someone else can't work out.

Herzlos

What are the early repayment fees like? Often the fee is applicable if you overpay by 10% or more in a year, so it may be better to pay it off incrementally, or in a lump once the fixed rate expires.

Quixoticity11

Thanks for replying and for the help!
The overpayment calculator doesn't really help because it calculates for the whole mortgage and assumes that I will be paying the same interest rate throughout. But really I’m just interested in the next 4.5 years for now as I know the rate will increase when I come to remortgage.

The equity is something like £23k, I borrowed 170k for a £190k house. 

ian1246

Just save the money in something paying higher interest than your mortgage - as long as you also save the interest payments, your compounding your savings.... then, pay a lump sum towards your mortgage at such a time as you feel appropriate (I.e. once the saving interest rates drop below the mortgage rate, or your due for renewal etc...).

You can get 7%+ interest on some regular savers now.... significantly more than your 2.69%! Then when the Regular Saver matures, put the capital into either a fixed saver or easy access saver etc... - again, ensuring the interest is as high as possible (easy access are 3%+ now - more than your 2.69%!).

dimbo61

So you put down a 10% deposit and in 5 years it would be brilliant if you were at 75% LTV for the best remortgage rates.
Be aware you can only repay 10% in any one year so if you do build up say £17,000 and your regular saver is finishing maybe that would be a good time to overpay 

gih

Using the figures you provided, the save-then-overpay route will leave your mortgage balance about £50 lower at the end of the 5 years, compared to just overpaying directly each month.  

Quixoticity11

gih said:

Using the figures you provided, the save-then-overpay route will leave your mortgage balance about £50 lower at the end of the 5 years, compared to just overpaying directly each month.  

Thanks for doing the sums for me!