Fixed rate ending in 12 months - is it best to overpay or put in savings before renewing?

dn852k4

We got a 20 year mortgage last year paying £518.43 per month at 2.29% this rate finishes the end of next April.
We agreed we could either pay an extra £160 per month as an overpayment or save it, but we're not sure which would work out best overall? 

At present savings are at a higher rate, but would we be better off reducing the total amount owed on the mortgage monthly compared to savings? We currently owe circa 96k

K_S

@dn852k4 From a moneysaving point of view, it's likely to be better to save the £160 every month into the best easy access savings account (currently around 3.7% I think) and use it to overpay the mortgage with a lumpsum when it's time to remortgage. To further boost the savings, consider a regular saver as well, though do ensure that it's the kind of account that allows you to access the funds when you want to.

Alternatively, given the amounts involved and the relatively short time remaining to early next year, you might find it easier to just overpay the mortgage and forego the small amount of extra interest that you might earn otherwise.

dn852k4 said:

We got a 20 year mortgage last year paying £518.43 per month at 2.29% this rate finishes the end of next April.
We agreed we could either pay an extra £160 per month as an overpayment or save it, but we're not sure which would work out best overall? 

At present savings are at a higher rate, but would we be better off reducing the total amount owed on the mortgage monthly compared to savings? We currently owe circa 96k

Sistergold

If savings are giving a higher rate then it might be worth continuing to save? If mortgage rate becomes higher then you might consider overpaying? Whatever gives you the best rate and then of-cause whatever makes you feel more secure seeing the savings go up or seeing the mortgage going down? 

MDMD

K_S said:

@dn852k4 From a moneysaving point of view, it's likely to be better to save the £160 every month into the best easy access savings account (currently around 3.7% I think) and use it to overpay the mortgage with a lumpsum when it's time to remortgage. To further boost the savings, consider a regular saver as well, though do ensure that it's the kind of account that allows you to access the funds when you want to.

Alternatively, given the amounts involved and the relatively short time remaining to early next year, you might find it easier to just overpay the mortgage and forego the small amount of extra interest that you might earn otherwise.

dn852k4 said:

We got a 20 year mortgage last year paying £518.43 per month at 2.29% this rate finishes the end of next April.
We agreed we could either pay an extra £160 per month as an overpayment or save it, but we're not sure which would work out best overall? 

At present savings are at a higher rate, but would we be better off reducing the total amount owed on the mortgage monthly compared to savings? We currently owe circa 96k

The OP needs to ensure they tackebtax into account- the savings may be taxable and this can change the equation considerably.

K_S

MDMD said:

K_S said:

@dn852k4 From a moneysaving point of view, it's likely to be better to save the £160 every month into the best easy access savings account (currently around 3.7% I think) and use it to overpay the mortgage with a lumpsum when it's time to remortgage. To further boost the savings, consider a regular saver as well, though do ensure that it's the kind of account that allows you to access the funds when you want to.

Alternatively, given the amounts involved and the relatively short time remaining to early next year, you might find it easier to just overpay the mortgage and forego the small amount of extra interest that you might earn otherwise.

dn852k4 said:

We got a 20 year mortgage last year paying £518.43 per month at 2.29% this rate finishes the end of next April.
We agreed we could either pay an extra £160 per month as an overpayment or save it, but we're not sure which would work out best overall? 

At present savings are at a higher rate, but would we be better off reducing the total amount owed on the mortgage monthly compared to savings? We currently owe circa 96k

The OP needs to ensure they tackebtax into account- the savings may be taxable and this can change the equation considerably.

@mdmd You're absolutely right. However, for the purpose of this post I just ignored it as even at a 40% tax rate 3.75% Vs 2.29% would probably just even out.