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Mortgage overpayments

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Hello. I would welcome some advice as to whether I should continue overpaying on my mortgage or put the overpayments into a savings account. I currently have an outstandng interest only mortgage of £180,000. I remortgaged to a 10 year fixed rate four years ago at 2.99%. The interest payments are approximatley £450 per month, however I am currently paying £2,400 per month with the intention of paying the mortgage off within 7 years. I understand that savings rates are now in excess of 4% per annum and am unssure whether as a higher rate tax payer, I am better off putting the overpayments into a savings account, or whether I should carry on making the overpayments on the mortgage. Any advice would be welcomed.

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  • South_coast
    South_coast Posts: 5,006 Forumite
    First Anniversary First Post Name Dropper Photogenic
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    Don't forget that as an HR taxpayer you can only earn £500 in interest before you start paying tax on it (unless your savings are in an ISA)
    Mortgage start: £65,495 (March 2016)
    Cleared 🧚‍♀️🧚‍♀️🧚‍♀️!!! In 5 years, 1 month and 29 days
    Total amount repaid: £72,307.03. £1.10 repaid for every £1.00 borrowed

    Finally earning interest instead of paying it!!!
  • Babapapa111
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    Thanks for your reply, that is my dilemma. Unfortuntely my maths skills are such that I am struggling to work out whether I am better off continuing with overpayments or putting them into a savings account. I already pay £10K per annum into an ISA so half of my allowance is already used up.
  • Newbie_John
    Newbie_John Posts: 498 Forumite
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    It is complicated. With a mortgage of 3% and savings rate 5% (fixed 1-2 years) for higher rate even more so. If you were locked into mortgage of 1-2% then gains will be worth considering, with 3% little less so.

    Let's say you have £50k savings. If you put it into 1 year 5% saver you would earn £2500 interest - then you would need to pay £800 tax leaving you with £1700, meaning you only earned 3.4%, still better then 2.99%, but only by about £200 better yearly. The more savings the lower the difference and and some point around £70k it starts getting better to overpay mortgage.. but then there are many other factors like you can only overpay 10% yearly with most mortgages, so if you decide to save for longer - you lose your limit.

    Saying all that, it's probably much easier to continue overpaying the max allowed amount and save the rest.
  • Babapapa111
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    Thanks John. The outstanding mortgage balance is made up of a number of mainly interest only mortgages that were taken out 15 years ago which allow for significent overpayments. I  could reduce the overpayments by £10,000 per annum and pay that into a cash ISA which would then bring me to my annual limit as I am already paying £10,000 per annum into an ISA, but still not certain whether any gain is worth it.
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