Mortgage overpayments

Babapapa111

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.

South_coast

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)

Babapapa111

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

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

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.