Mortgage Overpayments vs savings

Gareth77

I currently have a mortgage rate of 1.27 that is fixed for another 3 years

After that I will have 14 years remaining with £287,000 left to pay.

My plan is therefore to start overpaying from this point onwards to reduce the amount remaining.  

I see some people say they to save then overpay rather than just over pay.  Does this make sense? How much more can you save by doing this?

All advice appreciated!

TheMilkmansDad

give this thread a read:

https://forums.moneysavingexpert.com/discussion/6454500/confused-about-overpayments#latest

jimjames

Gareth77 said:

I currently have a mortgage rate of 1.27 that is fixed for another 3 years

When your rate is 1.27% and the best instant access rate is 4% there is no point overpaying from a financial perspective. It might make you feel better but would be detrimental and reduce your balance by less than saving instead and pay off at the point you remortgage again.

Gareth77

where is the best place to get a 4% rate? My current Natwest rate is 1.75.

Also the repayments are limited per calendar year - so I assume I need an account where I can withdraw every December?

housebuyer143

Gareth77 said:

where is the best place to get a 4% rate? My current Natwest rate is 1.75.

Also the repayments are limited per calendar year - so I assume I need an account where I can withdraw every December?

No, you don't overpay anything. When your fixed rate ends you pay a massive lump off and remortgage. 
Go to the savings board as there are many accounts paying 4% or close to it.

TheMilkmansDad

just overpay when you come to renew the mortgage to reduce the balance - no need to withdraw and overpay.

If you head over to the savings board there's plenty of threads on there in regards to best interest rates.

jimjames

Gareth77 said:

where is the best place to get a 4% rate? My current Natwest rate is 1.75.

Also the repayments are limited per calendar year - so I assume I need an account where I can withdraw every December?

Sainsburys, Chip and others offer 4% or more

dimbo61

Be aware that once you earn £500 as a higher rate tax payer and £1,000 as a lower rate tax payer you get taxed.
So look at Cash ISA,s and maybe regular savers plus overpaying the mortgage

Gareth77

How much will they tax me on my savings? (I am currently a higher tax payer) - does that mean, it's actually better to just to d the overpayments rather than building up a savings account?

housebuyer143

Gareth77 said:

How much will they tax me on my savings? (I am currently a higher tax payer) - does that mean, it's actually better to just to d the overpayments rather than building up a savings account?

You will need to work it out, but you will get taxed at the higher rate on any savings interest over £500.

It's still not worth paying off the mortgage with a rate that low, but you will not be actually getting the headline rate after tax, unless you put it in an isa.

dimbo61

As a higher rate tax payer you get hit with 40% tax on any income earned so Cash ISA,s may well work out better 👍