overpay mortgage or savings

Laurob02

Hi, I am currently on a fixed rate mortgage until 12/26 at 1.18%, at present i am overpaying £300 a month, is this the best option or would savings be better

DJSINGH

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

saajan_12

The general answer is that it depends on your tax band, plans for the money, other investments (eg ISA usage) and general discipline. However at 1.18%, savings is pretty much guaranteed to be better than overpaying the mortgage. 

BJV

I am in the same position.

Mine was a fixed 1.99 for 5 years.

I have decided to save the money so I have instant access ( just in case )  and then when my mortgage fixed rate comes to an end I can just pay off a big chunk. The banks are under pressure at the moment to raise interest rates for savers so I am hoping they will rise?

BikingBud

Laurob02 said:

Hi, I am currently on a fixed rate mortgage until 12/26 at 1.18%, at present i am overpaying £300 a month, is this the best option or would savings be better

There are always many variables, usual if savings are higher rate than mortgage then saving should be best but try using this calculator so you can fully understand and then decide what is best for you.

http://locostfireblade.co.uk/spreadsheet/Index.html

Albermarle

This is a very regularly asked question, eg
Better to overpay mortage or save more? — MoneySavingExpert Forum
 although sometimes the question is mortgage vs pension.
Pension is usually the best way to save for retirement but not so good if you need access to the cash earlier.

VNX

BJV said:

I am in the same position.

Mine was a fixed 1.99 for 5 years.

I have decided to save the money so I have instant access ( just in case )  and then when my mortgage fixed rate comes to an end I can just pay off a big chunk. The banks are under pressure at the moment to raise interest rates for savers so I am hoping they will rise?

All this pressure on banks by govt is all windows dressing nothing will change or not materialistically

as much as the media like to go on about this issue decent rates exist just not with high street banks  

My mortgage fix is 1.7 so have put monies in a bond @ 5.3% that matures just before my mortgage deal ends 

Albermarle

BJV said:

I am in the same position.

Mine was a fixed 1.99 for 5 years.

I have decided to save the money so I have instant access ( just in case )  and then when my mortgage fixed rate comes to an end I can just pay off a big chunk. The banks are under pressure at the moment to raise interest rates for savers so I am hoping they will rise?

As per the previous comment. The government is putting pressure on the big well known banks to improve their savings account offerings.
However they are highly unlikely to ever offer accounts as good as those already on offer from smaller banks and building societies. Maybe with the odd exception. 

jimjames

BJV said:

 The banks are under pressure at the moment to raise interest rates for savers so I am hoping they will rise?

When you can get 4.5% instant access at the moment why bother waiting to find out? Unlikely any high street bank will offer that sort of rate even if they do increase a bit.

DJSINGH

Is it generally a given that saving if % is higher will beat overpayment?

E.g. 2yr 5.23% mortgage @ 250k. 

Overpay 60k or bank for 2 years at 5.90% (ISA)

The calculator suggests the latter is better. Ive understood right, yes?

Exodi

Laurob02 said:

Hi, I am currently on a fixed rate mortgage until 12/26 at 1.18%, at present i am overpaying £300 a month, is this the best option or would savings be better

This question comes up fairly regularly, and I find the quickest way to show the difference is with cold hard cash.

Currently, by overpaying £300 a month on a mortgage at 1.18%, you would expect to save £23.09 in interest across one year.

If you were, for example, to put the same £300 a month into a First Direct Regular Saver at 7.00%, you would expect to gain £136.50 in interest across one year.

Even if you had exhausted your personal allowance and were an additional rate tax payer (e.g. earning over £125,140 a year) and taxed on interest at the top rate of 45%, you'd still be £51.99 better off.

Overpaying a low interest mortgage while high interest savings products exist does not make financial sense.