overpay mortgage or savings

Exodi

DJSINGH said:

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?

Yes, though there should be consideration given to tax if you've exceeded your personal allowance. As your comparison is with an ISA, it is not relevant.

In your situation, it makes more sense to invest in the ISA as you will gain more interest than you would save overpaying your mortgage. You do not need a fancy calculator to work this out, 5.9>5.23.

After the two years, there's no reason you couldn't then dump the funds from the ISA into your mortgage and as a big overpayment (or find a new a new house for the funds).

Exodi

BikingBud said:

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

Does this website pay you a commission?

What are the 'many variables' except whether they pay tax on interest? Even if they did, with the OP's circumstances, the decision is a no-brainer.

BikingBud

Exodi said:

BikingBud said:

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

Does this website pay you a commission?

What are the 'many variables' except whether they pay tax on interest? Even if they did, with the OP's circumstances, the decision is a no-brainer.

No not at all, it was actually discussed here many years ago and is still the most comprehensive tool I have seen. 

As you say tax on savings interest is likely always an issue but I feel there is seldom any assessment of freedom from work, how much value do you put on your own time and being mortgage free? Clearing the mortgage, not necessarily large cash savings can be the biggest influence on that. So when to pay, how much to pay, how much to save, where to save, early resettlement charges (sometimes worth sucking those up to get a different deal) are all variables that the mortgagee should understand and manage to best suit their own circumstances. Many on here want simple advice whereas enabling understanding enables ownership of the debt. Bit old fashioned but I think the term is budgeting.

Some of the simplistic tools can give you a rough idea but if people input their own details it will enable them to keep a close control over their mortgage and optimise their allocation, mortgage v savings. It tracks the overpayments, single or regular, even 10% at start of year or annually, informs how much interest you can save and re-forecasts the end date giving absolute clarity and ownership of your mortgage.

It's within £10 of my mortgage lender's figures and I've banked the interest savings and thereby reduced the term already, protecting myself from a raise in total interest payable from £12350 to £18699 due to increase in the follow on rate, it cannot be taken back. Previous overpayments are now bring saved to clear the bubble, calculated by the tool, at the end of the fixed rate period.

Failing that people are welcome to flip a coin to decide between 2/3/5 years fixed or a tracker as required. Perhaps I'll stop recommending that they invest in understanding rather than just following the advice from the bloke down the pub.