Saving vs mortgage overpay

dont_use_vistaprint

Hi I’ve read a few articles on this & used someone online calcs  but found very little that helps with detailed calcs concerning the period before a fix ends with lump sum payments incorporating penalty fees etc .

So for example 90k owed on property worth 350k. Mortgage has 13 years left and is 1.39% until end of August then 4.95 for two years. Fee free 10% overpay already used this calendar year. Further overpayment will be a 1% fee until end Aug , then 2%.

IA Saving are earning  4.51 with exception of small amount earning 5.12 and rates will likely increase but interest may be subject to higher rate tax

looking to make a one off payment of 50-70K which will wipe out 75% of IA savings.

One thing I’ve considered is how spending habits are worse when holding high amounts of IA savings, being extra generous with family and not always looking for bargains etc 

any advice ? 

Bigwheels1111

Personally I always vote for paying the mortgage off, Finished me at 41 years old and retired at 43 as such.
The interest on my savings for the next 7 year will provide me an income to more than suit my needs.
Without touching the capital.
I will even have to file a self assessment form.
As for giving more money and gifts to family, well that’s just shooting your self in the foot.
Paying it off will force you to worry about your savings and make you build them up again resolving the family issue.
If Ive read it correctly the fee to pay it off is £900 by August & £1800 aftwards.
£1251 interest at 1.39%
£4455 interest at 4.95% 1 year.
So £4455 - £900 fee = £3555 saved next year after penalty.
Mortgage payments for 12 months £630 ish now 12 x £630 = £7560 + interest not paid.

Newbie_John

To limit the possibility of extra spending you can always put your money into a fixed 2 years account at 6% - even after tax you will still get more than 4.8% (assuming 20% tax rate).
In your case I would continue overpaying 10% next year, the year after, then wouldn't be fixing for another term and when your mortgage 2 years term ends - pay off mortgage in full.

But before doing so, confirm with bank that's possible and also review the situation with saving rates in 2 years time.

grumbler

dont_use_vistaprint said:

Hi I’ve read a few articles on this & used someone online calcs  but found very little that helps with detailed calcs concerning the period before a fix ends with lump sum payments incorporating penalty fees etc .

So for example 90k owed on property worth 350k. Mortgage has 13 years left and is 1.39% until end of August then 4.95 for two years. Fee free 10% overpay already used this calendar year. Further overpayment will be a 1% fee until end Aug , then 2%.
...

looking to make a one off payment of 50-70K which will wipe out 75% of IA savings.

10% of the principal or of the current balance? And the fee is ... ?

IA Saving are earning  4.51 with exception of small amount earning 5.12 and rates will likely increase but interest may be subject to higher rate tax

How higher? 40%?

One thing I’ve considered is how spending habits are worse when holding high amounts of IA savings, being extra generous with family and not always looking for bargains etc ... any advice ?

Advice on your spending habits? I don't have any problems with mine.

grumbler

Bigwheels1111 said:

Personally I always vote for paying the mortgage off,

I vote for more profitable option.

Albermarle

dont_use_vistaprint said:

Hi I’ve read a few articles on this & used someone online calcs  but found very little that helps with detailed calcs concerning the period before a fix ends with lump sum payments incorporating penalty fees etc .

So for example 90k owed on property worth 350k. Mortgage has 13 years left and is 1.39% until end of August then 4.95 for two years. Fee free 10% overpay already used this calendar year. Further overpayment will be a 1% fee until end Aug , then 2%.

IA Saving are earning  4.51 with exception of small amount earning 5.12 and rates will likely increase but interest may be subject to higher rate tax

looking to make a one off payment of 50-70K which will wipe out 75% of IA savings.

One thing I’ve considered is how spending habits are worse when holding high amounts of IA savings, being extra generous with family and not always looking for bargains etc 

any advice ? 

Often people use the extra money to top up their pension.

jimjames

dont_use_vistaprint said:

So for example 90k owed on property worth 350k. Mortgage has 13 years left and is 1.39% until end of August then 4.95 for two years. Fee free 10% overpay already used this calendar year. Further overpayment will be a 1% fee until end Aug , then 2%.

any advice ? 

If you really want to pay it off the mortgage then it should be possible to do so between the time the old mortgage ends and the new one starts if you can go onto SVR for a day or two. Some lenders allow you to pay off with penalty in the last 30 days - Nationwide I believe is one.

VNX

Speak to your lender to know for sure.

im with Halifax and my fixed deal ends 31/12/24 and I did an online chat with them and then laid out very clearly dates and any fees associated with cleaning my mortgage which I have screenshots of now if I ever need.

Sg28

dont_use_vistaprint said:

Hi I’ve read a few articles on this & used someone online calcs  but found very little that helps with detailed calcs concerning the period before a fix ends with lump sum payments incorporating penalty fees etc .

So for example 90k owed on property worth 350k. Mortgage has 13 years left and is 1.39% until end of August then 4.95 for two years. Fee free 10% overpay already used this calendar year. Further overpayment will be a 1% fee until end Aug , then 2%.

IA Saving are earning  4.51 with exception of small amount earning 5.12 and rates will likely increase but interest may be subject to higher rate tax

looking to make a one off payment of 50-70K which will wipe out 75% of IA savings.

One thing I’ve considered is how spending habits are worse when holding high amounts of IA savings, being extra generous with family and not always looking for bargains etc 

any advice ? 

I assume you've locked in a new deal to start end of August?

My plan would be stop all overpayments now. Put the 70k in a 2 year fix at 6% (or hopefully more!)

In 2 years when your fix matures and the mortgage deal ends use the money to pay off the mortgage. 

This does depend on your tax circumstances though.

saajan_12

dont_use_vistaprint said:

Hi I’ve read a few articles on this & used someone online calcs  but found very little that helps with detailed calcs concerning the period before a fix ends with lump sum payments incorporating penalty fees etc .

So for example 90k owed on property worth 350k. Mortgage has 13 years left and is 1.39% until end of August then 4.95 for two years. Fee free 10% overpay already used this calendar year. Further overpayment will be a 1% fee until end Aug , then 2%. - how exactly is the 4.95% 2 year mortgage arranged - is it a new mortgage, which you could just get for a new (lower) amount, or is it a continuation with new fixed rate conditional on being the same capital balance? 

IA Saving are earning  4.51 with exception of small amount earning 5.12 and rates will likely increase but interest may be subject to higher rate tax - if you're earning £4k + tax, you'll almost certainly be paying some tax (unless very low earnings) what rate depends on the exact band and earning. Its the post tax interest that you should compare, we can help if you share details. 

looking to make a one off payment of 50-70K which will wipe out 75% of IA savings. - does this need to be in instant access - could leave enough for an emergency fund and move the rest to a fixed rate account. Also do you ahve any in ISAs or pensions? 

One thing I’ve considered is how spending habits are worse when holding high amounts of IA savings, being extra generous with family and not always looking for bargains etc - that depends on your personal discipline. Moving the money to a fixed rate account may help with this, as its much the same as the money being paid down on a mortgage. 

any advice ? 

Few more bits of info we need as the advice wiill skew based on these:
- current tax bracket (and if youre close to a boundary)
- ISA & pension allowances used up already? 

dont_use_vistaprint

VNX said:

Speak to your lender to know for sure.

im with Halifax and my fixed deal ends 31/12/24 and I did an online chat with them and then laid out very clearly dates and any fees associated with cleaning my mortgage which I have screenshots of now if I ever need.

I don’t  need to do this , I fully understand the fees for overpaying , my question was more about the compound calculations of interest charged and the fees vs the savings.

logic suggest that savings are making more than 4.95 % it’s better to save than overpay , then fees of 1% make this even more clear but I just wanted to get my head around the calculations to be sure