Overpay mortgage or savings account?

dazzabee

Hi
I am currently 9 months into a 5 year fixed rate mortgage at 4.3%.   I am in a fortunate position to have some disposable income each month.
My question - is it better to make overpayments or pay money into a savings account with the current high interest rates on offer?
Many thanks
Jay

Tom_Hendo

If you can get Savings at a higher rate than 4.3% (after taking any tax on interest if applicable into account) and you would use the exact money plus interest to pay off your mortgage if rates dropped or you come to your mortgage 5 year term, then savings will marginally do better for you. 

simonsmithsays

Paying ones mortgage off early is much more than a 'financially better' question.

Even during the low interest rates times I'd have been an advocate for paying it off.

Genuinely good luck🤞

grumbler

simonsmithsays said:

Paying ones mortgage off early is much more than a 'financially better' question.

Nothing more except emotions.

If you think rationally, when regular savings accounts pay 7% it makes more sense not to overpay and save instead. That's if you don't pay 40% tax on your savings interest.

saajan_12

dazzabee said:

Hi
I am currently 9 months into a 5 year fixed rate mortgage at 4.3%.   I am in a fortunate position to have some disposable income each month.
My question - is it better to make overpayments or pay money into a savings account with the current high interest rates on offer?
Many thanks
Jay

Need more info - what tax band, how much existing savings, how much disposable income, how much can you overpay on the mortgage without ERCs? The answers will help determine 
- your savings interest net of tax
- how much room you have before worrying about penalties, should rates change in the future
- benefits of an emergency fund to avoid any short term finance risk

boingy

Pay off or reduce the mortgage. It's great for your mental health and, thus, is priceless.

grumbler

boingy said:

Pay off or reduce the mortgage. It's great for your mental health and, thus, is priceless.

For my mental health wasting money is detrimental. For the last several years of my tracker mortgage I had more than enough savings to pay it off and without any charges, but I was happy to make small profit because savings rates were much higher.

simonsmithsays

grumbler said:

simonsmithsays said:

Paying ones mortgage off early is much more than a 'financially better' question.

Nothing more except emotions.

If you think rationally, when regular savings accounts pay 7% it makes more sense not to overpay and save instead. That's if you don't pay 40% tax on your savings interest.

I'll bet there are a lot of struggling mortgage holders who wish they'd overpaid in recent years even though there were multiple RS paying well above the average mortgage rates.

Genuinely hope they can get through 

Sg28

simonsmithsays said:

grumbler said:

simonsmithsays said:

Paying ones mortgage off early is much more than a 'financially better' question.

Nothing more except emotions.

If you think rationally, when regular savings accounts pay 7% it makes more sense not to overpay and save instead. That's if you don't pay 40% tax on your savings interest.

I'll bet there are a lot of struggling mortgage holders who wish they'd overpaid in recent years even though there were multiple RS paying well above the average mortgage rates.

Im not sure why they would wish they'd overpaid, the money plus the extra interest is there in the savings account. They can use this to make lump sum payment once their deal expires. 

XzavierWalnut

I purchased my house in 1992 when rates were well into double figures, and managed to pay it off in 2002.
You never know what is around the corner, redundancy etc.
In my opinion, pay the mortgage. One less thing to worry about.

simonsmithsays

Sg28 said:

simonsmithsays said:

grumbler said:

simonsmithsays said:

Paying ones mortgage off early is much more than a 'financially better' question.

Nothing more except emotions.

If you think rationally, when regular savings accounts pay 7% it makes more sense not to overpay and save instead. That's if you don't pay 40% tax on your savings interest.

I'll bet there are a lot of struggling mortgage holders who wish they'd overpaid in recent years even though there were multiple RS paying well above the average mortgage rates.

Im not sure why they would wish they'd overpaid, the money plus the extra interest is there in the savings account. They can use this to make lump sum payment once their deal expires. 

Peace of mind, knowing they're debt free, is worth a huge amount especially if circumstances change and those savings you have are no more.