Overpay mortgage or savings account?

Khaderbhai

Overpaying is a good habit to get into. As others have said, there is something different about getting the mortgage cleared vs purley having savings (even if the savings rates are higher). 

Sg28

Ive always taken long term fixes on my mortgage, as I knew rates would rise. I currently have part on a 5 year fix at 2% expiring September and part on a 10 year fix at 2.29% expiring in 2028. I have the money to pay it all off.

Ill clear the first part end of September.

The second part is currently in a 1 year fix at 6% the difference in rates means im earning £200 per month profit. Plus the interest paid more than covers the mortgage payment, so Im effectively mortgage free already anyway. 

grumbler

simonsmithsays said:

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.

Why are they no more?

You can have the same peace of mind with an offset mortgage. Even more peace of mined because savings are more easy to access in case of (real) emergency, i.e. you have extra flexibility.

Mortgage + savings = offset mortgage.

Just make sure that this combination doesn't cost you more than a simple mortgage.

PixelPound

Khaderbhai said:

Overpaying is a good habit to get into. As others have said, there is something different about getting the mortgage cleared vs purley having savings (even if the savings rates are higher). 

Mortgage is a liability, savings are an asset. Getting rid of a liability feels better than just building up an asset. 

Would like to know where @dazzabee is in regards to savings etc.

It's best to ensure you have enough savings for an emergency - it's okay overpaying your mortgage but if you were made redundant, the bank isn't going to say as you've overpaid you can skip a few payments until you get a new job (I suppose new changes might allow it now, but wouldn't want to rely on that).

The "enough to pay off your mortgage" level of saving is an interesting one. Is it more on the differential between rates, or those who prefer to pay it off, would pay a 2% mortgage off early even if saving rates were 6%?

Albermarle

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