Using a limp sum before remortgaging

Dai.rjones

Hi - My current mortgage deal will expire in the new year at which point I'll have around 50k remaining and a 6 year term. I am in a position where I could take 10k off this sum. Would it be beneficial to do so, or are there better options? My savings rate is only 3% so my assumption is that its better used to reduce the mortgage. Thanks
 

MorningcoffeeIV

It deends on what rate your savings and mortgage are at.

You should be getting far more than 3% on your savings.

tony863

It doesn't just depend on the savings rate. It mainly depends on affordability of your new monthly mortgage amount. Mine jumped from £1500 to £2100 so I put my entire life savings down and reduced it to £1850. It's still painful, but I can afford it much easier than the £2100.

People will disagree, but you have to decide if you can comfortably afford the increase. No point having £10k in your savings, but worrying month to month that you can't afford the mortgage. 

Bluebell1000

If that's all your savings then please consider keeping a lump sum back for emergencies e.g. new boiler.

jrawle

tony863 said:

It doesn't just depend on the savings rate. It mainly depends on affordability of your new monthly mortgage amount. Mine jumped from £1500 to £2100 so I put my entire life savings down and reduced it to £1850. It's still painful, but I can afford it much easier than the £2100.

People will disagree, but you have to decide if you can comfortably afford the increase. No point having £10k in your savings, but worrying month to month that you can't afford the mortgage. 

What's the difference between that and keeping the £10,000 in a savings account and using £250 of it each month towards your mortgage payment?

tony863

jrawle said:

tony863 said:

It doesn't just depend on the savings rate. It mainly depends on affordability of your new monthly mortgage amount. Mine jumped from £1500 to £2100 so I put my entire life savings down and reduced it to £1850. It's still painful, but I can afford it much easier than the £2100.

People will disagree, but you have to decide if you can comfortably afford the increase. No point having £10k in your savings, but worrying month to month that you can't afford the mortgage. 

What's the difference between that and keeping the £10,000 in a savings account and using £250 of it each month towards your mortgage payment?

As I said in my original post, it's about the monthly affordability. So in answer to your question, the difference is being able to more comfortably afford my mortgage. Keeping a lump sum as savings is great..... But if you are struggling on a monthly basis it makes sense to use it as a lump sum. 

housebuyer143

tony863 said:

jrawle said:

tony863 said:

It doesn't just depend on the savings rate. It mainly depends on affordability of your new monthly mortgage amount. Mine jumped from £1500 to £2100 so I put my entire life savings down and reduced it to £1850. It's still painful, but I can afford it much easier than the £2100.

People will disagree, but you have to decide if you can comfortably afford the increase. No point having £10k in your savings, but worrying month to month that you can't afford the mortgage. 

What's the difference between that and keeping the £10,000 in a savings account and using £250 of it each month towards your mortgage payment?

As I said in my original post, it's about the monthly affordability. So in answer to your question, the difference is being able to more comfortably afford my mortgage. Keeping a lump sum as savings is great..... But if you are struggling on a monthly basis it makes sense to use it as a lump sum. 

But you wouldn't be struggling, you would just be taking the equivalent payment from your savings each month if needed? It's the same thing apart from you no longer have a safety buffet in terms of ready cash.

dimbo61

So your allowed to pay off 10% each year with most lenders even in a fixed deal.
So maybe pay off £5,000 now and keep the rest in savings.
Build up savings over the next few months and overpay by another 10% next year

tony863

housebuyer143 said:

tony863 said:

jrawle said:

tony863 said:

It doesn't just depend on the savings rate. It mainly depends on affordability of your new monthly mortgage amount. Mine jumped from £1500 to £2100 so I put my entire life savings down and reduced it to £1850. It's still painful, but I can afford it much easier than the £2100.

People will disagree, but you have to decide if you can comfortably afford the increase. No point having £10k in your savings, but worrying month to month that you can't afford the mortgage. 

What's the difference between that and keeping the £10,000 in a savings account and using £250 of it each month towards your mortgage payment?

As I said in my original post, it's about the monthly affordability. So in answer to your question, the difference is being able to more comfortably afford my mortgage. Keeping a lump sum as savings is great..... But if you are struggling on a monthly basis it makes sense to use it as a lump sum. 

But you wouldn't be struggling, you would just be taking the equivalent payment from your savings each month if needed? It's the same thing apart from you no longer have a safety buffet in terms of ready cash.

That's not correct. I was saving £200pm, so how will that cover the £600 increase. If what you meant was taking the £600 from my savings per month, you're wrong again. My savings had penalty charges for withdrawing.

Like I said.... And I'll say it for a third time, it's about your monthly affordability 

Newbie_John

tony863 said:

housebuyer143 said:

tony863 said:

jrawle said:

tony863 said:

It doesn't just depend on the savings rate. It mainly depends on affordability of your new monthly mortgage amount. Mine jumped from £1500 to £2100 so I put my entire life savings down and reduced it to £1850. It's still painful, but I can afford it much easier than the £2100.

People will disagree, but you have to decide if you can comfortably afford the increase. No point having £10k in your savings, but worrying month to month that you can't afford the mortgage. 

What's the difference between that and keeping the £10,000 in a savings account and using £250 of it each month towards your mortgage payment?

As I said in my original post, it's about the monthly affordability. So in answer to your question, the difference is being able to more comfortably afford my mortgage. Keeping a lump sum as savings is great..... But if you are struggling on a monthly basis it makes sense to use it as a lump sum. 

But you wouldn't be struggling, you would just be taking the equivalent payment from your savings each month if needed? It's the same thing apart from you no longer have a safety buffet in terms of ready cash.

That's not correct. I was saving £200pm, so how will that cover the £600 increase. If what you meant was taking the £600 from my savings per month, you're wrong again. My savings had penalty charges for withdrawing.

Like I said.... And I'll say it for a third time, it's about your monthly affordability 

You both could be right, all depends on exact numbers.
Monthly affordability is important but you not always need to put all-in to savings, you can find best proportion by playing with numbers - knowing start date of your mortgage rate, best saving account you can secure - fixed/easy-access, existing rate.. 

Among the possible scenario's of OPs question their new mortgage could start in March next year, they could be on 1% rate now - then the best option would be something like putting £5k to 1 year fixed at 6.06%, £5k to easy access at 4.4% and use the easy access to cover the first 6 month of higher payments, once the fixed is finished use that amount to pay the rest.. 

Obviously it's a lot of hassle, but we're here to talk about best money savings - not the easiest money saving option - which would be overpaying mortgage right now.