WWYD: overpay or save?

Drummer1991
Drummer1991 Posts: 30
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edited 30 October 2023 at 10:24PM in Mortgages & endowments

Current situation:

  • Live in new build 3 bed with wife and new child 
  • New build isn’t where we want to stay. Bought at height of house price craze, already depreciating from what we bought it at. They’re also now building a new estate next door, so there will be brand new houses available for a good 10 years to come. 
  • Want to move to ‘forever home’ in about 3-5 years. 
  • Mortgage in 2 parts: part 1 (c£90k), fixed to August 28 at 4.55%; and part 2 (c.£112k) fixed to April 2027 at 2.89%. 
  • After all bills, expenses, and monthly ‘spending money’, saving around £1400 a month 
  • Have a £20k nest egg on ISAs and savings, and around £5k sitting for ‘just for fun’ savings in a 4% account. 
  • I’m well on the higher tax threshold c£70k PA living in Scotland) but my wife is nowhere near it (c£25k PA in Scotland). 
  • ISA in my name, savings in wife. I’ve nearly maxed out my savings interest allowance this year due to moving savings to ISA late, but it’ll start again in April. 

Question is, what do we do with the savings? 

Option 1 - overpay part 1 of mortgage to full 10% every year (by making monthly overpayments)

Option 2 - put into savings account and use to put deposit down on new house when ready. 

In the past I’d always have wanted to overpay the mortgage, but because it’s a new build and already depreciating (please, no comments about how bad an interment a new build is - it’s done, I can’t change that) I’m wondering if not tying the money up in the house and safeguarding against any future depreciation is the best idea. 

Thoughts? 

Comments

  • I would open an easy access ISA in wife's name.
    Best one pays 5.08% so better than your worst mortgage:
    https://www.moneysavingexpert.com/savings/best-cash-isa/#topeasy

    Or there are 5.7% fixed - so you could move all your savings there and then rebuild savings monthly?
  • grumbler
    grumbler Posts: 58,629
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    edited 31 October 2023 at 11:29AM


    •  I’m wondering if not tying the money up in the house and safeguarding against any future depreciation is the best idea. 


    I don't see how saving or paying the mortgage off can affect in any way possible future depreciation.*
    Just compare the savings interest (after tax or tax-free) to the mortgage interest, put all emotions aside and make a rational decision.
    And yes, you are right, generally, money you use to overpay the mortgage is  unacsessible or more difficult to access than savings.
    * ETA: I see - do you mean money depreciating  that was used to pay the mortgage off?  Yes it will depreciate faster if the morgage rate is lower than the (net) savings rate.
    We are born naked, wet and hungry...Then things get worse. :(

    .withdrawal, NOT withdrawel ..bear with me, NOT bare with me
    .definitely, NOT definately ......separate, NOT seperate
    should have, NOT should of
    .....guaranteed, NOT guarenteed
  • RelievedSheff
    RelievedSheff Posts: 11,108
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    We do a mixture of both saving and overpaying on the mortgage.
  • We do a mixture of both saving and overpaying on the mortgage.
    1. Max out your savings allowance
    2. Max out your married partner savings allowance
    3. If no plans for short term cash needs - max out your pension. If you are 40% tax payer put more/all above £50k salary into pension - you could get that back tax free in the far future.
    4. Max out your ISA yearly allowance
    5. Max out your married partner ISA yearly allowance
    6. Consider premium bonds

    With mortgages 2.89% and 4.55% and savings accounts/ISAs 5%+ there aren't aby benefits of overpaying it. 
    Once things change and savings accounts drop to 1% then you can overpay your mortgage with the above savings in a lump sum when your fixed term ends.
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