Overpaying my mortgage.

Exodi

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

I'm glad someone asked this before it was too late...

Carl2510 said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

1.94.

I am currently looking at putting money into savings too. 

But my thought process is the more I pay off now the more interest I would save in the long run? Or am I thinking that all wrong.

my aim is to get it down to below £150K before my mortgage renewal is up.

It makes no financial sense paying debt off that you are paying 1.94% interest on, when you could earn 5%+ holding it in a savings account. If the fixed deal ends in a round period (e.g. 12 months) and you have the funds available, I'd slap all of it into a fixed bond today.

I fear you are thinking about it all wrong - it's actually extremely common in this scenario. To help you visualise it, if you paid off £100 off your 1.94% mortgage on the 1st January, you would save £1.94 in interest every year BUT If you put the same £100 into a savings account on the 1st January earning 5%, you would earn £5.00 in interest every year.

It is as simple as bigger number = better (well mostly, you may pay tax on savings interest).

But you don't need to abandon the idea of overpaying your mortgage or moving down an LTV bracket because you put the money in savings now. As you approach renewing your mortgage at a much higher rate, there's no reason you couldn't drop a big chunk of your savings in then.

Carl2510

No Exodi said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

I'm glad someone asked this before it was too late...

Carl2510 said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

1.94.

I am currently looking at putting money into savings too. 

But my thought process is the more I pay off now the more interest I would save in the long run? Or am I thinking that all wrong.

my aim is to get it down to below £150K before my mortgage renewal is up.

It makes no financial sense paying debt off that you are paying 1.94% interest on, when you could earn 5%+ holding it in a savings account. If the fixed deal ends in a round period (e.g. 12 months) and you have the funds available, I'd slap all of it into a fixed bond today.

I fear you are thinking about it all wrong - it's actually extremely common in this scenario. To help you visualise it, if you paid off £100 off your 1.94% mortgage on the 1st January, you would save £1.94 in interest every year BUT If you put the same £100 into a savings account on the 1st January earning 5%, you would earn £5.00 in interest every year.

It is as simple as bigger number = better (well mostly, you may pay tax on savings interest).

But you don't need to abandon the idea of overpaying your mortgage or moving down an LTV bracket because you put the money in savings now. As you approach renewing your mortgage at a much higher rate, there's no reason you couldn't drop a big chunk of your savings in then.

I think I see where you are coming from.

My mortgage deal says it ends on the 01/01/2026 even though I only started the mortgage in March 21.
Which i find strange.

so you’re saying it’s best for me to at least stick most of my savings into some sort of fixed savings account now for a year and then when it comes round to same time next year I could look at then paying off 10% of my mortgage?

and then put again whatever I have left into more savings accounts depending on what rates are come next year.

I’ve already got one fixed savings account for 12 months.


thanks for your response.

Exodi

Carl2510 said:

No Exodi said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

I'm glad someone asked this before it was too late...

Carl2510 said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

1.94.

I am currently looking at putting money into savings too. 

But my thought process is the more I pay off now the more interest I would save in the long run? Or am I thinking that all wrong.

my aim is to get it down to below £150K before my mortgage renewal is up.

It makes no financial sense paying debt off that you are paying 1.94% interest on, when you could earn 5%+ holding it in a savings account. If the fixed deal ends in a round period (e.g. 12 months) and you have the funds available, I'd slap all of it into a fixed bond today.

I fear you are thinking about it all wrong - it's actually extremely common in this scenario. To help you visualise it, if you paid off £100 off your 1.94% mortgage on the 1st January, you would save £1.94 in interest every year BUT If you put the same £100 into a savings account on the 1st January earning 5%, you would earn £5.00 in interest every year.

It is as simple as bigger number = better (well mostly, you may pay tax on savings interest).

But you don't need to abandon the idea of overpaying your mortgage or moving down an LTV bracket because you put the money in savings now. As you approach renewing your mortgage at a much higher rate, there's no reason you couldn't drop a big chunk of your savings in then.

I think I see where you are coming from.

My mortgage deal says it ends on the 01/01/2026 even though I only started the mortgage in March 21.
Which i find strange.

so you’re saying it’s best for me to at least stick most of my savings into some sort of fixed savings account now for a year and then when it comes round to same time next year I could look at then paying off 10% of my mortgage?

and then put again whatever I have left into more savings accounts depending on what rates are come next year.

I’ve already got one fixed savings account for 12 months.

thanks for your response.

It's not a bad idea, any is better than overpaying a 1.94% mortgage that you have until 2026. Recommendations to overpay your mortgage were mainly from back in the day savings accounts paid 0.1% interest. Now you can have the opposite situation where some people are fixed on low rate mortgages and have access to high rate savings, it doesn't make sense overpaying.

Think of it like this... I lend you £100 and I tell you, for every year until you give me the £100 back, you have to pay me £1.94 in interest, which you agree to.

One of your friends comes along later and says if you lend him £100, for every year until you ask for it back, he'll give you £5 in interest.

You don't need the £100 any more, but realise that if you gave me back the £100, you'd save the £1.94 a year you were paying me HOWEVER if you lended it to your friend, you'd get £5, or after paying me the £1.94, £3.06 profit for you to keep.

If one day in the future, say on the 1st January 2026, I said you'd now have to pay me £5 in interest, then you might decide at that point to get the money back from your friend and pay me off.

Back to the mortgage-

You could either put it in a 1 year bond and overpay 10% each year, or you could put it in a 2 year bond, and pay it just before and just after the switch... at worse if you have an absolute staggering amount of money (more than 20% of the mortgage), just make the overpayment in a gap between switching (e.g. deal ends 01/01, start a new deal a week after or whatever - the SMR interest for a few days would be negligible compared to the interest on the savings). Depending on the savings you have, an ISA might be better depending on the tax you'd pay on the savings interest.

You should of course keep some money aside for an emergency fund (in an easy-access paying 5%), and it's also not a bad idea to drip feed money into one of the regular savers paying 7-8%.

As is good practice on this forum - what is your pension situation?

Carl2510

I’m Exodi said:

Carl2510 said:

No Exodi said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

I'm glad someone asked this before it was too late...

Carl2510 said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

1.94.

I am currently looking at putting money into savings too. 

But my thought process is the more I pay off now the more interest I would save in the long run? Or am I thinking that all wrong.

my aim is to get it down to below £150K before my mortgage renewal is up.

It makes no financial sense paying debt off that you are paying 1.94% interest on, when you could earn 5%+ holding it in a savings account. If the fixed deal ends in a round period (e.g. 12 months) and you have the funds available, I'd slap all of it into a fixed bond today.

I fear you are thinking about it all wrong - it's actually extremely common in this scenario. To help you visualise it, if you paid off £100 off your 1.94% mortgage on the 1st January, you would save £1.94 in interest every year BUT If you put the same £100 into a savings account on the 1st January earning 5%, you would earn £5.00 in interest every year.

It is as simple as bigger number = better (well mostly, you may pay tax on savings interest).

But you don't need to abandon the idea of overpaying your mortgage or moving down an LTV bracket because you put the money in savings now. As you approach renewing your mortgage at a much higher rate, there's no reason you couldn't drop a big chunk of your savings in then.

I think I see where you are coming from.

My mortgage deal says it ends on the 01/01/2026 even though I only started the mortgage in March 21.
Which i find strange.

so you’re saying it’s best for me to at least stick most of my savings into some sort of fixed savings account now for a year and then when it comes round to same time next year I could look at then paying off 10% of my mortgage?

and then put again whatever I have left into more savings accounts depending on what rates are come next year.

I’ve already got one fixed savings account for 12 months.

thanks for your response.

It's not a bad idea, any is better than overpaying a 1.94% mortgage that you have until 2026. Recommendations to overpay your mortgage were mainly from back in the day savings accounts paid 0.1% interest. Now you can have the opposite situation where some people are fixed on low rate mortgages and have access to high rate savings, it doesn't make sense overpaying.

Think of it like this... I lend you £100 and I tell you, for every year until you give me the £100 back, you have to pay me £1.94 in interest, which you agree to.

One of your friends comes along later and says if you lend him £100, for every year until you ask for it back, he'll give you £5 in interest.

You don't need the £100 any more, but realise that if you gave me back the £100, you'd save the £1.94 a year you were paying me HOWEVER if you lended it to your friend, you'd get £5, or after paying me the £1.94, £3.06 profit for you to keep.

If one day in the future, say on the 1st January 2026, I said you'd now have to pay me £5 in interest, then you might decide at that point to get the money back from your friend and pay me off.

Back to the mortgage-

You could either put it in a 1 year bond and overpay 10% each year, or you could put it in a 2 year bond, and pay it just before and just after the switch... at worse if you have an absolute staggering amount of money (more than 20% of the mortgage), just make the overpayment in a gap between switching (e.g. deal ends 01/01, start a new deal a week after or whatever - the SMR interest for a few days would be negligible compared to the interest on the savings). Depending on the savings you have, an ISA might be better depending on the tax you'd pay on the savings interest.

You should of course keep some money aside for an emergency fund (in an easy-access paying 5%), and it's also not a bad idea to drip feed money into one of the regular savers paying 7-8%.

As is good practice on this forum - what is your pension situation?

Pretty much just paying basic for pension.

Am I right in thinking even if I opened an ISA now I would only get whatever I earn up until April 2024? And then I’d have to start again anyway so best to wait till April before I open a fixed Rate ISA?

i currently have a fixed account at 5.66 with £17K in. That matures next December.

Would it be wise for my partner to put some in a 90 day notice period till April and both the max out a couple ISA’s as long as we leave enough out for emergencies.

Or is it better to be using accessible ones?

Thanks.

Hoenir

Carl2510 said:

My mortgage deal says it ends on the 01/01/2026 even though I only started the mortgage in March 21.
Which i find strange.

That's to do with the way in which mortgage products are offered. Mortgage products are released in tranches. For example your mortgage was part of a £300 million tranche. The product will remain on "sale" until either all the funds are taken or the lending market moves rate rise. Some people will have fixed periods over 5 years some shorter depending upon when their own mortgage starts. They will share one commonality though. All will end on the same date.  

Carl2510

Hoenir said:

I’m Carl2510 said:

My mortgage deal says it ends on the 01/01/2026 even though I only started the mortgage in March 21.
Which i find strange.

That's to do with the way in which mortgage products are offered. Mortgage products are released in tranches. For example your mortgage was part of a £300 million tranche. The product will remain on "sale" until either all the funds are taken or the lending market moves rate rise. Some people will have fixed periods over 5 years some shorter depending upon when their own mortgage starts. They will share one commonality though. All will end on the same date.  

Ah ok.

Thankyou.

Exodi

Carl2510 said:

I’m Exodi said:

Carl2510 said:

No Exodi said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

I'm glad someone asked this before it was too late...

Carl2510 said:

Andreg said:

I don't know what your mortgage rate is, but if you're on a fixed rate its likely to be less than what you could earn from a savings account, so you'd be better off saving the money for a couple of years then paying the mortgage down just before the renewal date.

1.94.

I am currently looking at putting money into savings too. 

But my thought process is the more I pay off now the more interest I would save in the long run? Or am I thinking that all wrong.

my aim is to get it down to below £150K before my mortgage renewal is up.

It makes no financial sense paying debt off that you are paying 1.94% interest on, when you could earn 5%+ holding it in a savings account. If the fixed deal ends in a round period (e.g. 12 months) and you have the funds available, I'd slap all of it into a fixed bond today.

I fear you are thinking about it all wrong - it's actually extremely common in this scenario. To help you visualise it, if you paid off £100 off your 1.94% mortgage on the 1st January, you would save £1.94 in interest every year BUT If you put the same £100 into a savings account on the 1st January earning 5%, you would earn £5.00 in interest every year.

It is as simple as bigger number = better (well mostly, you may pay tax on savings interest).

But you don't need to abandon the idea of overpaying your mortgage or moving down an LTV bracket because you put the money in savings now. As you approach renewing your mortgage at a much higher rate, there's no reason you couldn't drop a big chunk of your savings in then.

I think I see where you are coming from.

My mortgage deal says it ends on the 01/01/2026 even though I only started the mortgage in March 21.
Which i find strange.

so you’re saying it’s best for me to at least stick most of my savings into some sort of fixed savings account now for a year and then when it comes round to same time next year I could look at then paying off 10% of my mortgage?

and then put again whatever I have left into more savings accounts depending on what rates are come next year.

I’ve already got one fixed savings account for 12 months.

thanks for your response.

It's not a bad idea, any is better than overpaying a 1.94% mortgage that you have until 2026. Recommendations to overpay your mortgage were mainly from back in the day savings accounts paid 0.1% interest. Now you can have the opposite situation where some people are fixed on low rate mortgages and have access to high rate savings, it doesn't make sense overpaying.

Think of it like this... I lend you £100 and I tell you, for every year until you give me the £100 back, you have to pay me £1.94 in interest, which you agree to.

One of your friends comes along later and says if you lend him £100, for every year until you ask for it back, he'll give you £5 in interest.

You don't need the £100 any more, but realise that if you gave me back the £100, you'd save the £1.94 a year you were paying me HOWEVER if you lended it to your friend, you'd get £5, or after paying me the £1.94, £3.06 profit for you to keep.

If one day in the future, say on the 1st January 2026, I said you'd now have to pay me £5 in interest, then you might decide at that point to get the money back from your friend and pay me off.

Back to the mortgage-

You could either put it in a 1 year bond and overpay 10% each year, or you could put it in a 2 year bond, and pay it just before and just after the switch... at worse if you have an absolute staggering amount of money (more than 20% of the mortgage), just make the overpayment in a gap between switching (e.g. deal ends 01/01, start a new deal a week after or whatever - the SMR interest for a few days would be negligible compared to the interest on the savings). Depending on the savings you have, an ISA might be better depending on the tax you'd pay on the savings interest.

You should of course keep some money aside for an emergency fund (in an easy-access paying 5%), and it's also not a bad idea to drip feed money into one of the regular savers paying 7-8%.

As is good practice on this forum - what is your pension situation?

Pretty much just paying basic for pension.

Am I right in thinking even if I opened an ISA now I would only get whatever I earn up until April 2024? And then I’d have to start again anyway so best to wait till April before I open a fixed Rate ISA?

i currently have a fixed account at 5.66 with £17K in. That matures next December.

Would it be wise for my partner to put some in a 90 day notice period till April and both the max out a couple ISA’s as long as we leave enough out for emergencies.

Or is it better to be using accessible ones?

Thanks.

Without getting too personal, whether you should use an ISA depends on your tax situation (namely your tax band and the savings amount) as non-ISA rates are typically higher. Many people use Cash ISA's unnecessarily

But if you were to open a fixed rate cash ISA, then you can put £20k in it this year (assuming no other ISA's) however, you don't only earn interest on it until the end of the tax year, it would stay open and you'd earn interest for as long as the bond is - a 2 year bond would stay active and pay interest for 2 years. You could open another one in April and put another £20k in that, meaning you can have multiple cash ISA's running side by side. The only rule is you can't open multiple cash ISA's in the same year.

I won't respond on the other points as they're based on a false assumption. If it was me and my plan was to put the money in a fixed account, I'd be trying to get it in in the next week or two so I could get two full years out of it before I'd potentially need the money at the rate switch.

On the pension point - money invested in a pension has the tax reimbursed (it's a bit more complicated, but that's the loose principle). If you are paying 40% tax on some of your earnings now, but expect to only be paying 20% on your pension, it can be very lucrative to put the money in your pension instead. It's never too early to think about.

Newbie_John

There is this common assumption that overpaying mortgage and reducing term is ALWAYS better than overpaying mortgage and reducing monthly payments which is also ALWAYS better than saving. (This used to be the case when savings were paying 0.5% and mortgages were 2%).

This is not true nowadays, you can achieve exactly the same results in either way.

And if you look closely to interest rates and keep your fingers away from savings - then savings is the best option out of all of them:

1) It allows you to earn money - if your mortgage rate is 2% and savings 5% - you are earning 3% of your saved balance.
2) Provides you with access to money in emergency situation.
3) You keep the freedom to end your mortgage whenever your saved balance exceeds the mortgage balance - you just don't sign up for another fixed term, you just move to SVR and pay it off fully.

Carl2510

Hi,

Thanks everyone for your input so far.

it’s been very helpful in helping me decide what to do

Me and my partner are getting a joint account this weekend so will have all our money together, and then I can start putting this money to good use instead of just sitting in a current account earning me nothing.

is there anything I should avoid when getting a joint account should we just get a bog standard account together or make it a joint savings account?

I don’t want to feel pressured by the bank employee into something I’ll regret.

Thanks

Newbie_John

Not really sure what joint account here helps with apart from visibility for both of you how much you have.

But things to consider in general:
1) best savings accounts:
https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/
2) best ISAs:
https://www.moneysavingexpert.com/savings/best-cash-isa/
3) tax on savings, depending on your salary, it could be 0% (if below personal allowance), it could be 20%, it could be 40%.. you may need to do tax return every year if you get a lot of interests otherwise it will be taken of your salary as higher tax (if above allowance)
4) with joint accounts - if you earn £500 a year, that goes £250 off your allowance and £250 of your partners
5) with ISAs, each of you can open one in a tax year and put there up to £20k between April - April
6) some of the best savings accounts don't accept joint applications - but you can create in your name and set interests rates to be paid monthly to the joint account
7) and the more obvious - easy access vs. fixed - but that's generally well described in the links above