Mortgage overpay vs invest

da4

Hi all,

I have managed to work myself into a position when I have a little extra cash.

My mortgage is currently £200,000 with 34 years left. I can overpay 5% per year without charge.
I have about £100 extra cash after all my bills have been paid. No debts other than mortgage.

Should I overpay the mortgage to reduce the term and costs or should I stick this money into an ISA? Not sure about putting it into my pension (currently paying in 16% including my employer contribution & am 34).

Thanks

grumbler

da4 said:

My mortgage is currently £200,000 with 34 years left. I can overpay 5% per year without charge.
I have about £100 extra cash after all my bills have been paid. No debts other than mortgage.

You forgot to mention the most important figure - your mortgage interest rate.

jrawle

Do you have any other savings? You need some cash in an easily accessible account (you should be able to get around 5% interest too) for emergencies/unforeseen bills before thinking about overpaying or longer term investments. You may well already have this, but your post doesn't mention savings.

Hoenir

Do you intend to move at some point in the future? 

34 years is a long mortgage term. Shortening it will save you thousands in interest, 

Have a play on the calculator below, You may well be surprised. 

https://www.calculator.net/mortgage-calculator-uk.html

grumbler

Hoenir said:

...Shortening it will save you thousands in interest,

....

Have a play on the calculator below, You may well be surprised. 

https://www.calculator.net/mortgage-calculator-uk.html

Does it take into account the interest you can get on your savings?

da4

I have about one year's salary in savings

da4

Hoenir said:

Do you intend to move at some point in the future? 

34 years is a long mortgage term. Shortening it will save you thousands in interest, 

Have a play on the calculator below, You may well be surprised. 

https://www.calculator.net/mortgage-calculator-uk.html

Not sure, I think I might move but not in the next couple of years for sure

Newbie_John

You haven't really mentioned the key things - mortgage rate and how much savings you have?
£100 is not much really, I would open one of the regular saver account and put money there.
For example First Direct pays 7% and that will beat majority of mortgage rates (not sure if you can pay out without losing interest so this is just an idea).
Gives you access to cash in emergency etc. 

And getting 7% in interests is better than paying 5% (assumed) mortgage rate.

Altior

OP mentions 'invest'. Ordinarily that means equities and bonds, as opposed to cash. But they should have a good cash buffer.

Think of it this way, OP. Putting funds in a pension means those funds are locked away. Putting funds into a mortgage means they are locked away, unless you do something radical and expensive. Ideally you want a third funnel where it isn't locked away. You can switch it over to either of the other two funnels if the conditions are right. Stocks & Shares and Cash ISA's are as good a vehicle as any, ideally both. 

Hoenir

grumbler said:

Hoenir said:

...Shortening it will save you thousands in interest,

....

Have a play on the calculator below, You may well be surprised. 

https://www.calculator.net/mortgage-calculator-uk.html

Does it take into account the interest you can get on your savings?

Savings rates are progressively drifting lower. Being aware helps to focus ones mind. 

Hoenir

Newbie_John said:

You haven't really mentioned the key things - mortgage rate and how much savings you have?
£100 is not much really, I would open one of the regular saver account and put money there.
For example First Direct pays 7% and that will beat majority of mortgage rates (not sure if you can pay out without losing interest so this is just an idea).
Gives you access to cash in emergency etc. 

And getting 7% in interests is better than paying 5% (assumed) mortgage rate.

The 7% averages out at around 50% of that over the course of a years saving. Headline numbers draw people in.