Overpaying or not?

Oakwoodram

Hi,
I’ve recently come into a bit of money from inheritance and not sure what to do RE my two mortgages.
Both have 11 years left (one with 80k remaining & the other with 12k remaining). They are both currently on 5-year fixed & 1.75% which both end on Dec 31st this year.
Although I have enough to pay off the 80k mortgage my preference is to pay ‘some’ money off, say clear the 12k one and pay maybe 20% of the 80k one & keep the rest of my inheritance in a savings account so I have it when needed & it gathers interest at a decent rate.
My question is, when would you overpay on the 80k one i.e. now (I think I can pay 10% with a penalty) or wait until it this 5-year ends in Dec, get a new mortgage deal and THEN pay 10% off it. I’m assuming it would be best to pay off the 12k one off when it ends in Dec too?
Thank you.

jennifernil

I would put the money in the best savings account you can find, aim for at least 4.5%, and wait till the 5 year mortgage period is up.

Review rates at that time, keep a good emergency fund, then reduce or pay off the mortgages when it comes time to remortgage.

Seasalt3

I agree with above put the money into a high interest savings account until your mortgage rate expires.  Check out Kent Reliance they offer good rates of interest over 5% in their easy access account.

Albermarle

I do not disagree with the answers given, especially as the current low mortgage rate will only last for another few months. Just to say there are other options rather than paying off the mortgage/ putting the money in a savings account.
Topping up a pension for example. Or having longer term savings/investments.
Or do a bit of everything.

Ganga

jennifernil said:

I would put the money in the best savings account you can find, aim for at least 4.5%, and wait till the 5 year mortgage period is up.

Review rates at that time, keep a good emergency fund, then reduce or pay off the mortgages when it comes time to remortgage.

They both end in December this year.

jennifernil

Yes, I saw that, but that is still 8-9 months away.  Better to earn 4.5-5% interest on the money for a while than to immediately start overpaying a mortgage with an interest rate of 1.75%.    Also gives the OP time to think about what they want to do.   

Ectophile

Check whether there is a penalty for overpaying.  There often is.

If so, you definitely want to follow the advice of the others.  Keep the money.  Then when the fixed rate runs out, you can overpay as much as you like.  Then sign up for another fixed deal.

pieroabcd

All savings account that I've seen give some decent interest only on the first 5k, or did I miss something?
Also, most of them only if you freeze the money for N years.

I would overpay ASAP. There's nothing like a life without debts.

Good that the end of the fixed term is near, but in general in many cases overpaying you pay less even if there's a charge 

Sistergold

Put the money you want to use as overpayment and emergency fund into an easy access account. The rest into a longer term investment account. Wait till December and reduce mortgage to the amount you want, keep them other for emergency. You can then start saving the money that has reduced from your monthly mortgage payments. 

Bigphil1474

If you pay off your mortgage you are basically just moving your savings from a savings account into your property. The only question is where does the money work best for you. On your current mortgage it would work best for you elsewhere (you are basically receiving a cheap loan to spend the money however you want). By December, I'd expect you to struggle to get a new mortgage which has an interest rate less than double what you are paying now, so that will make a difference to what you pay.

Depends on what life you want of course, but if it was me, I'd spend a few days now trying to get the money into places that make me the most money, and then pay off the mortgage completely when the deal ends at the end of the year. You wouldn't need to sign up to a new deal at that time, just go on to the SVR, and pay off as soon as you can. Yes, it reduces how quickly you can get hold of a chunk of money if you need it, but you will also have the mortgage payment money extra each month and you could always re-mortgage should the need arise. 

Albermarle

pieroabcd said:

All savings account that I've seen give some decent interest only on the first 5k, or did I miss something?
Also, most of them only if you freeze the money for N years.

I would overpay ASAP. There's nothing like a life without debts.

Good that the end of the fixed term is near, but in general in many cases overpaying you pay less even if there's a charge 

Not sure where you got these ( wrong ) ideas from.

Normal savings account pay the interest on everything you have in there, not just the first £5K.

You can have easy access accounts, with immediate availability but a potentially variable interest rate. Or a fixed rate where the money is tied up . The choice is yours.

Compare The Best Savings Accounts UK | Rates from 7.00% (moneyfactscompare.co.uk)