Mortgage overpayment

kazzymac_2

Hi,  I have a 5 year fixed rate mortgage at 1.99% due to end in November 2026 (105k ) and additional borrowing also on 5 year fixed rate at 3.62% due to end in December 2027. (20k)

I have 14 years to run on both. 

I am currently overpaying the additional borrowing by £250 to try and clear as much as possible  before the fixed rate ends on the basis that this is the highest interest rate.

However I am now thinking that maybe I should be overpaying on the main mortgage now so when the fixed rate ends in 2026 and I have to remorgage, the outstanding balance will be lower as obviously the interest rate will be much higher than I am paying now.  At that point I would switch the overpayment to the main mortgage being the higher interest rate of the two mortages.

Is that the correct way to think? Or should I just be putting the overpayment into a saving account at 4 or 5% and pay off a bulk each year.  And if so which one?

Thank you for any advice.

jrawle

Why not put the money into a savings account at 5%, then when your mortgage rate expires, use the money you have saved to pay off a lump sum at the point you choose a new deal. Most lenders allow you to make unlimited overpayments at that point, without even having to drop onto the SVR for a brief time.

That assumes your new mortgage rate will be higher than both the savings rate and your "additional borrowing" rate, which it probably will be.

Newbie_John

£250 a month is £3000 a year, and that's almost like keeping £1500 for a year in savings account (your balance in 1st month is £250, then £500.. and in 12th month £3000).

5% savings of £1500 = £75
3.62% mortgage costs = £54
1.99% mortgage costs = £30

By overpaying either you save £30 or £54, saving account would give you £75.

Most mortgages allow for 10% overpayment each year, you can save into savings account and then pay it in lump sum whenever %>%

kazzymac_2

Thank you.  I think I need to move away from the 'emotional' side of seeing the mortgage decrease each month and realise that I will be able to pay off a little more by saving instead and still pay off the mortgage albeit in a lump sum!

penners324

Just keep an eye on savings interest rates. They are starting to trend downwards. Though you're likely to be ok with that plan for awhile, given your mortgage rates

dimbo61

Of course you overpay the most expensive debt first.
Now others talk about saving into a regular saver and earning more Interest but don't forget that any Interest over £1000 ( lower rate taxpayer ) or £500 ( higher rate taxpayer ) also gets Taxed !
So say you carry on hitting the more expensive mortgage debt and don't pay any ERC,s then your used to paying X on the main mortgage plus Y on the smaller part plus £250 extra every month !
Now come November 2026 you may find your cheap fix has jumped up by say £250/300 a month.
However you have been overpaying every month so don't notice the increase.
You can then consider where you stand with regard to the 2 parts of the mortgage and review your options.