Overpaying or Saving ?

ste1200

Hi all, I have been overpaying on my mortgage for years now and I had a revelation this morning that this might not be the best way of doing it.  The over-payments are taken off the term of the mortgage, so the monthly amount stays the same.  Here are the details of my mortgage.

Mortgage balance: £106,884

Interest Rate: 5.99% variable

Monthly payment: £739

Years left: 22

There is no limit to what over-payments I can make and £125 fee for paying off the mortgage early.

We currently pay £1,000 monthly, so £261 over-payment per month, and starting this month I was going to start paying a one off yearly over-payment of £10,000.

I thought that instead of paying the over-payments, I could put the money in ISAs and savings accounts and make interest on it, and then pay the whole lot in one go.

I could put £250 in to a regular saver a month and the £10,000 in to a 1 year ISA, and then next year put £20,000 in to a longer ISA, and then do the same for my wife.

I think after around 6 years I would have made enough to pay off the mortgage.

Is what I am thinking making sense or am I talking bonkers ?

TIA

Steve

bluelad1927

Doesn't it just boil down to if you are paying a higher rate of interest on the debt than you can get in savings then you pay the debt

If you are paying 5.99% then it is likely costing you more than you are earning by saving it.

I have a 1.95% fixed mortgage for another 8 yrs so my overpayment are going into a savings account that is currently significantly more

powerspowers

I’m saving rather than paying it off the mortgage. My interest rate is lower though, if I was paying 5.9% I’d just pay it off the mortgage as the £ difference isn’t worth the extra admin

BikingBud

ste1200 said:

Hi all, I have been overpaying on my mortgage for years now and I had a revelation this morning that this might not be the best way of doing it.  The over-payments are taken off the term of the mortgage, so the monthly amount stays the same.  Here are the details of my mortgage.

Mortgage balance: £106,884

Interest Rate: 5.99% variable

Monthly payment: £739

Years left: 22

There is no limit to what over-payments I can make and £125 fee for paying off the mortgage early.

We currently pay £1,000 monthly, so £261 over-payment per month, and starting this month I was going to start paying a one off yearly over-payment of £10,000.

I thought that instead of paying the over-payments, I could put the money in ISAs and savings accounts and make interest on it, and then pay the whole lot in one go.

I could put £250 in to a regular saver a month and the £10,000 in to a 1 year ISA, and then next year put £20,000 in to a longer ISA, and then do the same for my wife.

I think after around 6 years I would have made enough to pay off the mortgage.

Is what I am thinking making sense or am I talking bonkers ?

TIA

Steve

In your situation, paying 5.99% variable, it would appear that overpaying might be best as the potential split between mortgage interest and saving or investments return is likely very small.

Personally I would reconsider if the current mortgage is serving me best.

Although they appear to be creeping up again fixed rate mortgages around 4.5% might be achievable. If you can establish a clear split between interest paid and interest gained then the benefits become more visible and better assessment can be undertaken.