Pay chunk off mortgage or use savings over time

mamacita63

Hi, I am 61 and currently have £116000 left on my mortgage, fixed at 0.99% until Dec 2026, about ten years left on it. Payments are £978 per month but I don't want to be working in a stressful job I hate until I'm 71! So I'm looking at ways to reduce the monthly payments after 2026 so that I can afford to take a lower paying/part time job. My current plan is to pay off £20K at the end of the fixed term, the balance would then be  about £70K over 10 years hopefully, so monthly payments would be £700ish. I would use my savings to pay 200 per month of that. Does this seem like a decent plan or is there anything I'm missing/other feasible options for reducing my payments sooner? Would it be better to pay a bigger chunk off in 2026, but leaving myself with very little savings? Thanks for any input.

homerjimpson

Do you live alone? Can you rent out a room maybe? If I was you (and this is just me), I'd hammer the mortgage as hard as possible before Dec 2026 - and not overlook things like, for example, the psychological boost of getting the mortgage under £100k. 

mamacita63

Unfortunately I have a tiny flat so a lodger isn't feasible. At the moment I've saving like mad as my mortgage interest rate is so low, with the plan to pay off a chunk in 2026 before remortgaging. You are right though, I hate having ta huge mortgage hanging over me at this age so may be I should pay a bigger chunk than planned.

El_Torro

A mortgage interest rate of 0.99% is ridiculously low, congrats on securing that deal. 

Do not overpay anything before your fixed rate deal expires. Keep the money in cash since you will surely make more than 0.99% interest on it in the current environment, especially if you put the money in the best savings accounts and Cash ISAs you can find. You can even stick it in Premium Bonds and probably make a much better return than 0.99% per year.

When the current fixed rate expires you should be able to make as big an overpayment as you want without penalty when you move to your new mortgage deal.

EDIT: Make sure you have an adequate emergency fund. This is typically between 3 and 6 months worth of expenditure. I wouldn't make my mortgage smaller at the cost of having a smaller emergency fund.

mamacita63

El_Torro said:

A mortgage interest rate of 0.99% is ridiculously low, congrats on securing that deal. 

Do not overpay anything before your fixed rate deal expires. Keep the money in cash since you will surely make more than 0.99% interest on it in the current environment, especially if you put the money in the best savings accounts and Cash ISAs you can find. You can even stick it in Premium Bonds and probably make a much better return than 0.99% per year.

When the current fixed rate expires you should be able to make as big an overpayment as you want without penalty when you move to your new mortgage deal.

EDIT: Make sure you have an adequate emergency fund. This is typically between 3 and 6 months worth of expenditure. I wouldn't make my mortgage smaller at the cost of having a smaller emergency fund.

Thank you! Would you pay off the big chunk all at once at the end of the fixed term (e.g. £40000) or would you use some of the lump sum to pay some of the mortgage each month? I'm guessing it may not make much difference financially but psychologically might be less painful not to hand over such a big amount all at once

saajan_12

mamacita63 said:

Unfortunately I have a tiny flat so a lodger isn't feasible. At the moment I've saving like mad as my mortgage interest rate is so low, with the plan to pay off a chunk in 2026 before remortgaging. You are right though, I hate having ta huge mortgage hanging over me at this age so may be I should pay a bigger chunk than planned.

This is exactly the right thing to do. Even if you're taxed on interest, you'll get far more in a savings account than you would save on your mortgage. Just put whatever you'd overpay into a separate savings account that you don't touch. When the fixed deal expires, pay as much as you can, leaving at least a 3 month emergency fund in accessbile cash (remember that is still earning interest, even if slightly lower than your future interest rate, its not usually a huge difference). 

Then depending on what new fixed deal you get, overpay per the terms of that deal - often its capped at 10% a year. You could always try to get a shorter length mortgage if you pass affordability and are confident  you'll be able to meet it. However that will come with higher monthly repayments and if you miss any then the interest/ penalities are higher so not worth the risk. 

El_Torro

mamacita63 said:

El_Torro said:

A mortgage interest rate of 0.99% is ridiculously low, congrats on securing that deal. 

Do not overpay anything before your fixed rate deal expires. Keep the money in cash since you will surely make more than 0.99% interest on it in the current environment, especially if you put the money in the best savings accounts and Cash ISAs you can find. You can even stick it in Premium Bonds and probably make a much better return than 0.99% per year.

When the current fixed rate expires you should be able to make as big an overpayment as you want without penalty when you move to your new mortgage deal.

EDIT: Make sure you have an adequate emergency fund. This is typically between 3 and 6 months worth of expenditure. I wouldn't make my mortgage smaller at the cost of having a smaller emergency fund.

Thank you! Would you pay off the big chunk all at once at the end of the fixed term (e.g. £40000) or would you use some of the lump sum to pay some of the mortgage each month? I'm guessing it may not make much difference financially but psychologically might be less painful not to hand over such a big amount all at once

It depends. When you do remortgage have a look if you can make more interest in savings accounts than the deal you get on your mortgage. If you can then drip feed, if not just stick it all in at once. 

Also if putting in a lump sum reduces your LTV to the point that the mortgage provider gives you a better mortgage deal then that's even more reason to put it all in at once.

There are ways to make very good interest on savings. For example by recycling Regular Savers. It depends on how much effort you want to go into. 


Using Stocks & Shares ISAs or pensions to invest the money and make even more money that way is also an option. If you do it wrong you could lose money though which is why I'm not suggesting it. Also since you want the mortgage paid off in 10 years or less you are pretty much out of time to make this option work. Investing is for the long term, not for a couple of years.

mamacita63

El_Torro said:

mamacita63 said:

El_Torro said:

A mortgage interest rate of 0.99% is ridiculously low, congrats on securing that deal. 

Do not overpay anything before your fixed rate deal expires. Keep the money in cash since you will surely make more than 0.99% interest on it in the current environment, especially if you put the money in the best savings accounts and Cash ISAs you can find. You can even stick it in Premium Bonds and probably make a much better return than 0.99% per year.

When the current fixed rate expires you should be able to make as big an overpayment as you want without penalty when you move to your new mortgage deal.

EDIT: Make sure you have an adequate emergency fund. This is typically between 3 and 6 months worth of expenditure. I wouldn't make my mortgage smaller at the cost of having a smaller emergency fund.

Thank you! Would you pay off the big chunk all at once at the end of the fixed term (e.g. £40000) or would you use some of the lump sum to pay some of the mortgage each month? I'm guessing it may not make much difference financially but psychologically might be less painful not to hand over such a big amount all at once

It depends. When you do remortgage have a look if you can make more interest in savings accounts than the deal you get on your mortgage. If you can then drip feed, if not just stick it all in at once. 

Also if putting in a lump sum reduces your LTV to the point that the mortgage provider gives you a better mortgage deal then that's even more reason to put it all in at once.

There are ways to make very good interest on savings. For example by recycling Regular Savers. It depends on how much effort you want to go into. 


Using Stocks & Shares ISAs or pensions to invest the money and make even more money that way is also an option. If you do it wrong you could lose money though which is why I'm not suggesting it. Also since you want the mortgage paid off in 10 years or less you are pretty much out of time to make this option work. Investing is for the long term, not for a couple of years.

This is very helpful, thank you. I do have a bit of money in a stocks and shares ISA and a SIPP but as you say it's for the longer term. I never thought about recycling regular savers so will definitely think about that!

mamacita63

saajan_12 said:

mamacita63 said:

Unfortunately I have a tiny flat so a lodger isn't feasible. At the moment I've saving like mad as my mortgage interest rate is so low, with the plan to pay off a chunk in 2026 before remortgaging. You are right though, I hate having ta huge mortgage hanging over me at this age so may be I should pay a bigger chunk than planned.

This is exactly the right thing to do. Even if you're taxed on interest, you'll get far more in a savings account than you would save on your mortgage. Just put whatever you'd overpay into a separate savings account that you don't touch. When the fixed deal expires, pay as much as you can, leaving at least a 3 month emergency fund in accessbile cash (remember that is still earning interest, even if slightly lower than your future interest rate, its not usually a huge difference). 

Then depending on what new fixed deal you get, overpay per the terms of that deal - often its capped at 10% a year. You could always try to get a shorter length mortgage if you pass affordability and are confident  you'll be able to meet it. However that will come with higher monthly repayments and if you miss any then the interest/ penalities are higher so not worth the risk. 

Thanks very much, good to know I'm on the right track!

Hoenir

As you require the money at a known date for a specific reason. Personally I wouldn't take any risks. Stocks and shares are for the long term. With such a low mortgage interest rate. Simply choosing the best after tax savings rates will guarantee a positive outcome. 

dimbo61

Save into the best cash IS A you can find on the market.
You should get 4/4.5% no problem.
Check if your current bank has any good regular savings accounts to drop feed money every month.
Read what your existing mortgage deal does after 2026 very carefully.
Some deals went into attractive tracker deals