10k Overpay Mortgage or Save (to overpay at later date)

collinsca

Hi

I have been gifted 10k. I want to use it for my mortgage, but am not sure if it is worth saving it given savings rates v or overpay on the mortgage now.

I appreciate there is a calculator ( Mortgage Overpayment Calculator: Pay off your debt early? ), but I believe that is if the saving rate remains at that rate for duration of mortgage?

I took out a 25yr (23yr remaining) mortgage in July 2022.
I have £37,573.52 remaining at 3.54% on a 10yr fixed (8yrs remaining).

I have been looking at a Cash ISA with Trading 212 at 5.15% AER (variable), paid daily.
Cash ISA with zero account fees

Advice appreciated!

saajan_12

If you have room in your ISA contributions, then you may as well put the money there for now, earn the higher interest. Then if the rate falls below the mortgage interest rate, you can re-think. 

Remember its only flexible one way, ie you can overpay later if you've been keeping it in savings, but you can't extract the money back from the mortgage. So you need to be confident you won't need the money before overpaying. 

El_Torro

Nice rate, at least for now.

You're right, it is a bit of a dilemma. As you know you can make more interest in savings accounts than 3.54% today. None of us can tell you with certainty how that will change over the next 8 years though. 

What you should do depends on how many savings you have now, how much you are saving every month / year and what other savings and investments you have. It also depends on your personal preference of course.

Personally I'd probably overpay as much as possible now (not enough to pay a penalty though). Current interest rates won't last forever and I wouldn't be surprised if the interest rate on your mortgage is higher than what you can get in savings accounts in a couple of years time. 


EDIT: 5 year fixed rate Cash ISAs are currently paying more than 3.54% a year. Worth looking at if you have a lump sum perhaps.

beanielou

Overpay all the way.

collinsca

Appreciate the views!

My Savings are low - about 5k, and ive even been tempted to use that on mortgage too! but totally appreciate the point about being flexible only one way.

Tucosalamanca

You have a loan locked in at 3.54% for the next eight years, very attractive by today's standards.

With savings rates comfortably above 4%, there doesn't appear to be any urgency to pay off the mortgage.

If you pay the mortgage off now and rates rise, you'll kick yourself later on.
If rates fall, you'll still be in the fortunate position to pay down debt.

Earn the interest from savings and see what develops...