Overpay mortgage or save

saveorpaymymortgage

I've tried following other posts on this topic but still can't figure out the best thing to do.

Over the next 3-5 years am I better off saving in as high interest account as I can find - with the aim of putting savings towards a bigger house and general savings....Or overpay my mortgage? 

I have 32 years left to pay on mortgage! Monthly repayments are £900 currently overpaying by £100 per month, so total £1000. Could increase overpayment to £400 per month, so total £1300.

If I was to make the overpayment s for the remainder of the mortgage I would decrease the length of the mortgage by quite a lot and save thousands in interest. 

But over the short term, where the main interest is building capital to buy a bigger house - what is the best thing to do? 

Please help

Brie

To think this through I would need to know:

How much interest would you save on the mortgage versus how much would you earn in a high interest account? 

How much can you overpay each year? 

When you overpay do they reduce the monthly payment and keep the length of the mortgage the same or do they keep the payments the same and reduce the length of the mortgage?

JGB1955

It probably depends on comparing the interest rate on your mortgage and the (taxable?) interest you can receive on savings.

saveorpaymymortgage

I don't know how much I would save on interest each month. I think this is the key information to make the decision but I don't know how to work it out.

Currently owe 208,000 and accruing around d £600 a month interest.

Overpaying by £400 a month for between 2-5 years wouldn't breach overpayment allowance. 

Mortgage length reduction doesn't matter given as I'm talking g short term and small amount of overpayment....I think! But I'm with natwest and think only overpayments of over £1000 reduce the monthly payment,  so I won't hit that.

saveorpaymymortgage

And how much in high interest savings account?.... 5% probably 10 % if I got lucky on stocks and shares isa maybe?

Hoenir

saveorpaymymortgage said:

Currently owe 208,000 and accruing around d £600 a month interest.

What's the mortgage product interest rate? 

El_Torro

saveorpaymymortgage said:

And how much in high interest savings account?.... 5% probably 10 % if I got lucky on stocks and shares isa maybe?

If you need the money for a deposit in the next 3 to 5 years then you shouldn't invest any of it in a Stocks & Shares ISA. Investing is for the long term, 10 years or more. 

You don't know how interest rates for savings will change in the coming years. What is the current interest rate on your mortgage and when does that interest rate end? Are you on a fixed rate or variable rate?

Based on what you've said it probably makes sense to overpay your mortgage every month. This will allow for a bigger deposit when you move.

saveorpaymymortgage

Mortgage interest rate is 3.42% for next 3 years

Thanks for the help 

saveorpaymymortgage

After doing some more calculations I think I'd be better off putting the extra into savings rather than paying more off mortgage.

There are unknowns such as mortgage interest rate after this deal expires and interest rate on savings accounts....but it seems like over 5 years if I work hard at keeping the savings in as high a interest rate account as I can I should be able to make more in interest than in savings on mortgage. Though the difference is relatively small 

If the savings account starts to approach 3% rather than 5% I need to recalculate and same if ne w mortgage deal has higher interest.

The other benefit of savings is that the money is accessible should we need it for anything else.