Mortgage overpayments

misswestwater

I am coming to the end of cheap 5 year deal, obviously interest rate will be going up, probably quite significantly. We have saved £50k in this first 5 years - should I pay that to the mortgage as an overpayment to keep future payments down when higher interest rates kicks in, or pay the higher payments in future but don't save any more and keep the savings we already have. Our ultimate goal is to reduce term (currently 14 years). Owe about £170k and house worth £300-£350k. Or do I need a financial adviser? 

MFWannabe

There’s not really enough information here 

Is the £50k all your savings? 

How old are you? 

What are your combined salaries? 

What’s current interest rate and payment? 

What would be new interest rate and payment? 

Have you crunched the numbers in the Mortgage overpayment calculator? 

Brie

Personally I would be putting a significant chunk against the mortgage.  

The outstanding mortgage would be less and so your monthly payments would be lower and you'd save interest.  Because your monthly payments would be lower you might still manage to put some money away in savings to ensure you have a cushion "just in case".  

A quick calculation suggests that putting the full £50k to lower the mortgage might save you about £5k in interest over 2 years if the difference in interest is 6% between having the money in savings or having it on the mortgage.  And you can't be taxed on the interest that you are saving.  

Hoenir

misswestwater said:

Or do I need a financial adviser? 

No. It's a straight forward decision that needs to fit your personal objectives. 

What really matters is the difference between what interest you are earning on your savings (after tax) and how much interest you are paying on your borrowings. Less interest you pay the quicker the debt will be repaid.