Confused?? Save or overpay mortgage?

RoxieW

Please help as I'm abit confused (just read the 100K off mortgage thread and it spun my head a bit!). My situation seems similar but simpler so if I could ask your advice anyway.

Basically we have a £55K mortgage and about 12K savings. I'm basically getting abit pig sick of shifting between ISAs only for them to lower the rate and am wondering whether we might be best off just paying a 10K off the mortgage.


The only thing is that we are actually saving for a deposit on a bigger house but the way I look at it is that by overpaying on mortgage we're actually saving twice as you are saving on the interest but also saving on the monthly payment ie £100 a month extra to save from lower mort payment - am I wide of the mark here??

Thanks all

Ximian

It might be worth considering an offset mortgage as well.
As you want to buy a bigger house in the future you might not want to tie your savings up in your current house buy paying in that lump sum of £12k. You could have an offset mortgage and use the £12k towards the £55k mortgage so you end up paying interest only on £43k and you'll also have the option of paying in extra. When it comes time to buy your new house, you still have that £12k to use as a deposit.
It's also worth playing around with a mortgage calculator to see how many years you could shave off by overpayments, I have used this one for some calculations:
http://www.channel4.com/money/homebuying/overpaycalc.html

HTH

Footsie_2

This is just my point of view and it really is personal choice but I would rather get rid of debts before I start saving. As we all know, debt and savings are different sides of the same coin and I prefer to tackle the debt side before I think about the savings side.

Also, as I may have said before, savings can go up as well as down so if you put money into savings you may not have the nestegg you need in the event you suddenly find yourself in a different financial situation but you will still have the same mortgage payment.

Prepare for the worse. If you were to be unemployed next month would you prefer a lower mortgage payment or more money in savings? We're all different so you need to think what is best for your personal situation.

Murphy_The_Cat

Footsie wrote: »

This is just my point of view and it really is personal choice but I would rather get rid of debts before I start saving.

I'm taking the belt & braces & baling twine approach of keeping my cash savings going, investing a fixed amount every month and overpaying my mortgage every month as well.

So I should have all options covered :beer:

Jennifer_Jane

My personal view would be to keep some savings as emergency money (car, dentist, home maintenance, etc), and if you can beat the mortgage rate (the actual annual rate plus your marginal tax rate, I think), with savings, then that would be a consideration. If not, then perhaps pay off the mortgage.

There's a lovely feeling about reducing your mortgage, and mine is now £124 per month! Although at a very high interest rate.

For myself, almost exactly in your position but coming up for retirement next year at 62, I have become distracted by the falling stock market, and seem to be putting bits of my money there at the moment as I have an appetite for gambling! But I think you need to keep some savings instantly available, and some savings a little less readily available (sort of 90 days or something), otherwise things can be stressful.

Regards
Jen
x

RoxieW

thanks everyone who has replied. I'd like to reduce the mortgage I think as I'm sick of getting an ISA at a good rate and then the banks taking the mick and reducing it with good rates for 'new customers only'!!!

If I paid off £10K then we still have a 2K buffer and will be continuing to save £600 - £700 a month to build it back up.

Am I right though in thinking that I'm twice as well off by paying off the mortgage - as I'm saving the interest but also saving the £100 a month repayment - whereas with savings I'm only gaining the interest??? Or am I getting confused?

kingkano

RoxieW wrote: »

Am I right though in thinking that I'm twice as well off by paying off the mortgage - as I'm saving the interest but also saving the £100 a month repayment - whereas with savings I'm only gaining the interest??? Or am I getting confused?

THe latter lol. THe £100 per month reduction in your mortgage IS the interest saving. This is the interest you would have earned on your money in savings. Probably hasnt made it clearer ermmm.....

eg you have £55k mortgage and it costs £600 per month (not correct but for ease of example). You have 10k in savings and it pays £100 interest per month. You pay the 10k off your mortgage and you now have a 45k mortgage that costs £500 per month. As you can see its fairly square.

You might well be up a few quid one way or the other depending on the interest rates.