Confused! Overpay mort or save?

Please help as I'm abit confused!

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
MANAGED TO CLEAR A 3K OVERDRAFT IN ONE FRUGAL, SUPER CHARGED MONEY EARNING MONTH!:j
£10 a day challenge Aug £408.50, Sept £90
Weekly.
155/200
"It's not always rainbows and butterflies, It's compromise that moves us along."

Replies

  • Hi RoxieW,

    If I were you...and I can be a bit risk averse when it comes to a safety blanket but, if i had only £12K savings, I'd be inclined to maybe only pay about half off the mortgage. I try (but very rarely manage to make it) to have at least 3 months outgoings in an emergency fund.

    I may be wrong but, if you pay some money off the mortgage, providing the equity in your house remains the same or improves, then you'd be upping the amount of deposit you could pay on your next place as well as reducing the interest.

    I'm sure other, cleverer, people will be along to help.

    Good luck with your decision.
    LM :)
    :jMFWin3T2 No 20 - aim £94.9K to £65K:j

  • RoxieWRoxieW Forumite
    3K Posts
    Thanks for that. I thought that was the case but also saving money on monthly repayments so 3 x the benefit - although not sure if I'm right in thinking this!

    I'm happy to plunge 10K as we can build the savings back up by at least £500 a month and hubbys job is very secure etc. (touch wood!!)
    MANAGED TO CLEAR A 3K OVERDRAFT IN ONE FRUGAL, SUPER CHARGED MONEY EARNING MONTH!:j
    £10 a day challenge Aug £408.50, Sept £90
    Weekly.
    155/200
    "It's not always rainbows and butterflies, It's compromise that moves us along."
  • JonbvnJonbvn Forumite
    5.6K Posts
    Part of the Furniture 1,000 Posts
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    You really must have a rainy day emergency fund first.

    After you have sufficient, you should consider whether to pay off the mortgage or save (in ISA's). The determining factor are the interest rates. If the mortgage rate is higher than the ISA rate then pay-off the mortgage.

    There is another factor you should consider. With ISA's you lose them if you do not use them! Personally, I see ISA's as a longer term vehicle for our savings. The same could also be said for pensions. We are lucky enough to fill up our ISA's and overpay our mtg.
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:
  • dimbo61dimbo61 Forumite
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    Part of the Furniture 10,000 Posts Name Dropper Photogenic
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    you have options with the ISA,s and its your emergency fund as well
    contact your lender and ask if you can overpay by the £500 a month you have spare. if they say only 10% a year pay that each month and put rest
    into ISA,s . if you are going for a new bigger mortgage/ bigger home then
    having cash in the bank helps pay for all the moving/ set up fees
    ie solictor, survey,mortgage fees, new carpets, alterations etc
  • PrimrosePrimrose Forumite
    9.9K Posts
    Part of the Furniture 1,000 Posts Name Dropper I've been Money Tipped!
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    I'd certainly keep the equivalent of 3 - 6 months outgoings in ISAs as Emergency Money, as the annual allowance is a case of "Use it or Lose it" and if your mortgage interest is higher than the interest on current ISAs, repay the remainder of your savings off your mortgage. You will also need a fair chunk of easily accessible money for legal fees, HIP, removal fees, etc. when you move.
  • Di-DoughDi-Dough Forumite
    306 Posts
    RoxieW wrote: »
    Please help as I'm abit confused!

    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

    Dont forget that when you move you will be paying Solicitors costs, Stamp Duty, Land Registy fees and removal costs - all this adds up so try and keep enough in savings to cover this
    Sealed Pot Challenge # 007
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