Mfw?

poorjim

I would love to be mortgage free and was thinking of overpaying. Think it has to be in £200 lumps with Scottish Widows. My quandary is this though..

We currently live in a flat £142.000 mortgage just signed for a 5.75 five year fixed, and we save £16 on the monthly payment. I was going to ISA this and then overpay when it got to £200+. In the longterm however we would like to buy a house. Therefore is it really worth making overpayments as we'll have to have a mortgage on a house.

Does it make more sense to keep saving the amount intended for overpayment and then putting this towards the new place thus reducing the amount of mortgage we may need for the purchase?

PJ

Gillybean

I * think* it's better to start overpaying, as you'll be working away at reducing the interest on your loan, which is the real crippler on any mortgage. Plus, having knocked £Xxxxx off your current mortgage, you'll be able to borrow more when it comes to buying your 'forever' house.

Friends of ours relocated a few years back and had it not been for the fact that they overpaid for a number of years prior to having children while they had the disposable income, they would have never been able to afford the house they now live in.

setmefree2

You should (obviously:o) put it where it will make the most money....so you need an interest rate that beats your mortgage rate (taking into account tax). So you need an ISA that makes more than your mortgage rate. There are alot of deals making 6.5% on the savings board.

However, it's also true to say that many people (including me!) become highly motivated to over pay their mortgage, so personally I think you need to take this into account too. Other things you might to think about are - do you have some emergency savings? Are you allowed to over pay your mortgage? and if so by how much?

Anyway, good luck...I'm sure others will be along to help.:D

SMF2

JonnyBravo

setmefree2 wrote: »

You should (obviously:o) put it where it will make the most money....so you need an interest rate that beats your mortgage rate (taking into account tax). So you need an ISA that makes more than your mortgage rate. There are alot of deals making 6.5% on the savings board.

This seems most sensible especially if you're looking to move in the not too distant future.
Moving has lots unexpected expenditures and I think it would be a good idea to maximise your savings for this reason alone.
Of course, as has been pointed out, if that's in an ISA and at better than 5.75% you'll be beating your mortgage rate into the deal too.