Saving v mortgage overpayments Calculator help

StrawberryJam_2

ok I have confused myself so seeking help. I am wondering what is best option as currently have mortgage at BOE + 0.23% so lets say 5.23% for £42000

when I use the saving v mortgage calculator on this site:
http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings#calculator

It equates to a saving rate of 6.5%

I am confused to what this figure means (or to how it is calculated) Should I top up my £3600 cash ISA (6.25%) allowance first. Could someone help, as the plan was to overpay mortgage from now, but do have my 100% ISA allowance this year? (should I also look at an investment ISA, prior to overpay mortgage)

[Until my mortgage rate falls to/below 4.9% (savings @ 6.1%) I should save first?]

Lokolo

This is the gross % you need with £46000 savings to cover your mortgage payments.

Its completely up to you, if you want you can use the money you were going to have in ur ISA and pay extra on mortgage.

Investments are 3-5 year savings.

I am assuming you have a tax payer. how long do you want to keep your mortgage for? Do you want money for after to save towards something?

StrawberryJam_2

Thanks for quick reply

My mortgage rate is 5.23%
Cash ISA rate is 6.25%

I thought I should invest in the cash ISA first as it is a better rate.

The calculator confused me, as suggested my equivalent savings rate would need to be 6.5% and suggesting overpay mortgage in the first instance.

Lokolo

Ok yes, its a better rate, but doesn't mean you're getting more than your mortgage.

Ok in a year, at 5.23% with £46k you are paying £2500 interest. <--- NOT £2500 but £2400
With your ISA at 6.15% with £3600 you are getting £221.

So overall you are still £2279 down. <--- should be 2179

But the calculator you were on works on the basis of paying tax on interest so ignore it for now.

If you used the money from the ISA of £3600 and put it against your mortgage you would have £42,400 (46k - 3.6k), at a rate of 5.23% your yearly interest would be: £2218, therefore you are £61 a year less off by putting the £3600 into your mortgage than an ISA.

Understand?

However, if you are planning on putting £3600 in an ISA, every year for 10 years, as a longterm plan, then you may as well do that, because at the end of the 10 years the interest gained on the ISA will pay for the mortgage.

StrawberryJam_2

Do you have a link to calculator to work out the yearly interest costs on a mortgage? (you have mistakenly read £46K, but I actually have £42K - not sure if this makes a considerable difference)

Starting to understand. I wish to save the most money. and question what is best route to take for a 7 year period (as would hope that my overpayments could reduce my term of mortgage from 22 years to 7)

Lokolo

Ok a simple calcualtor is good enough.

MONEY / 100 * %

so 42k / 100 * 5.23 = 2196.6

which is yearly cost. hope this helps...

Aegis

If you put £3600 into a 6.5% ISA, you'll make £234 in a year.

If you put £3600 towards paying off a 5.23% mortgage, you'll save £188.28 pa.

Your choice in the end though.

Lokolo

Aegis wrote: »

If you put £3600 into a 6.5% ISA, you'll make £234 in a year.

If you put £3600 towards paying off a 5.23% mortgage, you'll save £188.28 pa.

Your choice in the end though.

Oh... I have confused myself from above :-/

[edit]

Sorry Strawberry, Aegis is right, I read my calculator wrong

jamesd

Since cash ISAs are tax free all you need to do is compare the ISA rate with the mortgage rate and pick the highest of the two. ISA in this case.

StrawberryJam_2

What has fuelled my confusion.

Existing Mortgage £42K @ 5.23% (rate for debate only, as it is a tracker rate I have)
22 years = total cost approximately £71k

I was planning to reduce my term by overpaying say £330 per month to read:
7 years = total cost approximately £50k
Saving = £21k and mortgage free.

Using the Cash ISA calculator on site with monthly payment of £300 to fulfill my yearly entitlement.
7 years = total savings approximately £31k

Does this conclude that for my confused mind, I should put £300 to cash ISA per month in the first instance.

= so the calculator I first looked would be of benefit only once I have filled my cash ISA entitlement. Therefore looking at a eSaver (high interest regular saver) or some similar product.

-> and I always thought a mortgage debt should be paid off before saving/

Lokolo

StrawberryJam wrote: »

What has fuelled my confusion.

Existing Mortgage £42K @ 5.23% (rate for debate only, as it is a tracker rate I have)
22 years = total cost approximately £71k

I was planning to reduce my term by overpaying say £330 per month to read:
7 years = total cost approximately £50k
Saving = £21k and mortgage free.

Using the Cash ISA calculator on site with monthly payment of £300 to fulfill my yearly entitlement.
7 years = total savings approximately £31k

Does this conclude that for my confused mind, I should put £300 to cash ISA per month in the first instance.

= so the calculator I first looked would be of benefit only once I have filled my cash ISA entitlement. Therefore looking at a eSaver (high interest regular saver) or some similar product.

-> and I always thought a mortgage debt should be paid off before saving/

No.

Credit Cards / Loans --> ISA --> Mortgage I think it goes.