How much to save before overpaying mortgage?

carrie78

Hi. We are about to change from an interest only mortgage to a repayment mortgage and would like to overpay it. Not sure which mortgage or what rate yet.

My question is how much do you think people/we should have in savings and accessable before overpaying and locking away the money?

Do you all have quite big savings before you overpay?

Thanks
Carrie

jamesd

Why would you want a repayment mortgage when you can have an interest only mortgage and overpay the difference between interest only and repayment so it's paid off at exactly the same time? All you do is lock yourself into higher minimum monthly payments and reduce your flexibility if you're between jobs or otherwise temporarily under financial stress.

If you can't get at the money you overpay you'd want three to six months in savings but you should also check to see if the after tax or tax free savings rate is higher than your mortgage interest rate. If the savings rate is higher you lose money by overpaying the mortgage and are better off delaying overpaying until savings rates fall below the mortgage rate for a while.

Worth looking at the prices for flexible mortgages that allow you to draw down (withdraw) overpayments and at prices for offset mortgages with an offset savings account. Some of those are getting pretty competitive.