Mortage Free or overpayment account?

pockitz

Hello,
I am a newbie so my apologies if someone else has covered this already. I am very lucky to be able to pay off 80% of my mortgage in one lump sum, but my building society (CIS) have said that I have a option to open an overpayment account. This account would contain the money that I intend to pay off my mortgage with and I could use this to pay the monthly premiums rather than pay off the mortgage from my current account.

Is this a crafty way of CIS having my savings and making money on the interest as well as keeping my mortgage debt for another 15-20 years? I would have thought that it would be sensible for me to pay off a lump sum and save the money each month rather than this option?

Any help would be appreciated.

ailuro2

When we overpay our mortgage it goes into the overpayment fund, then we get charged interest on the amount outstanding after the overpayment fund has been taken into consideration, so in effect it is saving us it's equivalent in interest payments, which is kindof like savings interest.

(Hope that doesn't sound too confusing)

Then, when we've enough in the overpayment fund we'll be able to pay off the mortgage. In the meantime our payments remain the same so the original debt is paid off quicker, so saving time on our mortgage.

When we overpay we have a choice - we can pay it off for good, or put it into the overpayment fund which remains accessible to us if we need it. If paid off the balance we couldn't get to it in case of emergency, I think that may have been what they meant?

We are with the co-operative bank, is that who you mean by CIS?

pockitz

Hi ailuro2,

Yes I am with the Co-operative bank and that is exactly what I meant, only you explained it much better than the bloke from customer services. But for my situation, as I am in a (very lucky) position to be able to pay off a big lump sum now, should I do that rather than have the overpayment account that co-op are suggesting? It will save me a lot of cash each month, but will empty my savings.

And considering the current financial climate, would it be better to invest the money in moving to a bigger house?