Can I earn base rate plus 1% over long term?

Poolman99

Hi there, I am looking into a tracker mortgage at the moment and I've been trying to figure out what term and by how much I should try and over-pay.

However, if I can earn more interest from savings than I pay in mortgage interest then I should really take an interest-only (or long-term repayment) mortgage and pile all my spare dough into the savings.

So, I am looking at a tracker mortgage which is Base Rate plus 0.63%. If I can safely earn base rate plus 1% from saving then I think this is worth doing. I will be able to save around £500 per month and have no savings at present. I don't mind moving money around as needed in the future and would like to know if base rate plus one percent after tax is feasible.

Thanks in advance,
Rob.

oldfella

do you know anywhere you can get 7.5% - and savings rates are very high at the moment.

kingmonkey

The problem with using savings accounts to pay off mortgage is that your mortgage repayments are "tax free" whereas savings isnt. Therefore if you have a mortgage of 6% you would need a savings account of 7.5% (if your a basic rate tax payer 10% if higher rate) for it to be worthwhile saving. The only asset class that has consistently returned those sort of percentages in the long term are shares.

sdooley

The other problem of course is that you are likely to treat any money in a savings account as 'yours' and spend it, which is why banks increasingly are moving away from interest only deals without a reliable repayment vehicle.

Poolman99

Ok, thanks guys,

I am a high rate tax payer so what about just using cash ISAs?

If I go for a repayment tracker (so that I am paying capital off even if I do spend the savings in the future), and that is base rate plus 0.63%, would I always be able to find a cash ISA somewhere which paid say base rate plus 1%??

This would limit my "overpayments/savings" to £3600 per year but that's not too far away from the £500 per month I said I'd have to do this with. I'll just overpay the £200 difference into the tracker mortgage.

aleph_0

Poolman99 wrote: »

Ok, thanks guys,

I am a high rate tax payer so what about just using cash ISAs?

If I go for a repayment tracker (so that I am paying capital off even if I do spend the savings in the future), and that is base rate plus 0.63%, would I always be able to find a cash ISA somewhere which paid say base rate plus 1%??

This would limit my "overpayments/savings" to £3600 per year but that's not too far away from the £500 per month I said I'd have to do this with. I'll just overpay the £200 difference into the tracker mortgage.

Having the cash ISA is a good thing in the long term as well - you can delay fully repaying the mortgage and instead allow yourself to take advantage of the full ISA allowance each year, which then lasts for life, or until the government changes the system. None of us can guarantee that you will always be able to get a Base rate+0.63%, you will have to keep an eye on your accounts to ensure you have the best rate, and in recent years doing this would give at least Base Rate + 0.6%. If the mortgage is such that you can overpay (I don't know anything about mortgages), then if Savings rates end up significantly below the BoE Base Rate, you can just push the savings into paying off the mortgage anyway.

There isn't much point in delaying overpaying anything outside your ISA allowance IMO, but that is just my opinion.