Overpay or save into reg saver

[Deleted User]

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bermondse1

Stick with overpaying/offset.

Given the 10% rate is subject to tax, you'll actually only get 8% (as a basic rate tax payer), or 6% (as higher rate)...and you'll only get those rates on your FIRST months payment...because of the drip feed of funds, subsequent months effectively earn interest at a rate that decreases by 1/12 for each month.

Month1 - 8% or 6%
Month2 - 7.33% or 5.5%
Month3 - 6.66% or 5%

and so on...

You'll be earning less interest than the mortgage is charging if you're a basic rate taxpayer from month 5.

jonathon_hart

bermondse1 wrote: »

Stick with overpaying/offset.

Given the 10% rate is subject to tax, you'll actually only get 8% (as a basic rate tax payer), or 6% (as higher rate)...and you'll only get those rates on your FIRST months payment...because of the drip feed of funds, subsequent months effectively earn interest at a rate that decreases by 1/12 for each month.

Month1 - 8% or 6%
Month2 - 7.33% or 5.5%
Month3 - 6.66% or 5%

and so on...

You'll be earning less interest than the mortgage is charging if you're a basic rate taxpayer from month 5.

This applies if it is a lump sum - however the way I read the OP was that it was extra money from their monthly income - so would be better off using the regular saver.

bermondse1

jonathon_hart wrote: »

This applies if it is a lump sum - however the way I read the OP was that it was extra money from their monthly income - so would be better off using the regular saver.

Fraid not - the Halifax rate is for one year only...hence the actual interest they receive on each months payment is equivalent to the rates I quoted...if they are a taxpayer they'd be worse off using the regular saver compared to sticking the money into the offset.

bermondse1

Actually have realised I made a silly assumption in my reply...

If you're intending to stick the money back into the mortgage after the 1 year, then yes, you are better off doing the regular saver...although I don't think it will be by much.

Sorry for the confusion...serves me right for doing this during my lunch hour!

nobblyned

bermondse1 wrote: »

Fraid not - the Halifax rate is for one year only...hence the actual interest they receive on each months payment is equivalent to the rates I quoted...if they are a taxpayer they'd be worse off using the regular saver compared to sticking the money into the offset.

The annual rate on all the money in the Halifax account would be 10%, it's just the monthly payments towards the end will be there less than a year. As long as all the money is removed from the Halifax a/c at the end of the 12 months and then applied to the mortgage with no penalties being incurred then this is the more efficient way to go.

Edited to add: Sorry, see you just posted whilst I was typing!

dimbo61

Hi jeepjunkie
as you are paying 5.88% on your mortgage and the amount of interest you would get from paying £500 a month into the 10% regular saver is £332 over a year it makes very very little difference than overpaying the mortgage by £500 a month .
You are also much less likely to spent the money on a new car/motorbike, holiday if it has been used to clear some of your mortgage !
GOOD LUCK your choice !

Viper_7

Overpay your mortgage, but check if you are limited as to the amount you can over pay by. Some have caps as low as 10% a year.

There may also be early repayment charges which may offset what your saving by paying earlier.

Also ensure you mortgage interest rate is calculated daily, so your payments are having an impact from the moment they hit the account. As it's an offset account I would think it is daily interest.

As said by putting it on your mortgage your less likely to spend it!

General rule of thumb is pay off your debts first before putting into savings.

Vipes

getmore4less

posh*spice wrote: »

Sorry - as a general rule of thumb you should have emergency savings before you pay of your mortgage, between 3 to 6 months worth of salary is "the rule of thumb".;)

Try to decide if you need 6 months salary or expences, 6 months salary could be more than needed if expences reduce a lot if not working.

With an offset facility you stick it all on the mortgage no need for seperate emergency/disaster savings.

Note the OP has offset facility.

Andy1977

I have also had a similar dilemma and have decided to use regular saver as my mortgage rate is only 5.25% so even after tax, the 10% saver exceeds this. As previous posters have said though, I doubt it makes much difference either way.

One thing to consider though, unlike previous regular savers, I think you can vary your monthly payment (as long as you meet the minimum each month) so if you change your mind you can reduce your monthly payment from £500 to the minimum (I think it is £25) and revert back to overpaying the mortgage with the rest.