using Halifax 10% saver vs. overpaying mortgage

Factor25

We currently owe £57,040 at (£50,000 of which is interest only) at rate of 6.08%. We have been strictly overpaying by £250 mth and was thinking of using some kind of regular saver to build up a lump sum to pay off when our fixed rate deal comes to an end in August 2009. Been looking through the threads and am a bit confused as to whether its a good idea.

JC_Derby

I would think that it depends on how the interest is calculated on your mortgage, daily, monthly or annually. Also the headline rate of 10% for the savings would only apply for the 1st month, every month after that gets a reduced amount
so month two gets 11/12ths of 10% then month three gets 10/12ths. Another thing to take into account is your tax rate are you twenty percent or forty?
Im guessing if you had a lump sum to put down the abbey saver at 8% would be a better option than a monthly RS (regular Saver) if you dont have the lunp sum but have extra cash at the end of the month probaby better the other way round.....

Another option for you may be to actually get an offset mortgage...and put the 250 per month into isa's, off setting them against the mortgage...

Smifta

I dont get that calculation regarding the 10% savings deal. I think perhaps that relates to calculating the interest on the full amount that is possible to invest (i.e. £6000 at £500 per month). You get 10% AER for however much is invested. So, if you are investing 250 per month, you get the full 10% on that 250 and then when you invest the next installment, you start getting 10% on the 250 + interest + the new 250 and so on. So, even after tax, this beats the mortgage saving. However, if you already had the full years investment amount, (3000 or 6000), you would be better with a high rate ISA or paying off the mortgage. It all depends on circumstances and if you might need the money.

Another approach (if you had the lump sum), would be to use up your ISA entitlement and then put any remainder in the best internet saver that allows direct debits and then transfer the regular amount from that account to the Halifax 10% saver.

If this is indeed your savings money, and from your monthly income, and 250 a month, and you dont need to withdraw it in the next 12 months, then I would go for the Halifax saver and then decide after the 12 months what to do with the money.

JC_Derby

Sorry Smifta, i think that you are wrong. Yes you get 10% on every part of money thats in that account, but you only get 10% for 12months on the first payment. so that is 12 twelths of ten percent.
the easier way of calculating it is in MSEs page

Mr Matt Mattics and his £3,000 savings

Matt has saved a total of £3,000 in a regular savings account paying 10% interest over a year, and is a non-taxpayer.


What Matt expects to earn? His simple sum works out that he's put £3,000 in at 10% therefore he should earn £300 in interest

Why this is wrong? Matt only had £3,000 in there for the last month; it took a year to build up to that amount. You only earn interest on money in the account. So after the first month he was earning the 10% on just £250, half way through the year he was earning it on £1,500 .


How Matt should work it out? Over the year, his average balance was roughly half the £3,000, in other words £1,500... so Matt should expect to earn around 10% of £1,500 over the year, which is £150.

There is a calculator at the bottom of the page to show howmuch you would get

http://www.moneysavingexpert.com/savings/best-regular-savings-accounts

SO the saving does NOT beat what you would save on a Mortgage

JonnyBravo

JC_Derby wrote: »

Sorry Smifta, i think that you are wrong. Yes you get 10% on every part of money thats in that account, but you only get 10% for 12months on the first payment. so that is 12 twelths of ten percent.
the easier way of calculating it is in MSEs page

Mr Matt Mattics and his £3,000 savings

Matt has saved a total of £3,000 in a regular savings account paying 10% interest over a year, and is a non-taxpayer.

What Matt expects to earn? His simple sum works out that he's put £3,000 in at 10% therefore he should earn £300 in interest

Why this is wrong? Matt only had £3,000 in there for the last month; it took a year to build up to that amount. You only earn interest on money in the account. So after the first month he was earning the 10% on just £250, half way through the year he was earning it on £1,500 .

How Matt should work it out? Over the year, his average balance was roughly half the £3,000, in other words £1,500... so Matt should expect to earn around 10% of £1,500 over the year, which is £150.

There is a calculator at the bottom of the page to show howmuch you would get

http://www.moneysavingexpert.com/savings/best-regular-savings-accounts

SO the saving does NOT beat what you would save on a Mortgage

Oh dear oh dear!!!

Back to school for you my lad!
First off:
Your calculations on how much interest he earns are correct. (largely)

Secondly:
Your statement that it is better therefore to pay off the mortgage is incorrect.


He is still getting 10% on his money, but for a shorter time.
If he can take out his mythical £3k at the end and pay it against his mortgage (without penalties) and the interest rate (net) is higher than his mortgage rate then the saver is better.

It matters not one jot that the money was only in it for one month.... it was still "earning" more for that month (in the saving account) than it would have "saved" for that month (on his mortgage).



You are probably getting confused because you are working on someone having that £3k sat around already. He may not have. It may come from his wages each month.

(If he does have it already then the amount he is earning on the decreasing pot of £3k (as it feeds into the regular saver) needs to come into the equation too.... ie his average savings rate. The sum for this is probably above your understanding 'til you understand the concept I am describing.)

Dithering_Dad

I like reading JonnyBravo's posts, he has the good (Northern?) common sense and direct approach that puts me in mind of a young Dithering Dad.

Keep it up JB!

Factor25

No pot of money lying around, I was just going to pay the 250 out of what we have left at the end of the month. Already got maximum ISAs but thats already "spent" elsewhere. The Nationwide mortgage I have I think is calculated daily and i am a basic rate tax payer. Thanks everyone

JonnyBravo

Factor25 wrote: »

No pot of money lying around, I was just going to pay the 250 out of what we have left at the end of the month. Already got maximum ISAs but thats already "spent" elsewhere. The Nationwide mortgage I have I think is calculated daily and i am a basic rate tax payer. Thanks everyone

Then you are better off saving than putting against your mortgage......


that is until you get to the end of the year.


You then have £3k you may not be able to put straight against your mortgage. Nationwide usually limit overpayments to £500/month.... but luckily for you your deal ends in Aug 09 so you should then be able to pay the rest.

In short, we're talking about the interest on £3k... no, sorry, the difference in the interest on £3k saved over a year..... it ain't gonna change your life either way, but it's the principle that counts. The saving option is definitely better for you.

JonnyBravo

Dithering_Dad wrote: »

I like reading JonnyBravo's posts, he has the good (Northern?) common sense and direct approach that puts me in mind of a young Dithering Dad.

Keep it up JB!

he he....

Midlands.... but I s'pose that's close enough eh?

As for young?..... well it all depends on your perspective I suppose.

Factor25

Cheers folks, i'll be off to open the Halifax a/c then.

Smifta

Thats what I was trying to say. I tried to cover all the bases too, which probably made my post a bit long winded.