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  • FIRST POST
    • Bluebirdnick
    • By Bluebirdnick 5th Mar 18, 12:07 AM
    • 110Posts
    • 66Thanks
    Bluebirdnick
    should I stop overpaying the mortgage and save?
    • #1
    • 5th Mar 18, 12:07 AM
    should I stop overpaying the mortgage and save? 5th Mar 18 at 12:07 AM
    Hi all

    I've spent the weekend trying to sort out savings etc and in the process, I think I may have realised that I've been "doing it wrong" as regards the mortgage and just want to sense-check it as it seems so obvious I don't know why I haven't thought of it before.

    I've got 23 years to run on my mortgage. Fixed at 2.99%, for 10 years (8 to go). It is an interest-only mortgage, but I have been making payments equivalent to a repayment mortgage amount for the last year and had planned on doing so until the fixed term expires (the overpayment I am making is approx 700 a month).

    But rather than making "overpayments" off the mortgage principal at 2.99%, surely I would be better off paying just the interest-only amount and spreading the 700 across some 5% regular saver accounts instead? I have always done a first direct regular saver account, and I want to open current accounts with Santander and Nationwide anyway so would have access to their 5% rates too. My total interest per annum would (I think) be just under 500 across my regular savers and some other deposits so the interest would be tax-free. It seems so obvious - but that will work out better for me won't it? Probably not a lot better, but over time the small differences will all add up and frankly I don't see the point in arranging things in anything other than the most efficient way.

    Thanks!
    Last edited by Bluebirdnick; 05-03-2018 at 12:10 AM.
Page 1
    • John-K
    • By John-K 5th Mar 18, 7:42 AM
    • 654 Posts
    • 1,011 Thanks
    John-K
    • #2
    • 5th Mar 18, 7:42 AM
    • #2
    • 5th Mar 18, 7:42 AM
    Yes, if you can get 5% on savings the money would be better there, however...

    Keep an eye out for the promotional rate ending; you will lose much of the benefit if you leave it there, and remember, this money is for your mortgage. You should not dip into it for treats, or one-off wants.

    Finally, remember the tax. If your interest ever grows over the allowance you will be taxed on it.
    • Niv
    • By Niv 5th Mar 18, 8:14 AM
    • 1,600 Posts
    • 1,377 Thanks
    Niv
    • #3
    • 5th Mar 18, 8:14 AM
    • #3
    • 5th Mar 18, 8:14 AM
    Well in my opinion you should have ~6months worth of bills saved for emergancies anyway so you can use your emergancy fund to do this. If you have no cash savings then I think you should build that up first before overpaying.
    YNWA

    Target: Mortgage free by 58.
    • AnotherJoe
    • By AnotherJoe 5th Mar 18, 9:08 AM
    • 9,449 Posts
    • 10,452 Thanks
    AnotherJoe
    • #4
    • 5th Mar 18, 9:08 AM
    • #4
    • 5th Mar 18, 9:08 AM
    The first thing you could do is look at why you have such a high mortgage rate and mitigate that.
    Second thing, if you do do the 5% savings, is to then pay off a lump sum using all the amount saved plus interest, when that rate ends, these are all (AFAIK) 12 month deals that revert to a low rate.
    • mrginge
    • By mrginge 5th Mar 18, 10:59 AM
    • 4,449 Posts
    • 8,208 Thanks
    mrginge
    • #5
    • 5th Mar 18, 10:59 AM
    • #5
    • 5th Mar 18, 10:59 AM
    Are you sure that this regular savings account is actually paying 5%
    • Bluebirdnick
    • By Bluebirdnick 5th Mar 18, 1:51 PM
    • 110 Posts
    • 66 Thanks
    Bluebirdnick
    • #6
    • 5th Mar 18, 1:51 PM
    • #6
    • 5th Mar 18, 1:51 PM
    Thanks all!

    In response to the questions:

    Why is the interest rate on the mortgage so high?It's a 10-year fix at 80% LTV, taken out in 2016. I don't think it is expensive, given the facts. Rates have come off a bit since then but the best comparable product today is 2.79%. The real question is whether a 10-year fix is a good idea (in particular when I took out at 80% LTV because I needed 100k to make the house habitable - so my LTV just 2 years later is closer to 60%). For me: yes. I know what it will cost to put a roof over our heads for a decade, and we can easily afford that amount if just one of us is in work. With both of us in work (which is the status quo) we should be able to repay about half of the principal by the time the 10-year period ends. Would I have been better off taking out a 2-year fix at 80% LTV and remortgaging to a 60% or 65% fix now? Yes, in hindsight. But had rates risen and/or house prices dropped, I may have found myself with a worse product. I paid a price for certainty and I don't regret it.

    Can I mitigate high interest rate?Even if I wanted to remortgage, I couldn't. The penalty for doing so is currently 34k, and it will remain prohibitively expensive for the next 5 years at least.

    Am I sure that the reg saver pays 5%?Yes: firstdirect, Nationwide and santander all pay 5% on regular savings accs. I already have a first direct reg saver and have had for years. I am applying for current accs with Nationwide and Santander for other reasons, so will also have access to theirs. I am also a member in the Principality, which has a 4% reg saver.


    Good point on building up my savings for a rainy day. We do have 4-5 months of bills put aside. This is in my wife's name, in a savings account earning about 1% I expect. But saving the 700/month I am currently contributing to the mortgage will certainly bolster this.

    I think I am going to give it a go. Even if I could only get 3% I would still do it. While there would be no arbitrage on the interest rate this year, it would be a one-way bet as regards future interest rate movements. I will have saved up about 9k by the end of the year and if rates have risen I can hopefully put that in a savings account paying at least 3% and repeat the process with reg savers. If I cannot get 3% on the funds when they come out of the regular saver, I will just use it to pay down the mortgage.
    • cashbackproblems
    • By cashbackproblems 5th Mar 18, 2:21 PM
    • 1,749 Posts
    • 684 Thanks
    cashbackproblems
    • #7
    • 5th Mar 18, 2:21 PM
    • #7
    • 5th Mar 18, 2:21 PM
    I have an emerging markets fund I have ring marked for mortgage over repayments, so anytime I want to overpay I put money into that, my current rate is 1.7% and I expect my fund to achieve 10%+ over a 5-15 year period so its a no brainer. That will eventually be used to pay off some of the mortgage.
    • Bluebirdnick
    • By Bluebirdnick 5th Mar 18, 3:03 PM
    • 110 Posts
    • 66 Thanks
    Bluebirdnick
    • #8
    • 5th Mar 18, 3:03 PM
    • #8
    • 5th Mar 18, 3:03 PM
    Thanks!

    I did think of higher return investments, but the problem I have with it is that I expect that I will want to pay down as much of the mortgage as I can in 8 years when the fixed period expires, in order to get the best possible LTV when I come to remortgage. As I am super-conservative (hence a 10-year fix), I thought that the 8 year investment period was too short for that sort of investment. Basically I've decided that I would rather a guaranteed return at just above my mortgage interest cost, than I would a higher return on a product where my capital is at risk. And I am also expecting that at some point in the next 8 years, rates will rise so that my plan becomes more profitable. But that is just me - I hope yours works out OK!
    • fewcloudy
    • By fewcloudy 5th Mar 18, 4:06 PM
    • 223 Posts
    • 116 Thanks
    fewcloudy
    • #9
    • 5th Mar 18, 4:06 PM
    • #9
    • 5th Mar 18, 4:06 PM
    Would I have been better off taking out a 2-year fix at 80% LTV and remortgaging to a 60% or 65% fix now? Yes, in hindsight. But had rates risen and/or house prices dropped, I may have found myself with a worse product. I paid a price for certainty and I don't regret it.
    Originally posted by Bluebirdnick
    If you'd do things differently if you had the chance again, then logically you must regret it. It's a coin toss, and on this occasion you lost. As has almost everyone else who bought a fixed term mortgage in the last 10 years, never mind a 10 year one. Long term fixes can cost a lot to buy in the first place, money which could have been put toward the mortgage, or meant borrowing less, saving you thousands over 25 years.
    But then again, you're only 2 years in; by 2026 it may turn out you won your coin toss after all...

    I did think of higher return investments, but the problem I have with it is that I expect that I will want to pay down as much of the mortgage as I can in 8 years when the fixed period expires, in order to get the best possible LTV when I come to remortgage.
    Originally posted by Bluebirdnick
    But you said if you could remortgage today your LTV is already at 60% so you are already at the best LTV. I doubt there will be many/any huge savings to be made in terms of rates for having a LTV below 60%. But good to strive for a smaller mortgage of course
    Feb 2008, 20year lifetime tracker with Sprogget and Sylvester, 0.14% + base for 2 years, then 0.99% + base...
    • Bluebirdnick
    • By Bluebirdnick 5th Mar 18, 4:39 PM
    • 110 Posts
    • 66 Thanks
    Bluebirdnick
    If you'd do things differently if you had the chance again, then logically you must regret it. It's a coin toss, and on this occasion you lost. As has almost everyone else who bought a fixed term mortgage in the last 10 years, never mind a 10 year one. Long term fixes can cost a lot to buy in the first place, money which could have been put toward the mortgage, or meant borrowing less, saving you thousands over 25 years.
    But then again, you're only 2 years in; by 2026 it may turn out you won your coin toss after all...



    But you said if you could remortgage today your LTV is already at 60% so you are already at the best LTV. I doubt there will be many/any huge savings to be made in terms of rates for having a LTV below 60%. But good to strive for a smaller mortgage of course
    Originally posted by fewcloudy
    Good point on "fixing" the LTV! Although that assumes house prices do not drop. And you are absolutely right - having a smaller mortgage is obviously a good thing.

    As regards "would I do it differently" vs regretting it: I think I can reconcile the position. I play poker (badly) and sometimes you make the correct call at the time by folding a hand that could turn in to a monster winning hand had it been held until the death. Even after the event I don't regret folding: it was the right thing to do at the time, and as long as I keep doing that I will win over time. When I took out that mortgage my wife was pregnant and we were both changing jobs, so there could have been any number of problems when we came to remortgage, so locking in for long enough to materially reduce the principal amount was tempting. I will always favour fixing because I want to know that I can afford to make the payments - I value that certainty. I have had a redundancy protection policy for a decade too, and I have never even come close to being out of work. Knowing that now, I would obviously not have taken it out but it doesn't mean I don't value the peace of mind it has given me, and I won't be cancelling it!
    • Thrugelmir
    • By Thrugelmir 5th Mar 18, 5:25 PM
    • 58,535 Posts
    • 51,896 Thanks
    Thrugelmir
    I expect my fund to achieve 10%+ over a 5-15 year period so its a no brainer.
    Originally posted by cashbackproblems
    What possibly could go wrong?

    For most people protecting their capital against loss should be the first priority.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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