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    • Spendingqueen
    • By Spendingqueen 15th Apr 18, 5:04 PM
    • 157Posts
    • 45Thanks
    Spendingqueen
    Overpay Vs Savings?
    • #1
    • 15th Apr 18, 5:04 PM
    Overpay Vs Savings? 15th Apr 18 at 5:04 PM
    So we are completing on 23rd but with my love of savings etc that is why I am here I want to know the best way to go forward.

    1.84% mortgage 2 year fixed 10% overpayments allowed
    So do I overpay as quick as possible - Will this mean that I pay less interest overall the quicker I pay or doesn't it matter whether I pay it on Day 1 or Day 600 of the mortgage.

    Or do I try and find a savings account paying 2% or more and how much would I need to have in savings for me to be better off saving like this? Would I then overpay as much as I can the day we go on to 3.99% rate as unlimited overpayments are allowed then? And should I stay on that rate and overpay or try lock in another rate with a fix again and hope they have unlimited overpayments? There was no option this time to get a good rate and have unlimited overpayments and be fixed.

    Sorry for the questions it is just the first time I have owned property and I want to pay the mortgage off asap or at least that is the aim.
Page 1
    • kingstreet
    • By kingstreet 15th Apr 18, 5:12 PM
    • 34,460 Posts
    • 18,712 Thanks
    kingstreet
    • #2
    • 15th Apr 18, 5:12 PM
    • #2
    • 15th Apr 18, 5:12 PM
    If you choose the mortgage overpayment option, the sooner you make the overpayment, the quicker you benefit from the reduced interest - next month.

    This assumes you have a daily interest calculated mortgage.

    Net savings rate higher than 1.84%? Dunno. See what you can find...
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • kinger101
    • By kinger101 15th Apr 18, 5:53 PM
    • 4,491 Posts
    • 6,230 Thanks
    kinger101
    • #3
    • 15th Apr 18, 5:53 PM
    • #3
    • 15th Apr 18, 5:53 PM
    What are you financial goals? It will be difficult to beat the 1.84% in cash savings, for all but relatively modest balances that can be achieved through regular savings accounts.

    But you need to look at you long term plans. Would it be better invested in a pension (very likely yes if you pay 40% tax). How long can you leave the money vested?

    It's very likely you'd remortgage rather than going onto the SVR.

    I'd concentrate on

    (a) reasonable cash reserve for rainy day (10K?)
    (b) more going into pension to drop myself back into basic rate if applicable;
    (c) regular savings to save wedge of cash to drop me into a lower LTV bracket.
    (d) overpayments once I've exhausted all the rest.
    • Spendingqueen
    • By Spendingqueen 15th Apr 18, 6:12 PM
    • 157 Posts
    • 45 Thanks
    Spendingqueen
    • #4
    • 15th Apr 18, 6:12 PM
    • #4
    • 15th Apr 18, 6:12 PM
    Hi Kinger

    Financial goals are to be mortgage free in 5 years - We initially took the mortgage over 12 years to suit our finances, however we are able to overpay just didn't want to overstretch ourselves going for highly monthly amounts or shorter term. Hopefully that makes sense.

    Regular savers linked to current accounts can offer 2% + interest - Would it be advisable to save in these? Or would I not have enough saved to generate enough interest to be worthwhile? I don't know how to do the maths to see which would be more worthwhile.

    Kingstreet - If we save on interest from day 1 of the mortgage then the sooner we overpay the better? Is that correct? Like the H2B ISA we got bonus on that so essentially that will be 2k overpayment straight away off the mortgage which will be good won't it?

    Quick other question - Do we need a solicitor to remortgage?

    We don't have to worry about 40% tax.
    C - We will drop to a lower LTV once we overpay won't we?

    112k value (house needs work but liveable)
    87k borrowed
    so we already have a good LTV
    What percentage of LTV do you need to drop to get the best rates?

    If we overpay 8,700 per year for 2 years I imagine we would smash off quite a lot of interest wouldn't we?

    Thanks in advance
    • Spendingqueen
    • By Spendingqueen 15th Apr 18, 6:13 PM
    • 157 Posts
    • 45 Thanks
    Spendingqueen
    • #5
    • 15th Apr 18, 6:13 PM
    • #5
    • 15th Apr 18, 6:13 PM
    How would I know if I had a daily interest calculated mortgage?
    • kinger101
    • By kinger101 15th Apr 18, 6:28 PM
    • 4,491 Posts
    • 6,230 Thanks
    kinger101
    • #6
    • 15th Apr 18, 6:28 PM
    • #6
    • 15th Apr 18, 6:28 PM
    There may be small amount for legal fees, particularly if you transfer between lenders. But you won't be doing the same due diligence as the initial purchase.

    MSE has an overpayment calculator, so you can work out how much you'll save;

    https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

    From an interest perspective, the first 1,000 each of interest is tax-free, so if savings rate>mortgage rate, savings win (and have the advantage of greater flexibility).

    I still think you need to work out your life plan. Although capital is at risk, historically, the stock market has returned more then 1.84% when dividends and capital growth are considered. There are tax advantages within a pension (as you can take 25% tax free on retirement, and might get NI savings though salary sacrifice with your employer).

    I'd at least consider these a hybrid of the mortgage overpayment/increased pension. Mortgage overpayments alone is low-risk, but unlikely to be the best use of surplus cash.
    • G_M
    • By G_M 15th Apr 18, 7:14 PM
    • 46,165 Posts
    • 55,866 Thanks
    G_M
    • #7
    • 15th Apr 18, 7:14 PM
    • #7
    • 15th Apr 18, 7:14 PM
    Most lenders these days calculate interest on a daily basis. If in doubt, write and ask.

    The only way to beat 1.84% after tax might be
    * investing rather than saving (longer term needed + less security)
    * a long-term savings bond eg 3 year fixed

    Another factor to check: if you overpay the mortgage, can you later easily 'draw-down' that money again (without re-applying)? If yes, that gives ideal flexibility. If no, then what hapens if you need the money again?
    • Spendingqueen
    • By Spendingqueen 15th Apr 18, 8:30 PM
    • 157 Posts
    • 45 Thanks
    Spendingqueen
    • #8
    • 15th Apr 18, 8:30 PM
    • #8
    • 15th Apr 18, 8:30 PM
    Well the overpayment calculator based on current affords means we could be mortgage free in around 5 years.
    After 2 years we would have around 60k left to pay so essentially about 51% LTV. Are there better mortgage rates than 1.84% around?
    • Spendingqueen
    • By Spendingqueen 15th Apr 18, 8:32 PM
    • 157 Posts
    • 45 Thanks
    Spendingqueen
    • #9
    • 15th Apr 18, 8:32 PM
    • #9
    • 15th Apr 18, 8:32 PM
    G_M -With regards to the money we live within our means and we would always have an emergency pot just for rainy days / emergencies etc.

    Investing is more risky like you said and I don't want to lose money and I don't know enough about investing.

    Long term savings - Maybe 3-5 years but by then I could be mortgage free.
    • Bluebell1000
    • By Bluebell1000 15th Apr 18, 10:09 PM
    • 699 Posts
    • 1,914 Thanks
    Bluebell1000
    We have a similar situation but probably looking at mortgage free in 10 years, mortgage rate fixed for 5 years. Right now, we are just about at a reasonable level for emergency funds so we can start thinking about where to put the rest. Our plan is:

    We are using two 5% regular savers at 300 per month each.
    When they mature we'll probably 'store' some of that in a childrens account since they get about 2% interest, and also switch to a current account with a good rate of interest.

    We had been thinking of a fixed rate savings account, but that's similar rates to the childrens ones, and with less flexibility about withdrawals. We may reconsider that in a couple of years when we see what our savings levels are like.

    Longer term we would like to switch to an offset mortgage account, once the 5 year fixed rate is up, and will probably pay off a lump sum then once there are no penalties (i.e. just before switching to a different mortgage product). We had one with our last house and it worked well for us, but we didn't meet their criteria when we moved. The advantage is all your savings are offset against mortgage interest, but still accessible just in case.
    Last edited by Bluebell1000; 15-04-2018 at 10:11 PM.
    • dimbo61
    • By dimbo61 15th Apr 18, 10:46 PM
    • 10,098 Posts
    • 5,465 Thanks
    dimbo61
    If you want to be mortgage free in 5 years you need to overpay and save into regular savers.
    If you can overpay by 10% each year and save into regular savers such as Nationwide 5% regular saver you could be mortgage free in 5 years
    • ReadingTim
    • By ReadingTim 16th Apr 18, 10:10 AM
    • 3,154 Posts
    • 4,695 Thanks
    ReadingTim
    Check the T&Cs relating to the repayments carefully - I was allowed to make overpayments up to a certain percentage (can't remember what, could have been 10%) during my fixed rate period, but that was limited to 500 per month. Therefore, a lump sum wouldn't have worked - you'd have to drip it in over a period of months.

    I also ensured I made overpayments, not repayments, which would have allowed me to borrow the money back had I needed it, and shortened the term, rather than the monthly repayment to shift it as soon as I could.

    Suggest you repay as much as you can per month and stick anything left over into as higher interest savings account as you can find. The alternative (if you can find it) is to find a savings account paying 2%+ and pay as much as you can into that for as long as you're in the fixed rate. Once that comes to an end and you move onto the SVR, make a lump sum payment from said savings account. Fix again, rinse and repeat!
    • TBagpuss
    • By TBagpuss 16th Apr 18, 1:25 PM
    • 6,961 Posts
    • 9,182 Thanks
    TBagpuss
    I personally do a mix - I have 250 a month going into the Nationwide saver which will pay 5%, but also overpay on my mortgage each month, and also put some money into my pension.

    For me, my mortgage terms permit me to borrow back over payments either as cash, or through a payment holiday, should I need it, so they remain fairly accessible.

    I'd suggest making he overpayments up to the amount allowed unless you do ind a savings account that pays at a higher rate, in which case, use that.
    • Spendingqueen
    • By Spendingqueen 23rd Apr 18, 6:57 PM
    • 157 Posts
    • 45 Thanks
    Spendingqueen
    Unfortunately I have been using a nationwide 5% interest regular saver while saving for my deposit as well as a H2B ISA with Halifax at 3.5% so not sure where else would be good to save.

    I believe my mortgage is that I can pay 10% of what we borrowed per year as overpayment - no maximum per month but I may be wrong - I will check.

    Thanks
    • Penguin2017
    • By Penguin2017 24th Apr 18, 3:55 PM
    • 33 Posts
    • 5 Thanks
    Penguin2017
    Mate : Always overpay and pay off your loan earlier if you can. Its good you took a longer term than required as you can have some flexibility.

    Why should you overpay... use the calculator find out really how much interest you saved.. and as banks load up the interest upfront, any payment in early stages is even more useful than latter half, and its just not the interest rate calculation
    • saajan_12
    • By saajan_12 25th Apr 18, 2:59 PM
    • 1,527 Posts
    • 1,135 Thanks
    saajan_12
    So we are completing on 23rd but with my love of savings etc that is why I am here I want to know the best way to go forward.

    1.84% mortgage 2 year fixed 10% overpayments allowed
    So do I overpay as quick as possible - Will this mean that I pay less interest overall the quicker I pay or doesn't it matter whether I pay it on Day 1 or Day 600 of the mortgage. - most mortgages will have daily or atleast monthly calculated interest, so earlier overpayments will reduce the balance you pay interest on ie less total interest.

    Or do I try and find a savings account paying 2% or more and how much would I need to have in savings for me to be better off saving like this? - For every surplus, if you can put it in a savings account paying over (net of tax if any) you'll benefit by (x% - 1.84%). If x% > 1.84% then you'll benefit by putting it in the savings account. But note
    a) Savings accounts will rarely pay over 1.84% on large sums - once you hit the max amount that attracts the high interest, the rest will earn little/nothing so may be better saving elsewhere / overpaying.
    b) Savings account will give you more flexibility - e.g. if an account pays 1.7% now but rates increase and next year pays 3%, you'll get the benefit of the increase. If you had overpaid mortgage, you're saving 1.84% interest both years regardless. If you need the money again,its much easier from an instant access savings account. In your mortgage the money is likely tied up for the fixed term, meaning you incur fees to draw down again or higher interest if you have to take a separate loan.

    Would I then overpay as much as I can the day we go on to 3.99% rate as unlimited overpayments are allowed then? And should I stay on that rate and overpay or try lock in another rate with a fix again and hope they have unlimited overpayments? - After your fixed term, repay as much as you can/want and then remortgage for what you cannot afford (effectively making a lump sum overpayment). Then you'll be on a lower LTV so should get even better deals.
    There was no option this time to get a good rate and have unlimited overpayments and be fixed.

    Sorry for the questions it is just the first time I have owned property and I want to pay the mortgage off asap or at least that is the aim.- Don't apologies, its good you're thinking about this rather than sitting on savings that aren't generating interest, or indeed paying off too much leaving nothing for a rainy day!
    Originally posted by Spendingqueen
    Crucial point will be whether you can draw down on mortgage (ie re borrow your overpayments)
    - If yes then no harm in overpaying unless a savigns account beats the interest rate
    - If no then think about how much capital you need to be instant access. In emergencies you can lose much more than teh interest benefit from having to borrow / not affording essentials.
    • Spendingqueen
    • By Spendingqueen 27th Apr 18, 7:09 AM
    • 157 Posts
    • 45 Thanks
    Spendingqueen
    Hi, We do not want the overpayments back hence saving a reserve of money just in case of emergencies or anything.

    Also just been looking at the help to save account and if you pay in 50 per month for 4 years you get a 1200 bonus so surely worth doing with surplus money isn't it?

    Im sad that the mortgage has already gained so much interest and I cannot overpay until the first payment goes out, whenever that will be
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