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Do you have both savings and a mortgage?

(33 Posts)
Virgil Sun 06-Jan-13 22:17:44

Given the low interest rates is it silly to have savings when you have mortgage debt? Do you prioritise paying off the mortgage or keep a level of savings too?

RubbishCrackerPuller Sun 06-Jan-13 22:24:00

We have an offset mortgage. The level of mortgage interest our savings offset is higher than the best savings rate. It also means we are only paying off capital, so win all round.

VivaLeBeaver Sun 06-Jan-13 22:25:34

We have enough savings to pay the mortgage off but don't. I feel that you never know when you might need the money for an emergency. Maybe we should get an offset mortgage.

CogitoErgoSometimes Sun 06-Jan-13 22:59:23

The interest rate argument is fine as far as it goes but it would be really silly to have all your spare cash sunk into your house and then be faced with a big expense that you had to take out expensive loans or use credit cards to meet. smile

Mum2Fergus Sun 06-Jan-13 23:07:29

Im a FTB and mortgage doesnt start til next month but definitely plan to have reasonable amount saved before ploughing overpayments into mortgage...I do benefit from a 0.5% mortgage though.

ceeveebee Sun 06-Jan-13 23:11:07

We have all our savings in ISAs, equities or bonds. We also have a huge flipping mortgage but at a pretty low rate. I prefer to have a slush fund in case one of us lost our job or if we want a flash holiday.

LadyMedea Sun 06-Jan-13 23:21:20

Normally the advice goes once you've saved up an emergency fund (6 months living expenses) you are wise to start paying down debt, most expensive first but if no cc then mortgage. it is stunning how much you save on interest as the extra you pay comes off the capital. Use this calculator to see - so paying off a chunk (if you are not going to be penalised) is always a good idea if you can afford it

BackforGood Sun 06-Jan-13 23:27:28

We have both, because you can't actually "spend" equity when you need money in an emergency / unexpected turn of event. Particualrly if that were to turn out to be redundancy as that wouldn't be a great time to be asking your lender to have some of it back again.
That said, we've been overpaying since the interest rates went to such a ridiculous low, as that makes complete financial sense to me.

nannynick Mon 07-Jan-13 01:21:40

I am overpaying the mortgage monthly but not lump sum paying it off. I have been wondering what is best to do... put money into ISA or pay off mortgage. Having access to the money is attractive, is 6 months safety net enough? Why 6 months, not 12? My mortgage has a max amount I can overpay per year, so I would need to check that figure if I was to overpay a lot more than I do already.

kickassangel Mon 07-Jan-13 01:31:11

On our mortgage everything we overpay goes to reduce the term, so if we needed to cut back expenses we couldn't negotiate to lower the monthly payments over a longer period without getting a whole new mortgage. Therefore we have savings to last us 6 months but may start putting a bit more into the mortgage as currently it will be paid off when I am 70 shock

InMySpareTime Mon 07-Jan-13 07:18:21

We have savings for the DCs university funds, and 6 months income in case of emergency.
We also overpay the mortgage by £200 a month.
Habitual overpayments mean we could cover several months' mortgage as underpayment in case of emergency to make our savings last longer.
We have also taken 10-12 years off the termgrin.

Virgil Mon 07-Jan-13 20:25:21

Hmm, maybe we should keep a bit more in savings. We overpay on our mortgage each month to try to get it paid off more quickly and therefore save money in the long term but I'm now thinking we should perhaps keep a bit more back. An offset mortgage is clearly the best way but we have an interest only mortgage and would struggle to get another elsewhere.

Colleague at work was saying only today how there is just no point in any significant amount being kept as savings at the moment if you have mortgage debt since you end up paying so much more than is necessary.

This is confusing!

CogitoErgoSometimes Mon 07-Jan-13 22:25:14

It's a judgement call. How much do you, as a family, need to have in relatively easy-access cash in order to feel you could cope with an emergency? It's not zero and it won't be tens of thousands, it'll be somewhere in between. A few years ago I had to unexpectedly find £2000 for a new gas boiler when the old one died in the middle of winter.... that amount subsequently became my 'minimum savings' number. Yours will be something different.

Mutley77 Mon 07-Jan-13 22:30:23

We try and spread the risk if that makes sense - so we have a mortgage (but a good equity in our house), shares and ISAs (long-term) and short-term cash savings as well as decent work pension schemes for both of us. Should we be in a position of having more cash available to put aside we plan to buy another property to rent, which would probably be the "future university fund" for our DCs.

While there is a lot said about the stock market following recent years, we get a great share option scheme from DH work so it is definitely a good way to save for us...


rubyrubyruby Mon 07-Jan-13 22:34:06

Message withdrawn at poster's request.

BackforGood Mon 07-Jan-13 22:57:53

Mathematically, your colleague is right - there's no point in having thousands in savings earning 1%, when you are paying 3.5% on your debt / mortgage, it's just that you need to be aware that there are certain house maintenance things - like replacing part of a roof or a boiler and/or central heating system - that most peopel can't fund out of their 'spare money' at the end of the month. Equally car problems are something that sneak up on you out of the blue. then you factor in how long you can be off work on full pay, if you suddenly broke your leg or contracted an illness that was going to last months rather than days. It's very different for different jobs.
Also, we keep savings for "things that need saving up for" - so, to replace the car in 2 years time or whatever, that you know are going to be needed, but you won't be able to find the money out of your current budget.

CogitoErgoSometimes Tue 08-Jan-13 07:17:38

" we have an interest only mortgage"

This aspect does make it fairly important that you pay something off the capital when you can. Otherwise you're worse off than if you were renting. Still doesn't mean having 100% cash sunk in your home.

denialandpanic Tue 08-Jan-13 17:27:15

We have a small amount in a slush fund and overpay on our mortgage but our mortgage allows us to get the money back in approx three days if we need it.

FraterculaArctica Tue 08-Jan-13 17:30:46

Another one here with an offset mortgage. It's great if you have savings as well as mortgage, will save you loads of money even though interest rate may be a bit higher.

Virgil Tue 08-Jan-13 20:03:23

I'm going to sit down tonight and look at this properly. We have a large house with a big mortgage ( although less than 50 percent of the value of the house) and whilst it is interest only we have tried to pay the same as if it was a repayment mortgage. I have then been using anything spare to overpay further on the mortgage to clear the debt more quickly. As a result though we haven't been putting much into savings.

Now wondering whether this is the right approach and whether we should keep more out in case we need to access the money. Six months worth of outgoings would be a lot to save though when that money could have cleared some of the mortgage debt.

kickassangel Tue 08-Jan-13 20:10:15

it depends if you can get money back from the overpayment? if not, then you prob. do need to have some savings. however, you should have a few months of the amount you need to get by, not the increased amount you pay into the mortgage atm.

Clayhead Tue 08-Jan-13 20:13:32

Offset mortgage here too.

Jinsei Tue 08-Jan-13 20:17:23

We overpay our mortgage as much as we can, and we'll be clear of it in a few years, way ahead of schedule. However, I do like to keep a certain amount of money aside for "emergencies". I never really know if it's the right thing to do, but it gives me peace of mind to know that it's there - just in case!

AKissIsNotAContract Tue 08-Jan-13 20:20:01

As you have an interest only mortgage I would keep doing what you are doing and overpaying it. Otherwise you need another product which will enable you to pay off the outstanding balance when the term of your mortgage is up. Lots of people have come unstuck when their endowment policies have left a shortfall at the end of the mortgage.

mercibucket Tue 08-Jan-13 20:28:59

we overpay and offset 6 months salary against it. interest only mortgage but you have to show you are saving money somewhere. first direct - really recommend them

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