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Do you have both savings and a mortgage?(33 Posts)
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?
DH and I have both been quite driven to pay off our mortgage early but have, what seems like suddenly, found ourselves in the position of having more savings/investments than the outstanding mortgage. It just doesn't make any sense for us to pay off the mortgage at the moment though - even though I really want to!
We have enough saved for 12 months if either of us lost our job/became too ill to work. when interest rates became so low, we started overpaying our mortgage by a considerable amount. We do this on a month by month basis, so could stop tomorrow if our circumstances change.
We are hoping to move in the next few years, though if that makes a difference.
Our mortgage is tiny and the rate so low that it's not worth paying it off - it's better to max out our ISAs instead.
I thought that was the case & checked with our IFA who thought I was crazy for mentioning it.
It's really personal situation dependent.
Our mortgage rate is low so we earn more on our ISAs than we pay on our mortgage. So we max out the ISAs first.
We also keep quite a lot in easy access savings (probably six month living expenses). We would reduce this but we are thinking about a new car and a new bathroom so if we ever get around to deciding which one (debate been going on for quite a while now) we'll need the money.
We also automatically overpay each month on our mortgage to the amount it was when interest rates were at their highest as we never put our payments down so are used to them being that high.
Anything less after all this (not much now we have dd and I only work part time) is overpaid on the mortgage.
We have substantial savings in shares ISAs - mostly built up before we moved to our current house in fact as I've been studying rather than working. The return on them while variable has been better than our mortgage rates. Accessibility adequate with a certain amount of planning. School fees currently part coming out of them ... and the new boiler when ours failed boxing day ... I'd previously thought of those savings more in terms of "flexible pension alternative".
We've had an offset mortgage for 7yrs now. We did utilise most of our savings pot recently on house renovations so am trying to slowly build it back up. We love the flexibility of it and we have used it fully during the house build - i.e borrowed more without further fees. We still have pensions, ISAs/stock but the offset savings pot has totally negated our need for an instant access savings account.
Mercibucket your set up would seem to be the best solution, 6 months money offsetting against an interest only mortgage - you have all bases covered!
Will investigate First direct. Our mortgage is with HSBC and they're the same group aren't they.
You need some savings too, you can't get money back from your mortgage easily if things go a bit wrong and you need to replace the boiler/fix the roof/buy a new car.
We have a small amount of savings, they still need to be built up a bit more before we can think of starting to over pay the mortgage.
If you have a comfortable savings buffer then overpaying is usually the best option though you'd have to ensure you wouldn't get too stung by overpayment penalties.
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
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.
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!
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.
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.
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.
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.
" 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.
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.
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...
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.
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!
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 term.
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
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.
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