Overpay mortgage or Savings ?

[speciall]

We have moved to forever four bed house last year and our mortgage is 375k and after it will come off from fixed rate in Nov 26 (1.14%) we are left with £316k. I am 34 and husband is 40. joint income is £85k. Three children- two pre teens and 4 year old. no private education or nursery fees. Currently we are paying £1300 pm for mortgage. Only £2000 savings for us , £5k in children 's accounts which we can access, as all of the savings have gone towards deposit, furniture etc . So starting from scratch really in terms of savings. It's daunting to think about mortgage rates for that big mortgage. I know we have four years left and it's not immediate worry.Going forward I will have the potential to save £ 1000 pm. I am in two minds whether to overpay mortgage or to build a blanket of savings. So please give me your perspective on this.

Personally I dont think you have enough savings to be over paying your mortgage. You need a nest egg for emergencies.

Given you will get a higher interest rate on the savings at the moment save as much as you can, then when you remortgage pay whatever you can afford then as a lump. The differential between the interest rates will leave you either able to keep more back as savings or pay more of the mortgage down.

The only argument for putting money into the mortgage would be to hide it if you are a compulsive spender.

So in summary you are asking if it is better to overpay your mortgage than to build up savings whilst still having a debt? Compare the rates for each and it will be very obvious what to do. Money saving expert is good for explaining this.

You don't need perspectives and opinions you just need to do the calculations.

You need to build up a savings pot and I would suggest 10k.

Then look to overpay the mortgage.

I’m a mortgage over payer but I have savings and I continue to pay into savings too.

Not sure right now you can afford to do both. I’d build up the savings for now while rates are now increasing. When you have a buffer maybe revisit.

I would agree you need a bigger savings pot first.
But one of the commentators on the 10 o'clock news last night (can't remember whether BBC or ITV) was talking about interest rates. He was saying that banks have put up interest rates but are not passing on the raised interest rates to savers. So he was saying your better paying towards debts rather than savings at moment

Your mortgage is very high considering your joint income is only £85k

I thought this too

If you overpay are you able to take this out in case of emergencies? (Our bank allows this)

Depends on what the interest rate on the debt is vs interest on the savings.

Currently her mortgage interest rate is approximately 1.45 vs over 3% if saving.

Unless she has problems with spending compulsively and thinks she will dip into the pot, it makes more sens to save and then when the interest rate is higher on the mortgage pay in then.

This. Focus on getting some savings behind you.

With only 2k in savings I’d be saving right now.

£10k blanket of savings is good idea first. I will saving till April next year and then will re visit the situation of overpaying.

@RogueV No it does not give us the option of withdraw the overpayments made on mortgage

Good decision @speciall That’s what I would do too

Definitely savings. I’m on a similarly low mortgage rate, I’m hoping my ISAs will outperform it, I am going to keep some money aside that can be used to overpay when I come to remortgage, but overpaying while my mortgage is just over 1% seems crazy. If rates are up to 4 or 5 when I remortgage I'll consider using savings to reduce that debt, I’m hoping rates will have dropped by then.

That’s a really low mortgage rate - I’d suggest putting away the extra, decide how much you want easily accessible for emergencies and put the rest away so you can get it out before it’s time to remortgage.
Fixed savings rates are about 4.1% now - if that stays then for every 10K you have in savings instead of against your mortgage you’ll have an extra £300 ish per year. If you save as much as you are hoping to that could add up to a few grand which you can then put towards the mortgage when you get a new deal in 2026.

Biggest problem i see is that a small change in mortgage rates would dramatically increase the mortgage repayments. We have a similar income with a £230k mortgage but once our 1.43% fixed deal ends in Dec 2025, an increase in 1% over my current rate will increase our repayments by approximately £100.

This is definitely the best answer. Build up a savings pot over the next 4 years and then use some of that to pay off a lump sum on the mortgage when you remortgage. You will gain some interest on those savings in the meantime.

Can you not save it for four years then at the end of the fixed term decide whether to payoff some of the mortgage or keep it as savings?

Definitely build up a savings buffer first.

How is your pension? I'd suggest that is a better place for any spare money - because of the tax relief and the effect of compounding. It will seem like a way off now but your future self will thank you.

I would do a bit of both.
If you have £1000 month extra now, divide it up.
£200 - overpay mortgage
£600 - savings. These can be kept or used for mortgage larger overpay later
£200 - extra for now day to day stuff with price increases.

If you can save each month, stick it in a regular saver (mine pays 7%). At the end of the year you can then pay it off your mortgage, keep hold of it or do a bit of both.

@Thehokeypokey 7% ? wow that's fab rate. How much you can pay in it pm?

It's with First Direct and is only open to current account holders but I think some other banks have similar customer only rates. This one is £300pm max.

How much can you even overpay on your mortgage OP? We have around £1500 a month ‘spare’ for savings and overpaying but can only overpay 10% per year. That works out about £220 per month so we overpay that and save the rest.

@TheFlis12345 we can pay upto 10% of our mortgage balance each year as overpayment