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.

I wouid overpay 10% as that's all that is allowed and put the rest to savings

I agree with the PP, you can only overpay £130 of your £1k spare a month so I would do that and save the rest. We worked out that at our current rate if we overpay by 10% throughout our term we would save over £25k in total and cut 3 years off the duration.

Isn't it 10% of the mortgage balance ie £375k, not 10% of the monthly payment?

@FrownedUpon 10 percent should be £37500 so it allows generous overpayments each year

Check out Dave Ramsey's baby steps. He recommends 6 months living expenses in an accessible account assuming you have no unsecured debt, which should be the priority before emergency fund.

how much can you over pay each year on your mortgage? Is there a maximum?

are you good at keep track of savings?

if for example you have a maximum over pay limit each year, then it might be, if a low maximum, better to over pay each year a little - as when the years iver it’s gone.

also save and really make your money work for you.

first direct, Lloyds, TSB, Barclays are all doing regular saving accounts paying 5%+ so if you are Davy and open up accounts every 3/4 months, you can regular save and as the first pot closes you start using that money to pay into the next savings account. Once you have savings you can look at ISA as that way you don’t pay tax on interest

Similar dilemma, we are going to save and then choose to reduce the borrowing at the end of the fixed term.

After a recent experience where I made a stupid error and my mortgage payment bounced I would suggest everyone overpays a bit until you've built up one mortgage payment worth of excess as it gives you a cushion.

The fact I'd been overpaying saved me getting a mark on my file for a missed payment.

We currently have a low rate until late 2025 we also decimated savings buying then again 4/5years later on some major renovations.

We’ve built up £10k each in low risk easy access savings.

everything beyond that we put into s&s ISAs which I expect to outperform the mortgage interest over time. We’ll decide at the renewal point based on interest rates/market whether to cash in and tip into mortgage or continue as we are with another fix

I can’t imagine we’ll ever see such cheap borrowing again

@ItsNotReallyChaos does it really work like that for you? Who’s your mortgage with?

overpaying for us we either have a choice to reduce term or reduce DD - neither creates a slush fund for a missed payment

@speciall we are in a very similar position to you. 1.29% until 2026. We were previously overpaying £100 per month into the mortgage, but have now stopped this and are putting the money into a Barclays 5% rainy day saver instead and saving as much as we can with a view to paying off a lump sum at the end of the fixed term. We have a savings cushion so we were able to put in ISA’s and fixed rate bonds at around 4.5-5% interest which massively outweighs paying off the mortgage in instalments as we will get good returns due to the interest.

have a look at regular savings accounts, they will likely beat your mortgage rate which Means you would be better off saving. PLUS, if you needed the money, you’ve got it rather than the mortgage company having it and you being stuck.

@Isyesterdaytomorrowtoday mine's with Nationwide. When I realised my payment had bounced I was horrified and called them to make a payment over the phone. I asked what impact having a missed payment would make and they said not to worry about it as because I'd been overpaying so that went towards the payment.

That’s really handy to know, thank you!

Is it just the 10% you can overpay? I'm with Woolwich and they have something about no more than three times the monthly amount as well.

Given your interest rate is low and your savings are poor, I would set up a standing order to transfer the money into a savings account so it goes on pay day. There are good deals on lower value savings account, especially if you have a current account. I'm getting 5.2% with Barclays but it's only up to 5k so you may need to spread your accounts round a bit.

This could be to your advantage. Then you can have one pot for emergency savings and once that is full so to speak use another and save to overpay the mortgage.

Set a reminder for the deadline so you pay in before the end of your first year.

The danger of savings versus overpaying the mortgage is that you might be more tempted to spend them so just set it up like a bill. Don't get used to the extra money as you will get a shock when the fixed rate ends.

You may well have quite a big jump when you come off the fix. Looks like £316k at 5% for 20 years would be around £2100 a month so if you do have £1000 a month spare you’ll hopefully be in a good position to manage.

like others I’d save it in as high an interest rate savings account as you can and then take a choice in a few years whether to add to mortgage or not. The only thing you’re going to need to watch is interest rate maximums before paying tax. Probably wouldn’t affect you this year but could if you built up a lump sum so it would be sensible to split across you and your DH. There are plenty of regular savers or fixed rate accounts paying 4% plus so you should comfortably beat the mortgage interest.

We do both. We do the max annual overpayment on our residential mortgage and save. We are in a position to pay off the mortgage and planned to in Jan but due to the higher saving rates at the moment have decided to put that money into a 1 year fixed instead.

What do you think your house is worth?

If you have relatively low equity in the house, but you think you can get yourself into a better equity band before you remortgage, then it could save you more money than simply looking at your compound interest as it stands on your mortgage and your savings.

I would look to over pay personally. That potentially means when you come to remortgage you can keep your repayments down and have more (potentially to put into savings) at that point.

I think the jump in mortgage repayment is what I'd be looking at, because its likely to be as much as you can over pay now anyway - but you'll be better off with the compound interest (and thats without considering a different in rate between having more / less equity in the house). Its effectively giving you a cushion in a different way.

MSE has a Saving vs Overpay Mortgage calculator: www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

No point in overpaying if you have such a low interest rate, save as much as you can on a high interest saving accounts or ISA( some offering 6% currently), then use those savings for a lump sum once your fix low interest rate is over.

I’d do £500 mortgage overpayment and £500 savings. If you look at Martin Lewis’s calculator it’ll show you how much quicker you’ll pay your mortgage off with overpayments and it’ll blow your mind. If you’re looking for £10k in savings then it’ll still only take 16 months which I think is fab personally.

Your mortgage rate is really low so definitely save. I've opened multiple accounts paying different levels of interest from 4.5 to 6%. It's a bit of a faff but when I come to remortgage in 2026 we hope to have another £25k+ to knock off the mortgage.

Overpayments on our mortgage only come off the capital if they are £500+ so it is worth checking that too - smaller payments involve interest too - not sure of the specifics, but it is barely worth paying off £100 or whatever (unless you save it up till it gets to £500 and then pay if off in a lump of course).

I’d probably up savings to 3-6 months of bare bones expenses (including sinking funds)

don't overpay the mortgage at 1.14%. Build up your savings until you have at least 6 months expenses as an emergency fund first. Pay down any other higher interest debt. Then save or invest whilst it's going to do better than your mortgage rate. Or a little of both if that makes you feel better.