Pay off mortgage? Tell me I'm being an idiot.

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I'm in the last 6 years of my mortgage.
Variable rate.
Although interest rates are rising I've been very lucky as I took out a lifetime product just before interest rates started falling 15 (?) years ago, and have overpaid the difference.
My actual payment is now half what it started as, so the overpayment is at least 100% a month.
I took the whole mortgage on when I divorced on an affordability basis, and am proud that I've almost paid it all off myself despite not earning lots and having 3 kids.

However......
I have some savings (a gift).
Premium bonds and a vanguard S+S ISA.
Also 20k in savings account - interest rate lower than mortgage rate.

I should at least pay 20k off shouldn't I?

When interest rates were very low the mortgage barely cost me anything, but now the interest charge will be ~£100 a month.

I'm on my own so noone to run this past.

So - transfer the 20k tonight. Yes or no?
Or somewhere better to put it?
(I'd then put the old mortgage payments in a savings account to save back up).

Thank you!

Is there a limit to how much you can overpay each year?

Yes, check the max you can pay off for the year.

What would the interest be after making a 20k payment?

Yes I would. We have used some savings to pay off a third of our mortgage. We only have £30,000 left, and our repayments are affordable even with interest rises.

This is the approach I would take:

Firstly, make sure you keep enough back in relatively easy access savings (e.g. premium bonds) for emergencies. You don't want to be dipping into S&S to pay for an emergency plumber!

Secondly, find out out how much you can overpay without a fee (it is likely that there is no limit as you're on a tracker rather than fixed rate).

Thirdly, consider how much your monthly payments could increase to if interest rates increase further, and if you need an additional savings pot to help meet these payments or if your income is sufficient.

Then, once you've worked out how much to keep back in savings, you can pay however much of the £20k you have left over off your mortgage. If you have an annual limit on how much you can pay off then pay some this year and some next year.

Thank you 🙂
I'm very lucky - no limits on overpayments. And as they've been quite big on a monthly basis, despite interest rate rises my payments have barely changed or have dropped when recalculated. £720 / month pre covid. Maintained that level since, actual payment needed is £350.
I'd have 6k remaining. Current interest is about £100 per month, so it'd be down to roughly £25 per month, but would then be paid off in a year.

Depending on job security keep 3 or 6 months income in savings, don’t touch your S&S ISA in the current climate.

Then yes, interest saved is as good as interest earnt - better actually as you don’t pay tax on interest paid. Perfect timing for you as rates are going up.

I would pay it off. With the caveat mentioned above above making sure to have cash available for emergencies.

I paid mine off a couple of years ago and am happy to be free of that obligation. In theory, I might have had a few more pounds if I had invested the extra money, but worth it IMO for the peace of mind. Especially now.

There’s a money saving expert calculator to compare savings vs mortgage for this type of question

What is the overall balance and what is your interest rate?
I have a similar dilemma on part of mine which is on a tracker.

I'm going for the half and half option. I'm going to overpay a bit of a lump sum but have got 5% interest on instant access savings up to 5k (if you have a Barclays or nationwide current account look into this)

And 3.2% on a flexible two year isa. There are some better rates but on balance the option to make some withdrawals feels safer.

I feel like the lump sum would take a long time to build back up on the £300ish a month it would free up and worry that it would just be absorbed into general spending. I still have a second part of the mortgage though so it is slightly different to just getting rid of it and freeing a larger amount.

I would like it gone quicker than the five years remaining though and some of my decisions around in are psychological rather than necessary the right thing in absolute financial terms

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

This has made me sit down with a spreadsheet.
As a single parent I've always felt I needed to keep 6-12 month's salary accessible as it's only me supporting us.

Job is secure.

@Calmdown14 So tricky isn't it?

I owe 25k at 3.84%
I've got regular savers at 3.5, 4.5 and 5%.
21k savings sitting in a 0.5% account (I know).
Could put it in nationwide bond at 4-4.5% depending on length, but I imagine mortgage rate will quickly exceed this.
If I transfer mortgage payments and overpayments to savings, I'd save the 21k in 2.5 years and would avoid paying about 700 a year in interest (offset against lost interest by using up savings).

I’d pay it off, and remember to redo your calculations on what ‘6-12 months’ cash looks like without a mortgage payment. And well done!

Well done OP! We recently paid ours off. Calculated on one of those online calculators that we have saved £30000 interest which was surprising.

@Avidreader12 that was really helpful, thanks!

@bowlingalleyblues I hadn't thought of that, thanks!