Mortgage payment decreasing by £70, what should I do with this "spare" money?

[CurlyhairedAssassin]

The fixed rate on our mortgage is about to end and on the variable rate it will be 70 quid a month cheaper. As we're already used to doing without it, so to speak, I was wondering what I'm best doing with it.

We are allowed to overpay without incurring charges, so I was thinking of making a permanent overpayment of the £70 each month, to build up an overpayment reserve. The next time interest rates change, and let's face it, they will only go up from now on, then we can use some of the reserve to reduce our monthly payment.

I'm not really that money-minded, so wondering how that little old 70 quid will work best for us. One thing we need to consider is that we need to start a car insurance policy for DH when we buy a second car sometime this year. He'll have no no-claims bonuses so the policy will be huge for the first couple of years. Would it make better financial sense to put this 70 quid straight towards his car insurance policy, or do the mortgage overpayment reserve thing? My brain starts to addle when I think of comparing interest saved on the mortgage vs money saved on car insurance policy.

keep paying it off the mortgage. But make sure that it does go into some sort of reserve that you can access in the future.

The interest that you save is over the whole life of the mortage ie £70 times the interest rate times years life on your mortgage per month.

If you cannot afford the insurance without the £70 a month, then obviously do that. Don't get into debt to pay the insurance (Number One Rule) but if you can manage without it, then just keep plugging away at the mortgage.

We have done something similar and it's made a huge difference to the amount we have overpaid over 3 years.

I think we can afford to pay the car insurance without that 70 quid without too much struggle (for now - both DH and I have been on a payfreeze last year, and again this year), so sounds like plugging away at the mortgage would be the best way to go then.

I've organised online access to our mortgage account, so is it just a matter of sorting it out online or do you have to go into the building society and discuss it with someone?

depends.

We have an offset account which is like a bank account that is linked to the mortgage,

We don't earn interest on it but we pay a reduced anount of interest on the mortgage reflecting the balance in the offset account.

Have a look online to see how yours is set up and then if you need to, give them a call.

I would save it in an easy access account (do you have an ISA?) and 'bank' it in a harder to access one at the end of every year. This will give you a bit of accessible savings (to do car etc) and also give you a bit of a safe reserve for whatever comes along with rate changes.

oh yey! Maybe you could use the first month's £70 to treat the family? Then I would use the later months' payments towards the mortgage, as you can use any accrued money to take a payment holiday/reduce monthly payments to get back to where you should be, as you suggest.

Do you have any 'emergency fund' savings? If not, build up some cash reserves (3 months living expenses at a minimun), and then direct extra money back toward reducing your mortgage.

I'm with Earlybird. If you've got a rainy-day fund already, use the spare cash to overpay the mortgage. If not, pick a good Cash ISA and squirrel something away in there.

I would be looking at another fixed rate now tbh rather than going onto the SVR.

We've got some emergency fund savings but not as much as 3 months living expenses.

And I've got a cash ISA which I'm using to try and build up money to buy a second car.

DaisySteiner, I have seen advice to go onto another fixed rate now, but they've all come from building society people so I suspect they're a bit biased and want to tie people in to deals. We would actually be put on the BMR, Base Mortgage Rate, which has a cap of 2% above the bank of england rate (unlike the SVR which has no cap). So I'm loathe to take out another more expensive (at the moment) fixed rate, as also if we do, then when that ended we would revert back to the SVR and will have lost the right to go back to the BMR. It's a bit of gamble but I think we'll fix again later on, just not now.

I'm definitely veering towards overpayment of mortgage now, ready for when interest rates rise again.

Thanks so much for all the advice, very helpful.

Forgot to say about the offset account....I don't know much about those, but they seem quite complicated. DH's salary fluctuates each month depending on overtime he's done, so I'm not sure how easy an offset account would be for us.

Our offset is very easy. It's not our current account, just a savings account with the mortgage company. Any ovrepayments go into that account (rather than using an iSA or other savings acount). It keeps it all segregated which we like.

make sure that if you do overpay on your mortgage, the payments get credited straight away & not saved up by the BS to be credited in a lump at the end of the financial year, in which case you continue to be charged mortgage interest while they have your money!

I know some BSs used to do that, not sure if they still do, but advice in that case is to save it in a separate account & then pay it off at the end of the year - that way you do at least get a bit of interest on it.

That's outrageous, Ponders, if that's still going on! Bloody banks.....I'm pretty much sure from reading the basic terms and conditions that it gets credited straight away, but I'll definitely double check.

Thanks for everyone's input!

well if it is - as I said I'm not sure, it may well be that none of them do it now but good idea to double check