Overpay mortgage or savings? How much should we have saved?

[Slat3]

Hi,
We currently both have secure jobs (mine more so that DH and I earn £30000) and earn around £87000 combined. We have around £2000 savings, £5000 in shares (maybe more) and I do think it’s silly that we don’t have more savings due to our disposable income. Obviously we aren’t hugely rich but we are comfortable.

We have been overpaying the mortgage instead of saving and have around £300 on an interest free CC and generally live for family days out / short cheap holidays for the kids. 5 year old car paid off etc. Cheap phone contracts and no finance or uni fees as we didn’t go.

What are we better doing overpaying or saving? How much should we realistically have in the pot saved?

I paid just over £1000 extra off the mortgage this month and DH thought it was a bit excessive as we should save up a bit more but we still have £142000 on our home so I’m conscious I would rather get rid of the debt. I grew up in poverty (think rough area / no heating / bailiffs coming round) with a single mum so I just hate being in debt even though it’s a mortgage!

We are in a v lucky position so just eager to hear any advice re how we are best places to use our disposable income as we don’t have fancy holidays or spend a lot on our home. We still have my dads 2nd hand sofa in the living room but I am happy like that, I’m frugal and buy 2nd hand stuff because that’s just the way I have been brought up...

Savings are a bit pointless regardless of whether you've got a mortgage or not (obviously you need a little bit of emergency money to tide you over). Better yet, open an investment or a stocks and shares ISA - that's where you make decent returns on your money.

What I meant to add was - have 3-6 months worth of expenses in an instant access savings account and then start looking at investments as opposed to savings. At current interest rates, investments should beat paying off the mortgage. If interest rates rise, better to pay off mortgage.

In the current climate you could probably have a bit more in savings than you do, but actually I think you are far more sensible clearing the mortgage earlier as there will be a far bigger return in your investment

I think ut depends on your outgoings really.
You dont have much debt but not much in savings either.
I would do a budget and look at what you can save money on.
Then aim to have 6 months minimum expenses in savings ( easy access)then look at long term savings and paying off mortgage.
The problem with paying off the mortgage if you have very little cash savings is that you cant re access it if you need it.
Sounds like you need to sit down and look at your budget and goals

Depends on your mortgage rate. Ours is fixed and less than 1% so we're not overpaying but saving/investing.

We have six months of DH's salary saved, plus about £5,000 for rainy days.

We have £19,000 set aside to clear the mortgage , but won't do that until this is all over.

Personally for now I would keep the money where you can get your hands on it.

An amount equivalent to at least 3 months' worth of normal expenditure (although 6 months' worth is better) in an easily accessible account, for emergency expenditure, eg new boiler, roof repair, redundancy. And funeral costs - hardly anyone thinks of funeral costs.

If you can afford to pay off £1,000, then why not do £500 off the mortgage and £500 savings.

I think overpaying on the mortgage is great if you are in a position to do so. But I do think it would be good to first have enough in accessible savings to tide you over for at least 3 months. No jobs are completely secure.

Increase your savings first so you have money to cover your next car, boiler repairs and at least enough expenses to cover you for 3 to 6 months.

I had been overpaying the mortgage and had relatively little in savings, but fortunately had a bit of a change of heart last year and tried to up savings to cover 6 months of expenses. I didn't quite manage that but glad I increased savings as husband now furloughed and both our jobs are insecure and we would find it impossible to find work at a remotely similar salary level. As it is both of us are likely to take big salary cuts.

On top of that flat roof started leaking followed promptly by main pitched roof. Now forking out a massive part of our savings for a new roof.

It isn't the worst thing if we have to sell the house but I would prefer a chance to sell up before getting repossessed and ideally want to walk away without negative equity and going bankrupt. Even then we would survive somehow.

I would have 6 months money in the savings in case of well, global pandemic, that kind of thing.

Then I would overpay after that.

Thankyou! So realistically 6 months of essentials accessible would be around £13000 so will aim to save that as a starting point! I guess for emergency expenditure I always assume we can borrow on an interest free credit card but shouldn’t rely on that so maybe £15000 in total. Will speak to DH about it.

Our mortgage rate isn’t v good, not 100% sure what it is but we got it 4+ years ago on a 5 year fixed because of maternity leaves so we wanted to make sure any outgoings were fixed. We made a mistake really as it’s a lot more costly but we didn’t want to run any risks.

I think we are a bit daft with money as if we have it, we find something to spend it (usually a last minute short break) but as we are in lockdown and I can’t see normality coming soon we have more available that we would usually be spending day to day. That gives us a good guideline and something to aim for anyway, thank you

Oh gosh @GOODCAT that sounds really tough. I think we will definitely start saving & being a bit more sensible, I have taken for granted to access to low credit if needed but it’s not always that simple!

I was made redundant when very young and a friend asked why I didn't have 6 months of savings. It hadn't ever occurred to me that it would happen to me, or that I should anticipate it. Since then I have stuck to this.

@PotteringAlong the pandemic hasn’t really affected either of us (for now) as I’m better off WFH and my DH is still going to work. Both technically classed as key workers, so I’m more conscious that we are really lucky at the moment and I want to make sure we are sensible.

Both our companies will be looking to make cost savings though, I probably won’t be getting my bonus for last year, but although my wage won’t go down you never know what’s round the corner. I definitely am going to start saving & them once we have 15k I’ll go back to overpaying the mortgage (or do a bit of both I guess). We don’t track our incomings or outgoings or pay any notice to our cash flow really so I need to sort out a system!

I fixed for 5 years and regretted it. I'd look at a new mortgage deal. I saved £130 a month and left the payments the same.
You may have to pay an early repayment charge , work out if it's worth it. If not , change as soon as possible.

No, but that was just an example. What if, God forbid, one of you had an accident on the way to the supermarket next week. Leg amputated, can’t work, need to adapt the house. Get diagnosed with cancer next year? Plane crashes on your house and everything goes? Won’t happen? That’s what the people who lived in Lockerbie said.

I really stand by the six month thing. Just because this unexpected thing hasn’t really affected you don’t for one minute think that the next one can’t.

Definitely agree with emergency fund.
Then next is to be putting 10-15% Of household income towards retirement, a pension would be tax efficient especially as your DP is a higher rate tax payer. If he paid enough into his pension he could get under £50k and then stay out of the higher rate tax bracket entirely plus claim child benefit.
Then after that pay off the house.

I agree with emergency fund first. We've been topping ours back up after DH list his contract (both self employed) and had a month or two on minimal income before getting another. Now with the virus it's my turn to be earning buttons.

Once that's filled we have some debt to clear, not much and interest free, then I plan to start overlaying the mortgage

.We don’t track our incomings or outgoings or pay any notice to our cash flow really so I need to sort out a system!

Working this out and looking at getting the best deals on utilitiescetc
Then setting a food budget is the first step.
You will probably find you have way more than 1K spare if you do this.
I use a ledger but there are budgeting apps etc as well.

Savings first, especially in the current climate.

Thank you all, they really should teach this in school!
Like I said, relying on the fact we could get loans etc if needed but situations don’t always allow that. The debt (mortgage) annoys me but I guess most people have this and we are expecting to upsize in the future (not for the foreseeable) so I will probably live with it for the next 25 years better get used to it

Definitely get your 6 months expenses plus a bit extra saved before overpaying the mortgage. If you are unemployed you will find everything goes wrong - car, house etc. So your new plan is a good one.

I understand hating debt! Just make sure you have that decent chunk of money aside just in case.

Depends on the terms of your mortgage. We have a chunk overpaid but we can get it back if we want to, or now not pay the mortgage for about a year. So we don't need that much in savings as our biggest bill is covered in case of an emergency. We are both paying into pensions and have some savings but given very very low rates of interest - we have had loads of letters through the door saying rates now 0.1%, so saving is really pointless unless you would need instant access to cash.

The pandemic might never affect you immediately, but that's not to say that other illness or personal adversity won't. You clearly have a healthy income so make sure you have a decent buffer. If you don't need it, it hasn't gone anywhere.