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...

Mortgage interest rates are very low and likely to stay there for the foreseeable. Not worth rushing to pay them down. Cash is king in dire times, and that goes for the stock market as well. It is not the time to invest as more downside is likely and the broad upside stock prices we see now are springing from a bear market bounce. Hold cash, liquidables, after paying into retirement funds. Shop around for savings rates in a savings account for easy access cash. RCI Bank is paying 1.20% on their Freedom Savings. FYI, Warren Buffet is hoarding cash, and although most of us don't have that type of money at our disposal, the principles are the same.

It partly depends on your mortgage deal and how much your monthly payments are?

We are very lucky that we can over pay our mortgage and draw it back and it only takes a week or so.

If you overpay on your mortgage will they let you take a mortgage payment break and use the overpayments instead? If they will then I would ensure that you have enough overpaid for 12 months of mortgage payments. Then in cash savings you need less to live for 6 months IYSWIM.

I say this because in theory the mortgage is a higher interest rate whereas savings get you virtually nothing at the moment.

If overpaying your mortgage means the money is trapped and can't be used by anything I would look at remortgaging for a more flexible product such as an offset one.

We overpaid our mortgage for several years over savings but if something had happened then we could essentially have had a mortgage break e.g. use the overpayments to pay the monthly bill.

It really is down to individual circumstances but for us we found that overpaying was better as it is very easy to dip into savings. Now we don't have a mortgage we have lots of savings as we got used to that money not being available for many years.

If your mortgage rate is high then it makes sense to pay that off as soon as you can. Or transfer to a better deal if you can.

You don’t get much in interest on your savings right now.