What to do about mortgage payments

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We are on a 5 year fixed rate at 1.5%. Due to end in 2025.

I'm not sure what to do in the intervening time assuming interest rates are going to go up or at least not down to what they were?

Should we:

A) over pay as much as possible at the low rate
B) enjoy the lower rate and keep our standard of living (we can afford modest holidays for eg).
C) plough any extra money into a savings account to cushion the rates rise in 2025

Our mortgage payments are 1/5th of monthly take home pay. My job is secure (I am the much higher earner). DH job not secure but he's v employable.

We have over 60% loan to value and we think our house has gained value since we bought it 4 years ago.

We are in our late 40s, no car or debt and good pensions but we live in London and have one primary age DC so are conscious of Uni fees and helping her in the longer term.

any advice v much appreciated

I'd recommend any overpayment you can afford whilst still on the current rate. Ours is due to finish in 2025 too and we are overpaying 25% on top each month.

I'm hoping when we come to renew, we can choose a shorter term for a bit if the rates are really high.

Definitely A

Thank you

Overpay in the hope it pushes you into a more favourable LTV bracket would be my approach. But I wouldn’t do that at the expense of living, if that makes sense?

Given 1.5% is a good rate - I think it would make more sense to save the extra. You can now get over 2% (look up the investec 90 day notice account for example). So save elsewhere, hopefully at an even higher rate, and then when you go to remortgage pay down the mortgage with those savings.

With a fixed rate of 1.5% it would be madness to overpay whilst rates are rising steeply.
Please take a look at the detailed reply I gave on this thread, on how to maximise the benefits of such a low mortgage rate with no risk and earn yourself some additional interest on savings... (post 8 on the thread). It's a no-brainer...

www.mumsnet.com/talk/legal_money_matters/4600777-ss-isa-or-overpay-mortgage

Not A. MN is ridiculous about overpaying mortgages. Makes no sense.

Mostly C, just look for the best rates you can find.

Some B, depending on your overall financial picture, allow yourself a little fun with some of the spare money.

Thanks @seekingasimplelife

The slight danger is that I tend to spend the money in my account but DH is vastly more disciplined and will save.

Obviously C. You can then make a decision in 2025 whether you want to reduce your mortgage based on interest rates at that point.

😆...then you'd be better opting for savings that don't allow withdrawals....😉

I'd overpay, but then I'm extremely risk averse (and a single parent), so would favour having lower debt over higher savings in the bank.

I would plough any extra money into your energy account - rates are going to rise to ridiculous levels in October and then again in January.

As I said in the other thread..
If your cash savings are paying a higher rate than your debt interest, the money will still be there in your risk-free savings to pay down the mortgage at any point, but it will be earning you additional interest above what you are being charged for the debt in the meantime. There is no risk (other than perhaps your money being stolen from your account!).

I’d go for C. Put it in a 30-60 day notice account if you’re worried you’ll fritter it.

If your cash savings are paying a higher rate than your debt interest, the money will still be there in your risk-free savings to pay down the mortgage at any point, but it will be earning you additional interest above what you are being charged for the debt in the meantime. There is no risk (other than perhaps your money being stolen from your account!).

But who has a savings interest rate higher than their mortgage rate?

But who has a savings interest rate higher than their mortgage rate?

Me. I remortgaged last year on a 5 year fix at 0.99%. My current saving rates are 1.5-2.0%.

But my equity investments make 20-25% on average over year. I have an interest only mortgage and I choose not to pay it off as I'm making more by keeping my mortgage and saving/investing the money.

Well the OP definitely can as her mortgage rate is 1.5% and you can get fixed rate products at 2-3% and regular savers at a similar rate if she's regularly saving new money.

Our mortgage rate is currently 1.5% variable, so we're probably going to start to struggle to beat savings rates after next week when interest rates are expected to rise, but for the last 10+ years, the rate has been between 0.5 and 1% where savings have been between 1% and 5%.

Plus when you've such very cheap debt, it's quite likely that you'll substantially beat the interest rate over time in a S&S ISA investment.

The OP has a fixed mortgage rate of 1.5%

YBS is offering a loyalty regular saver at 5%, with a max contribution of £500 per month for a year;

Nationwide Start to Save issue 2 at 2.5% open to anyone saving between £25-£50 per month with prize draw sweetener;

Also a flex regular saver for existing customers with higher amounts of £200 per month,

Nationwide 1 year fixed ISA and 1 Year fixed bond at 2% - open to all.

The Virgin Money M Plus Saver at 1.71 percent,

All beat the OP's fixed mortgage rate - and this is before the expected steep interest rises in August and September.

Putting relative returns aside, not paying your mortgage off also gives you flexibility. If you pay off your mortgage, that money is tied up until you sell your house.

How much money are you talking about? If it's £3-5000 a year then you won't make a huge return in a savings account over the 2 years that you have.

As a crude example, say you find a savings account with a 3% and put in 5k a year. After 2 years, considering the 1.5% mortgage you will be around £225 better off with the savings account. In reality less since you won't get the full year interest on the money if you pay it in over the year. Either way not a huge gain.

So think more about what flexibility you want rather than the financial gains.

I would do C but would invest rather than save. We’ve had this debate a lot in our house and I’ve come round to the view of investing over overpaying but that only works if your disciplined and don’t dip in. The pro for me was increased flexibility so if there was a period where things were financially harder, once they moneys in the mortgage it could be sunk but if it’s separate you’ve got more flexibility re how to use it. If rates are high when you get to the end of the fix you could then add in a lump sum.

Wow sorry to cut in but 099 interest on mortgage! Who is everyone doing it with??

Nationwide, but at the end of last year before rates headed up.

Definitely don't overpay and instead save. My interest rate is similar but with interest rates heading upwards it makes more sense to save than overpay. It makes even more sense to invest if you are able to afford higher interest rates in future and add to your pensions. Usually a bit of both is sensible.