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Original poster

We borrowed more than we needed…

14 replies

Tiredalwaystired · 02/10/2022 20:55

We remortgaged last year so that we could do some work on our house.

Turns out we overestimated what we needed for the work and will have about twenty percent of it left at the end.

Given current interest rate direction etc should we overpay our mortgage (to the max without penalty) with the spare or should we spend the remainder on other not completely urgent but would be good to do jobs around the house?

We’re on a five year fixed term mortgage at the moment if that makes a difference.

OP posts:

chickchickpox · 02/10/2022 20:56

I'm no expert by any means but I would overlay on mortgage just incase interest rates are still high in 5 years time.

chickchickpox · 02/10/2022 20:57

*overpay 🤦🏼‍♀️

Wowzers12 · 02/10/2022 20:58

5 year fixed is pretty desirable right now. I think if it was us we'd put it in a high earning interest account (probably one you have to give notice to withdraw on as these tend to be highest) and then at the end of the fixed term you can decide whether to put more on the mortgage depending on rates, or do something else.

You also then have a nice cash amount to emergencies/rainy day fund.

TooMuchToDoTooLittleInclination · 02/10/2022 20:59

Personally I'd put it into savings over the winter, look at it again next spring.

CornishTiger · 02/10/2022 21:00

I’d stick it in premium bonds and draw on what I needed ( takes 3 working days to hit your nominated bank account). When work completed review it. When you remortgage can you stick it back in

DogInATent · 02/10/2022 21:36

Premium bonds. And starting once the work is complete and you know you've not needed to go into contingency, start drawing down to overpay each month.

If there's something you can do for the house that has it's own payback (e.g. solar PV-battery system) you might consider that as an investment.

BeanStew22 · 02/10/2022 21:38

Like others, if you have fixed the borrowing at a low rate for the next 5 years, I would suggest you keep the money in an account that pays you interest as a rainy day fund : this will be better than having to borrow at any time over the next several years

Pay off a lump sum before your fix comes to an end

Bouledeneige · 02/10/2022 21:49

Don't really understand the premium bonds enthusiasm - see the Martin Lewis video blow. Best rate of return about 1.4% - (dependent on how many you own) but the average return is zero. I think there's around 118b premium bonds in current ownership so the odds are terrible compared with savings accounts now. So I'd either go savings over the winter if you're worried about cost of living or pay off the mortgage. If you think you'll be okay with cost of living my massive preference is paying off the mortgage.

Just weight it up. Cost of borrowing on the mortgage (say 2.4- 3%?). Savings - what will you earn?

alwayscheery · 02/10/2022 21:51

Barclays have an account offering 5% interest on up to £5k invest the money while you decide if you would like to do any more work or pay off your mortgage.

BarbaraofSeville · 02/10/2022 21:58

Premium bonds have gone up to 2.2% now and if the OP remortgaged last year, it's likely her rate is substantially below this rate.

If you have more than about 10k in PBs, you're likely to get very close to the payout rate, so currently about 2%. I have £25k worth that's offsetting my mortgage and it's beaten it by quite a margin for the last few years. In times when I've been paying 0.5-1% on my mortgage, I've had annual returns of 2%, 6%, 0.6% but that was while base rates were 0.1% and I was paying 0.5% on the mortgage, so still a little ahead.

In short OP, I'd definitely save the money, as it's likely that you'll profit by doing so, but be mindful of how you spend it, because you could pay it back in stages or at the end of your fixed period, and may wish you have done, depending on how interest rates are looking at that time.

alwayscheery · 02/10/2022 21:59

You may need to be a Barclays customer .

DogInATent · 02/10/2022 22:06

Bouledeneige · 02/10/2022 21:49

Just weight it up. Cost of borrowing on the mortgage (say 2.4- 3%?). Savings - what will you earn?

As an immediately accessible short-term parking account for surplus cash, what's the better option? The OP hasn't completed the work on the house, so may end up needing more than they currently forecast so it would be foolish not to hold it for a while. Overpayments are usually capped, they may not be able to payback the full excess in one go.

Bouledeneige · 02/10/2022 22:12

Meant to post: Martin Lewis on premium bonds.

dillydally24 · 02/10/2022 22:24

What is the fixed rate on your mortgage? If you remortgaged last year it must be very low. You can probably get a higher interest rate in a savings account, so it would be better to keep it there and out-earn the fixed rate on your mortgage, then pay back the mortgage when the fixed rate period expires. It's free money!

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