Small overpayment of mortgage or save?

[Itsboundtohappen]

You are probably sick to death of these threads, sorry, but I have done some calculations.

Owe £200,000 on mortgage. Fixed rate of 3.24% ends next august.
in a position, between now and next august, where we can overpay by around £200 a month. So around 10 months and paying off an extra £2,000. After this, if interest rates continue to go up as expected, we will not be able to over pay.

Is it worth overpaying just £2,000 or is it worth saving that money to cover ourselves for when our mortgage increases? What would you do?

Thanks

If you overpay now you will have less interest to pay in the long run. It's only really worth saving if you can get a higher rate of interest than your mortgage rate. Which even the leading accounts are only 3% at present.

Do you have 6 months of expenses in an emergency fund? If not, then I would do that first as that is money you can access if/when the need arises.

I agree with the poster above. A £2k overpayment won’t make a massive difference to your monthly outgoings re the mortgage but it could get you out of trouble if you don’t have an emergency fund.

You'd save in the region of £2,469 in interest on your mortgage based 25 years at 3.24%

You'd save £4,891 in interest on your mortgage based 25 years at 5%

You'd save £6,800 in interest on your mortgage based on 25 years at 6%

by paying the £2000 of your mortgage, if you keep the £2000 and use it to pay the repayments you'd not save any interest.

You don't say how long is left on the loan so I can only use 25 years as a ball park figure, but with interest rates rising - yes it will save you a small amount of money and a few months of the loan term (up to 6 months) so an addition few thousand £

If I was to offer you £5000 if you gave me £2000 what would your answer be? It will though be over some considerable time that you make this saving, in reality its £16 per month over 25 years at 5%

I have always overpaid when I can, as long as I've been able to squirrel a bit of rainy day money into savings too.

I don't think this question is really about interest rates. Yes, if you pay off £2k (either as monthly overpayments or a lump sum) in the long term you'll save money/shorten the term. Yes, if you can save it at a higher rate than your mortgage costs, that would be the best way.

I think that the real question is whether you will be able to comfortably afford your mortgage once the rate goes up. The potential £2k overpayment will make very very little difference to your new monthly payments. So would you be better off holding on to it, to help buffer your monthly payments once rates do rise? That depends how tight your budget is - can you afford to pay it off your mortgage now, or do you need it to ease your budget later?