What to do with savings?

[Thingsthatgo]

Sorry - I know this has been asked so many times.
Our low rate mortgage is up end 2025 and we will owe £215k.
We don't have a huge income, but we do save around £1k per month by being careful. We have saved £50k in the last 5 years and also been gifted £30k.
I would quite like to throw it all in the mortgage. Keep £5k back for emergencies and start saving again for DCs university (in around 5 years from now).
If we don't put it in the mortgage our repayments will go up a lot, however I appreciate that there may be cleverer things to do with the money. I am not particularly interested in thinking about it all the time, and moving money around, so something simple would suit me.
Are offset mortgages still a thing? Would that be a good idea?
We don't want to put it in pensions. We are both in a good position for pensions.

Check your mortgage terms, you may only be able to pay off 10% a year until your fix ends. So you could pay off £21k this year. If you've not used up your ISA allowance this year, I'd put in £40k into a cash ISA (you and DH = 2x £20k), I like Chip. Next mortgage year you can pay off another 10%, maybe around £18-19k. If you do this as a lump sum at the start of the year, you would pay less interest on the mortgage thoughout the year. After this, I'd fill up the cash ISAs after April upto £40k. When your mortgage rate expires, I'd pay off as much as I can as soon as the rate expiry date, leaving a small amount of emergency savings. If you aren't renewing your mortgage, continue to overpay every month as much as possible until gone.

I'm in this scenario, but as my mortgage rate is so low vs savings rate, all my money in is savings until rate expiry date when it shoots upto 8.25% and then pay off as much as I can (hopefully all of it).

Thank you - sorry I wasn't clear, I would like to pay off the chunk of mortgage at the end of the fixed rate in December 2025.

If it was me.....

I'd keep the £80k safe (i.e.not investments/shares etc) in the highest paying savings accounts. As a taxpayer I'd look for an ISA with a 1 year fixed rate and put in £40k (£20k x 2 , one each for you and partner). The other £40k I'd put in a 'normal' 1 year fixed rate less emergency funds needed for the next year which would be in an account like Atom or Zopa that has quicker access.
Next December I'd definitely be paying off as much of the mortgage as I could.
I think FirstDirect are one of the remaining offset mortgage providers but also I think they've recently removed them 😕 but an offset mortgage is absolutely brilliant if you have some spare each month , maybe there'll be some products available in a years time.

Thank you

Does anyone know if there are any offset mortgages available?
I will ask my broker nearer the time, but just perusing products at the moment and trying to learn.

If you are putting money in an ISA then go for Trading 212. 4.9% interest and instant access, plus it is a flexible ISA, best instant access rate around and no tax implications.

Hi, I'm in almost the exact same position as you.
Have saved 90k in an Coventry Offset mortgage over the past 5 years. I've got ten years left on the mortgage, but the offset facility will save me 30k in interest and pay the mortgage off 5 or so years early...

Coventry currently offering 4.67% on their fixed rate. Plug your figures into the offset mortgage calculator on Martin Lewis's Money Saving Expert website and it'll tell you how much you'll shave off your mortgage term.

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Good luck!!

Thanks @BeardOToots, that looks perfect. Presumably you can use the savings if you ever need to?

Yeah you can!
I originally started using it as somewhere to park my tax bill money until it was due and it just snowballed :-)

If you're planning to save with Trading 212 Cash ISA, use the link from Be Clever with your Cash website. It offers an extra bonus for a year, upping the rate to 5.05%. (Offer open until 31st January 2025).

becleverwithyourcash.com/trading-212-cash-isa/

Paying your mortgage will give you the best return on you money without risk.

An offset mortgage sounds like your best bet. Then your future savings will also be reducing your interest until you need them.

Interest rates will be variable though.

Compare rates on offset mortgages with standard mortgages, which can be better and achieve the same result by saving separately.

It's a long time since we had a mortgage, but last time I looked at them, the rates for offsets were higher. You also need to consider the affect of tax, as you 'only' need £10-20k in savings before they're taxed, but currently, the Trading 212 ISA pays a really good rate and is tax free for up to £20k pa, so I would overpay with most of current savings when the fix expires, and get the best standard mortgage I could find, then save future overpayments separately in the highest paying account.

Are you able to make a 10% overpayment on mortgage before fixed rate ends, so pay £21,000, I would look into doing this, so that your next fixed will be for a lower amount, as the interest rate is maybe going to be a lot more.

@Mindymomo but by doing that, they'll throw away hundreds of pounds in lost savings interest so a silly thing to do.

@bjork it depends on the mortgage rate they negotiate, and tax will need to be paid on any non isa interest.

Yes, but OP can do both, save in ISA and pay off some of mortgage amount.

But they've already said they're on a low rate, so it could be that they're currently paying 1% while their savings are earning 5%.

Between now and the new tax year they can get the £80k they have in ISAs that will earn them £4k in interest, tax free. They also have their personal savings allowances.

If they paid the £80k off a mortgage costing 1% today, in a year it would save them £800 of interest, so it's not £hundreds they'd be throwing away but about £3k.

Depending on your lender you can overpay 10% (20% if NatWest) each year, but as others have said, on a low rate you might be better off accruing interest by saving and then making a lump sum payment when you remortgage.

Money Saving Expert has a great calculator to compare overpaying with saving.
The issue is the compound interest - You would be amazed at how much it saves as the interest is calculated daily.

I'm a mortgage advisor and I share that with all of my clients to show them the impact it has. Personally, we overpay wherever we can, even if it's just £30 at the end of the month!

I would speak to your advisor to start thinking about what you want to do. There aren't a huge amount of offset options and they tend to be more expensive than a standard mortgage. Either way your advisor will be able to work out the cheapest option for you.