Should I use savings to clear part of my mortgage?

[whomoon]

My mortgage is in 3 parts which I renew every two years for cheapest monthly repayment.
One part is £6,900 at 4.42%, 18 years remaining. Up for renewal at the end of the year.
I have 12k in savings which I am adding to each month.

I don’t know whether to pay the £6.9k off at the end of the fixed term with my savings.

Is it a no-brainer or should I consider some factors?

Absolutely pay off that part of the mortgage. You’ll have £5k left over and can add to it.

How much is left on the other parts and at what interest rates?

Italrs sense to pay off the £6.9k then you'd have less interest to pay.

I doubt you're making more interest on the savings than you're paying on the mortgage - so I'd pay off the mortgage. You'll still have 5k left after.

I probably would, but try to make building up your emergency fund again a priority afterwards.

Yes as long as you don't have other more expensive debt such as a overdraft, loan or credit card.

What are your monthly costs? - How much of an buffer do you need? Do you have any other debts? Are you expecting to pay any big bills in the future?

Have adequate access to cash can save you a lot of money, if the alternative is borrowing at high rates. I'm sure you can find a high interest rate ISA that you can chuck that money into for a raining day - best offers today are 4.51% easy access - that's making money on your mortgage rate and giving you a good cash buffer. I'd do this rather than putting it into your mortgage.

5k isn't much to leave yourself with as a rainy-day fund. So I'd think about: how secure is your income? How good is your health? Might family members need help? Can you replace your car if necessary? That sort of thing first.

It's not loads of savings to leave yourself with. What interest rates are you getting on them? Hopefully you're tarting around for good rates rather than having it all in some low paying pot!

Just pay it off and get it gone. We’re going to do similar when our mortgage comes up for renewal. Just get the bloody thing off our backs.

This is key ^^

Thanks for all the advice.

two other parts of mortgage total 83k all on the same rate 4.42%.

im the breadwinner, one young child, no other debts or car finance, late 30s, stable job. No plans to move house in the next 5 years.

current savings getting 4.5% in interest.

I’m thinking of the interest it will save me over time really. But also conscious of having access to cash if needed, even though I do add about £500 to savings every month on average.

another option, what if I let it move to the variable rate at the end of the fixed term, then pay it off in chunks as and when I can? The variable rate is currently 6.24% which would add about £13 to my currently monthly payment which feels like nothing, but better to pay it off in say 3 years with no penalty, whilst keeping my current savings?

You should be able to get a discounted tracker that will allow you to pay off when you like. I think ours is 3.85% atm moment and we can pay off whenever. There's more to mortgages that just variable and fixed rate.

I hadn’t considered a tracker mortgage, thank you. I’ll speak with my mortgage provider about it when it’s time to renew

Why don't you make the maximum allowed overpayment now ( ours is 10%), it will reduce your interest, and then pay it in full once your fixed has expired?.

I’ve already been doing that, but 10% isn’t much really so will still take time and I can afford to pay off more

How comfortable are you with an emergency fund of £5000?
If saving £500pm anyway, it's going to take a year to build it back up to £12k, and you can bung in the payments that you would have made on the small mortgage.
Is there an early redemption penalty? If so, just overpay the maximum until you don't pay the penalty.
Keep saving in the meantime!

Mortgage debt is still comparatively cheap. You'd probably be better off over time letting it run its course and putting spare money into an investment ISA which will likely average far more growth than what your mortgage costs.

How much are you making on the savings? If less than 4.42% then yes, pay it off. What interest are you paying on the other 2 mortgages?

edited to say - just saw your update! Makes more sense to leave the money in savings then for now.

I think I probably would pay that off now and then concentrate on building pot back up to over 10k. Once over 10k I’d probably go 50/50 on adding to savings and overpaying the mortgage.
Psychologically, I’d like that feeling of seeing one of the three parts gone, especially if all my other finances were stable.

Have you considered an offset mortgage? Whether it works for you will depend on the interest rates you can get, but basically, you put your savings into an account with your mortgage provider and you only pay interest on the djfference between the savings and the loan. You still have access to the savings if you need them.

This works particularly well if you have access to low or no interest short term loan offers like the ones you often get with new credit cards. Back in the days when lenders were falling over themselves to give you cash advances for no up front fee, I had several running at the same time. I put the cash in my offest morgage account and just took it out to repay the credit cards when the interest free period ended. Someone else's money significantly reduced my morgage interest payments, and as a bonus I built an excellent credit rating from regularly borrowing and repaying large sums.

You say you are the main breadwinner. If you lose your job, you need to ensure that you can cover your expenses for 6 months (it’s tough out there right now). Only then would I recommend overpaying—if you lose your job, the mortgage company won’t care that you’ve overpaid in the past, and will expect full payment each month.

I had a similar dilemma. My mortgage has only around £68,000 remaining and I have managed to accrue about £20k in savings. When I used the mortgage overpayment calculator on Martin Lewis’s Money Saving Expert page however, it recommended keeping the savings as the interest rate on my ISAs is slightly higher than my mortgage rate.

Always throw what you can at the capital once you move to variable. 4% odd is the headline, over that 20 odd years term it's massive multiples of 4%....knocking chunks off the capital will make a huge difference to the total that you'll end up paying out

this is the most simple comparison going
a) mortgage interest rate = 4.42%
b) savings interest rate = ?
c) future rate expectations? Rates WILL rise

so is a) grater than b)?
Yes? pay off the mortgage.
No? Keep money in savings (but watch interest rates and react when appropriate!).