If you had any money left at the end of the month would you put it into savings or overpaying your mortgage?

[MissisBoot]

We seem to have a bit of cash left at the end of the month - not much though - would we be better to overpay on the mortgage or put it into savings.

DH is in a very stable job as am I so no real concerns about redundancy at the moment.

What would you do?

overpay. Savings rates shit.

well, at the moment I am saving any of our surplus because I desperately need a new kitchen.

if I didn't need to do that though I would prob overpay on the mortgage

def overpay on mortgage

overpay . interest rates are pants at the moment

overpay

Overpay, even by £25 a month it really helps bring down your mortgage debt
You can always up it/stop payments if situations change

Great - that's what I thought - its only likely to be about £50 most months - I'm a saver by nature so it feels really odd to not do it iyswim.

Hi. I am a financial adviser, so hopefully can be of some use.

The best way to figure it out is compare what extra you could earn or what you could save with different options.

The way I see it you have 3 simple options, as below.

1. Say you could earn about 3.5% on instant access bak accounts at the moment. Once you take into account tax at 20% (assuming you are a basic rate taxpayer) that is a return of 2.8%.

At the very least, make sure you have an emergency fund of at least 3 months outgoings in an instant access account. Some people prefer more.

2. Say your mortgage costs you 4.5%. That is a saving of 4.5%.

Find out what you pay on your mortgage. Also, find out of you could borrow back overpayments or take payment holidays if needed.

3. A long term investment would earn you on average 7%, net of 10% dividend tax and on average 1% annual charges would mean 5.4% earned.

A long term investment could be a good option, now is a great time to invest, and by paying into it monthly you get to take advantage of pound cost averaging. Check out this page for more details.

Those are your three options. There are good and bad points about each. With £50 per month, you probably realistically can only do one of these. If you find yourself with more money left over in future, there is nothing to stop you taking advantage of more than one of these options.

Hope that helps.

If you want answers to more specific questions, let me know.

x

Thanks Duke

I have an emergency fund of approx 6 months in an online instant access account. Think the rate is 3.4%?

Mortgage is 2.5%. Don't think I can claw back overpayments. Can take payment holiday.

I might be interested in long term investments as have some cash in another account which was from some redundancy money. That is also on a online savings acct - can't remember what the interest rate is. I like to keep it seperate from the emergency fund so I don't forget what money is for what.

What do you mean by long term investments?

Hi.

I mean an investment that is based on stocks and shares.

Take a look at this page for a basic guide to investing. Its an American site, so some of the products have different names in the UK, but its a great simple, no nonsense guide to getting started.

The things you need to consider are that it is recommended that you keep it for at least 5 years and that the value will go up and down over time, and there will be charges involved. You need to have a long term view.

The best place to start is an ISA. You can put up to £7,200 into a stocks and shares ISA per year (less if you haved used part of your cash ISa allowance). That mean up to £300 per month if you spread it over the whole financial year. The ISA is simply a wrapper that means you don't pay income or capital gains tax on the investment.

I'd recommend a tracker fund. Its a cheaper and simpler way to invest. Take a look at this page for more information.

They usually start from £50 per month, so should be ideal for you. You can stop, start, increase your monthly payments as and when it suits you.

Over the long term, these are the types of investments that historically have made the most money.

HTHs

How recession-proof is your job? I would err on the side of keeping savings, despite the poor interest rates, so that you have the money if you need it to live on. But if you feel relatively secure, overpay the mortgage. Or split the money in half and do both! In this economic climate I'd like to know that I can pay my mortgage for at least a year if I lose my job.

Alternatively you could have a nice meal out each month