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Original poster

Is it better to overpay mortgage or put into savings?

15 replies

IndiMamaJones · 16/04/2010 10:53

We don't have much money spare but have about £200 pcm spare for the next 6 months.

Is it better to save or to overpay the mortgage?

We have about two months worth of wages saved at the moment in case of a rainy day.

We have both been bad with money in the past - debts, credit cards etc so are really trying to be sensible now!

Thanks

OP posts:

hana · 16/04/2010 10:58

I don't think overpaying £200 for 6 months would make a massive difference - stick it into a high interest short term bond insted

imo

IMoveTheStars · 16/04/2010 11:02

Save it.

Our mortgage rate will drop in a couple of months saving us £400 pcm (!!!) people have been trying to encourage me to pay it off the mortgage, but it's going into savings as a backup incase the rates shoot up.

Original poster

IndiMamaJones · 16/04/2010 11:04

Thank you - I though we should overpay but my dh would rather we had more of a safety net. Just wanted more opinions - he will be pleased

OP posts:

Librashavinganotherbiscuit · 16/04/2010 11:09

Actually I am not sure I agree with all the rest, savings interest rates at the moment are NOTHING and you will always be paying a greater rate of interest on your mortgage than you will the savings, the best way to repay the mortgage is to and tell them you want to use it to pay off the capital(so you lower the term) so the monthly amount you pay on the mortgage will remain the same.
The only case where this might not be the correct advice is if you don't already have an ISA for this tax-year, in that case then it would probably be best for your extra cash to go into an ISA.

MaryBS · 16/04/2010 11:11

You have your rainy day money, so I would overpay the mortgage too.

I think its Martin Lewis of moneysaving expert that says, unless you can earn interest after tax, that beats the interest rate you are paying on your mortgage, you should overpay your mortgage.

noddyholder · 16/04/2010 11:13

Definitely over pay the mortgage not only does it take down the balance but shortens the term quite significantly.

IMoveTheStars · 16/04/2010 11:15

Ah, yes - should have said. We have a very high rate savings account that I opened years ago that will give me a good rate of return. if I had to open a new account, then I would think more carefully.

Original poster

IndiMamaJones · 16/04/2010 11:18

our 2 months worth of wages saved up are currently in the ISA - this isn't up to the limit allowed though ( we are not big earners!)

I might put £100 in the ISA and £100 to the mortgage. It's very new to us to make decisions like this as it used to be juggling which bill to pay. Prefer this feeling definitely!

OP posts:

ILiveinhope · 16/04/2010 11:20

overpay the mortgage, unless you can get a saving rate that is more than the current interest rate you pay on the mortgage.

MmeBlueberry · 16/04/2010 13:58

It is better to overpay the mortgage because that will have a higher interest rate. If you put it into savings, the interest rate is miniscule, and there is tax to pay on it.

However, you need to take into account whether you might need to get it back in a hurry.

ChasingSquirrels · 16/04/2010 14:01

Is the 2 months wages in a 10/11 ISA? (ie one opened since 6 April 2010 - am guessing not?). In which case you can put £5,100 each into a cash ISA this financial year - way more than the £1,200 you are talking about.

How likely are you to need this money in the shortish term? If you want to spend it on something then pointless paying off the mortgage.

What interest rate have you got on the old account and can you put new money into it?

BigBadMummy · 16/04/2010 14:10

I would always say overpay.

The interest on savings at the moment is pennies. Yet the interest you will be paying on your mortgage will be huge.

You will take £1200 off your mortgage which will mean you pay it off earlier, thereby paying less interest.

We have an offset mortgage and have been in a position where we can over-pay every month. In just a short time we have taken alot off the amount owed, which means we can actually pay it off in four years less. Four years of interest is thousands!.

Jojay · 16/04/2010 14:21

Check the overpaymen terms of your mortgage. With our Northern Rock mortgage we can take back any overpayments that we made, and did exactly that when we built our conservatory. All it took was a phonecall and the money was back in our account within a few working days.

If that's the case with yours, then I would definitely overpay, as you can always get the money back if you need it, and the interest rate you pay on your mortgage is likely to be higher that what you would earn on the savings.

Congrats on turning your financial circumstances round!

BigGitDad · 16/04/2010 15:13

Yuo should always try to reduce any debts that you have and that includes the mortgage. That said, your rainy day savings are not enough, you should have three months minimum, preferably six months. You have to think how would you afford to live if you had no income for three to six months.
That said I would reduce the mortgage for now and try to increase rainy day fund over the next year or so.

morethan1 · 23/04/2010 20:39

This reply has been deleted

Message withdrawn at poster's request.

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