Mortgage Vs Savings

It has another 21 years to go.

I've calculated if I overpay £200 a month with a £2000 overpayment every 6 months, then overpay £400 when the car finance is finished Aug 2020, I'll have it cleared by Oct 2024.

Pipedream really, need the deposit to move to somewhere nicer.
 
PiKe said:
It has another 21 years to go.

I've calculated if I overpay £200 a month with a £2000 overpayment every 6 months, then overpay £400 when the car finance is finished Aug 2020, I'll have it cleared by Oct 2024.

Pipedream really, need the deposit to move to somewhere nicer.
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I'm planning on paying mine off asap. I want as long possible mortgage free. We might move but doubt we'll upgrade.

As long as you have a 6 month buffer, put everything else on mortgage or pension.
 
lnoton said:
As long as you have a 6 month buffer, put everything else on mortgage or pension.
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Very wise advice indeed! As for pension, if you are a higher rate tax payer it’s a great way of saving especially if your employer makes contributions too! Personally I have a mix of investments, I have a couple of BTL flats as a supplement to my future pension, though I’m closer to retirement than starting work!
 
PiKe said:
It has another 21 years to go.

I've calculated if I overpay £200 a month with a £2000 overpayment every 6 months, then overpay £400 when the car finance is finished Aug 2020, I'll have it cleared by Oct 2024.

Pipedream really, need the deposit to move to somewhere nicer.
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Check that you can actually overpay that much per year without penalty.
 
ilc72 said:
Very wise advice indeed! As for pension, if you are a higher rate tax payer it’s a great way of saving especially if your employer makes contributions too!
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Absolutely. I now pay 7.5% into my pension and am considering raising it to 10%. Self assessment this year returned £1600 and paid for Christmas. It's a very tax efficient way to save.
 
PiKe said:
I have a mortgage at 2.03% and a current account which will give me 5% on up to £2500 and a savings account which allows £250/month deposit, again at 5%.

Would it be worth saving up to the limit on the current account, then once that's done, deposit £250 into the saver and only then overpay whatevers left onto the mortgage?
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Do you have a chunk of cash you want to save now, or is it just all drip-feed each month? How much are you planning to save each month?
 
I've always been a fan of offset mortgages if your that way inclined to not spend frivolously and you are a keen saver.
It reduces your total mortgage cost significantly and also allows access to your money should anything unexpected happen.
 
To me, assuming a degree of financial discipline, overpaying seems the worst option. At 2.03%, the interest that you'd be avoiding is inconsequential. If interest rates start to rise, that may change things. But for now, there isn't really a good financial argument for overpaying a mortgage.

Saving the money gives more flexibility and a better return. Investing the money in your pension gives less flexibility, but a far better return (assuming you're employed and your employer also contributes to your pension).

If you're looking to move to a more expensive property then save the money. If you have less than six months worth of cash, save the money. Otherwise, give serious consideration to upping your pension contributions.

If you're not financially disciplined then you're probably teetering on the edge of disaster, like a fair chunk of the country. In that case, there are no good options. But overpaying the mortgage is probably the least bad one.
 
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wingman said:
Where's this 5% savings account held?
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It sounds like a nationwide FlexDirect account.
I've got the same one, 5% on up to £2500 in the current account and up to £250 per month can be deposited into the linked regular saver account also at 5%. These are promotional rates which only last for 12 months before they drop to something like 1%.
 
satchef1 said:
To me, assuming a degree of financial discipline, overpaying seems the worst option. At 2.03%, the interest that you'd be avoiding is inconsequential. If interest rates start to rise, that may change things. But for now, there isn't really a good financial argument for overpaying a mortgage.

Saving the money gives more flexibility and a better return. Investing the money in your pension gives less flexibility, but a far better return (assuming you're employed and your employer also contributes to your pension).
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Whilst you're probably not wrong, what about the psychological aspect of paying off your mortgage early? We're overpaying ours by a fair margin every month because the idea of being mortgage-free by 50 is very appealing, not to mention that overpaying allowed us to drop down into the next LTV bracket when we remortgaged recently which will save tens of thousands in interest.
 
thewanted said:
Whilst you're probably not wrong, what about the psychological aspect of paying off your mortgage early? We're overpaying ours by a fair margin every month because the idea of being mortgage-free by 50 is very appealing, not to mention that overpaying allowed us to drop down into the next LTV bracket when we remortgaged recently which will save tens of thousands in interest.
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What do you plan to do once you pay off the mortgage?
 
satchef1 said:
What do you plan to do once you pay off the mortgage?
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Presumably find a way to invest that money somewhere else, or perhaps even just have a bit more fun. I'm already putting 12.5% into a pension every month (excluding my employer's contribution) so it's not as if I'm pouring every last penny into the mortgage.
 
thewanted said:
Whilst you're probably not wrong, what about the psychological aspect of paying off your mortgage early? We're overpaying ours by a fair margin every month because the idea of being mortgage-free by 50 is very appealing, not to mention that overpaying allowed us to drop down into the next LTV bracket when we remortgaged recently which will save tens of thousands in interest.
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As I hinted in my previous post, finance is a lot smarter than it used to be. All the suggestions about 5 being greater than 2 ( :D ) and making additional pension contributions instead etc etc are all correct but they're also not necessarily likely to bring about the right outcome. Behavioural economics is slowly being better understood, and it is very personal and completely unlikely that suggestions on a forum like this would bring about the right outcome because a) few are qualified and b) because few are capable of articulating their precise position and motivations in a simple forum post. This thread is a case in point, as halfway through the OP revealed that their motivation isn't intact to repay the mortgage, as he / she accepted that they'll need another deposit in the future because they intend to move again, presumably to a more expensive property.

People make irrational decisions all the time, especially when it comes to finance. That's why, in more cases than not, to have the highest chance of achieving the desired outcome the solution isn't always the most financially correct.
 
Also, while any advice is well intentioned, nobody has a crystal ball. Many people lost fortunes during the financial crash, acting on good, well-intentioned advice from qualified and experienced individuals. There's the optimal choice on paper, and then there's the choice the individual is comfortable with making. It's generally better to go with the latter.

It's pretty easy to make rational decisions with other people's money. But rational decisions aren't always the best ones. FWIW, the best financial decision I've ever made was an irrational one. And the biggest mistake I've ever made was totally rational (at the time; in hindsight I was an idiot).
 
thewanted said:
Whilst you're probably not wrong, what about the psychological aspect of paying off your mortgage early? We're overpaying ours by a fair margin every month because the idea of being mortgage-free by 50 is very appealing, not to mention that overpaying allowed us to drop down into the next LTV bracket when we remortgaged recently which will save tens of thousands in interest.
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Why not invest that cash into something with a bigger return each month? You'd be able to pay your mortgage off even earlier ...
 
Basher said:
Why not invest that cash into something with a bigger return each month? You'd be able to pay your mortgage off even earlier ...
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I've thought about it, but what low risk investment guarantees a return greater than 2.04% (my mortgage rate)? A current account that offers 5% on balances up to £2500 isn't really worth the hassle since I'll hit that limit within 3 months.
 
thewanted said:
I've thought about it, but what low risk investment guarantees a return greater than 2.04% (my mortgage rate)? A current account that offers 5% on balances up to £2500 isn't really worth the hassle since I'll hit that limit within 3 months.
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Fair one. Personally I'm putting money aside each month in S&S ISAs in a diversity of index linked funds - they certainly won't return big in 1 year, but over the next 5 years (which I plan to pay my mortgage off in) they're likely to perform better than my mortgage rate (2.5%). I do this alongside putting the maximum in the company share shave scheme (10%) each month.
 
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