Mortgage overpayments or savings account

[skinnybaby]

Hi all,

Im currently overpaying my mortgage and will do so hopefully for the next 5 years. After 5 years I need to pay back a 20% government equity loan.
When setting this up we discussed with the mortgage advisor ways of paying back the loan and asked if dumping money into a savings account for 5 years and then pay a chunk off the loan but he said definitely not and it was much better to overpay the mortgage, therefor reducing the amount a bit more and saving on some interest, then incorporating the loan into the mortgage when it comes time to remortgage.

***Edited to say my current mortgage interest rate is 1.79%***

Ive read a few things lately that are making me wonder if im doing the right thing? I cant speak to him now as he has left for another company, I will seek advise from another advisor sometime soon but in the meantime does anyone have any input?

Thanks

[mickey house]

In your position I would overpay the mortgage. The amount of interest in savings accounts is usually less than the interest paid on your mortgage. I am referring to savings accounts with guaranteed rates, not investments that could go up or down.

[novocastrian]

if it was me i would overpay the mortgage as savings rate are atrocious

but in all seriousness you need to get professional advise not from well meaning folk on a holiday website ...

good luck its a minefield

[FlorayG]

It depends on your mortgage. If it was mine I would overpay to the maximum and then when the loan is due withdraw the amount from the overpayment to pay the loan
This way I would have lower interest to pay on my mortgage all that time and still have access to the money when I really need it. My payments and interest go up again but better that than paying higher all the time
But I don't think all mortgages let you have the overpayment back once they have it

[skinnybaby]

Thanks people.

I will add that currently my mortgage interest rate is 1.79% so not bad

As I already said, I will speak to an advisor but just interested in others thoughts.

[Anne]

What's in place to pay back the 20%? You really need to speak to an IFA

[Floridatilly]

I do agree to pay extra off your mortgage, however I personally think it is important to have some savings.
With most mortgages people have life insurance & illness cover etc so if anything should unfortunately happen then the mortgage will still be covered but you still need to buy food, bills and any outgoing for any emergencies like a new washer, fridge etc. So it is important to still have a rainy day fund.
If you already have savings then pay off your mortgage, if not can you do both, put half in savings, half on mortgage?

[pumpkin mom]

We overpaid ours. Everytime our rate fell we did not change the payment amount.if we had lowered the payments i honestly believe we would have blown the extra money away. Ended our mortgage early. Xxx

[gl20]

Could you do a mix? We have an off-set so effectively over pay into that, but we also pay into stocks and shares isas. We’ve done that the past 4 years so about 40% of what we could overlay goes into the ISA and 60% into the off-set. We’ve averaged about 7% on the ISA whereas our mortgage rate is around 3.5%. So this means we did better than just putting all surplus money against the mortgage.

Of course a shares ISA has no certainty on return, it could go down etc. But across 5 years, with the right product, the level of risk is normally reasonable.

[Leggibone]

Without looking at your mortgage, and the specifics I don’t think any of us are really equipt to help here, is guess that generally if you can afford to absorb the loan back into your mortgage then over paying would reduce the interest your paying overall. But make sure you have an emergency fund in place too. (In the same tact you wouldn’t want to rinse your savings to pay off the loan either)