Mortgage overpay low intrest rates?
Discussion
I am no financial wiz but my fixed rate mortgage is just coming to an end and will now drop to a low standard mortgage rate (2.5% with Nationwide). I am also allowed to make uncapped overpayments after 30 September. I have a small endowment that has just matured and will use this and regular overpayments to reduce the capital significantly whilst interest rates are low.
The interest rates from investing the endowment payment after tax, once you have used up annual ISA entitlements, still don't come close to the interest rate on the mortgage .
As I said, I am no wiz, so I could be doing it completely the wrong way around.
The interest rates from investing the endowment payment after tax, once you have used up annual ISA entitlements, still don't come close to the interest rate on the mortgage .
As I said, I am no wiz, so I could be doing it completely the wrong way around.
As has been said, you need to look at the interest saving on your mortgage compared to what is available on the savings market. If you are paying 2.5% interest on your mortgage, you will need a savings return of 3.12% gross (for a basic taxpayer) to break even.
It is usually a good move to overpay on your mortgage as lending rates tend to be higher than savings rates. Bare in mind that if you overpay, you may not be able to access this money again in times of need.
It is usually a good move to overpay on your mortgage as lending rates tend to be higher than savings rates. Bare in mind that if you overpay, you may not be able to access this money again in times of need.
+1 though dont forget to pay off things like your credit card or personal loans first!
Also consider dumping some into a pension and getting up to a 40% tax credit if you hit your capital repayment cap. You might get a nice tax refund which you can then pop off your mortgage next year.
Also consider dumping some into a pension and getting up to a 40% tax credit if you hit your capital repayment cap. You might get a nice tax refund which you can then pop off your mortgage next year.
Mr POD said:
If you have no other debts, pay off as much of your mortgage as you can. Simple. Unless you can get more interest than you pay. (Who knows?)
I have zero other debts.I have enough in savings accounts paying decent rates (4 in my kids accounts which pay very well on intrest)
However, what i owe in mortgage outstrips my savings by about 3 times - so even with savings earning more in intrest, a healthy chunk can be reduced per month in hard cash terms on overpaying a mortgage i reckon.
Are you likely to be moving house again in next few years? If so bear in mind you're very unlikely to be able get a mortgage as low as your current one (4.5-5% seems to be about the norm at the moment), so in that situation keeping the current mortgage as large as possible makes sense.
RizzoTheRat said:
Are you likely to be moving house again in next few years? If so bear in mind you're very unlikely to be able get a mortgage as low as your current one (4.5-5% seems to be about the norm at the moment), so in that situation keeping the current mortgage as large as possible makes sense.
Staying at same house - not movingYes, recommendation is to have 3 or more months outgoings set aside for unforeseen events!
Even at 5% repaying mortgage is better than the low interest rates around at present as in effect as mentioned before higher rate tax payers would need 7% or so to beat what repaying the mortgage works out to and 7% is a bloody good return!
Even at 5% repaying mortgage is better than the low interest rates around at present as in effect as mentioned before higher rate tax payers would need 7% or so to beat what repaying the mortgage works out to and 7% is a bloody good return!
GreenV8S said:
My take on it is that if mortgage interest rates are low, the benefits of overpaying are also low. Depending what your commitments are and how secure your income is, it might be a good idea to have your 'rainy day' fund under *your* control rather than held by your mortgage company.
Got plenty in savings for the 'rainy day' as at least 55-60% of income is saved or budgeted rather than spent.I don't have any major commitments i can think of.
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