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I know it probably depends on many factors but as a general rule is it better to put money into savings like an isa/ saving account at the best rate available now or better to overpay on the mortgage as much as possible? Obviously keeping a buffer in savings for new boiler/car.
If your net savings returns exceed the mortgage interest rate, then pay into savings. As/when this goes the other way, pay off the mortgage.
In reality, it's not as easy as this, and a combination of both would probably be best...
Most will come and say have an offset mortgage, but as they aren't that easy to get I opt for having a safety net in my savings and overpaying a reasonable amount on my mortgage.
Savings are definitely earning you less than it costs on your mortgage, so the balancing act is up to you.
Depends on the interest rate, but in general I would expect it is better to pay down the debt as tax will eat some of the interest paid.
You can avoid that by offsetting though, if you can't its always worth working out if its best to pay down the debt or open an isa.
Keep a savings buffer in case of bad times eg losing a job, but other than that pay off debts.
Depends on how long term you are saving for. If you put it into a personal pension, you get tax relief at 20 or 40% depending on your income. You will have to go through the ball ache of filling out a tax return however.
(personally I save and overpay a bit though)
Decent savings buffer and then overpay the mortgage at the moment, IMO.
Or put the excess into your pension if you have one, rather than on the mortgage.
For me, I would love to clear my mortgage asap, so would choose that over paying excess into the pension even If the pension route made more sense longer term.
One thing to keep in mind that banks have some pretty good form on making arbitrary decisions that the value of a property has gone down and then use this to remove the agreed lending amount and effectively stop any “savings” in flexible /offset mortgages to be withdrawn. This has caused some people real difficulty when they have stored large amounts temporarily in the offset mortgage only to find they can’t withdraw it the funds as planned.
Both for me. INfact I tend to divert spare cash to 4 sources:
- ISA
- Pension contributions
- Mortgage Overpayments
- Beer
Pick an arbitrary number of months/years you'd like to have a cushion for if all of your income dried up overnight (6 months for me). Now save as much into a cash ISA to hit that amount (you may have to save into a stocks ISA if your cushion is more than 15k-ish).
Now overpay the mortgage with what's left over if that's the highest interest loan in your life.
You may also want to put some money by for your children if you have any.
+1 for Footflaps.
A mortgage is the biggest debt you'll ever take out and you're paying a massive sum of money in interest - if you pay it off over the term over which you've borrowed it e.g. 25 years, you'll be paying out way more than the amount you actually borrowed.
Obviously YMMV but you may be saving tens of thousands in interest payments if you pay off your mortgage early.
I would get 6 months living expenses in savings, then overpay the mortgage until paid off and then take the amount you used to pay in mortgage repayments and save that/put it in a pension...
Pay your mortgage down, but check they give you the benefit straight away, some companies only recalculate interest due once a year. IMO with interest rates so low the tax advantages of savings account ISAs are very limited. You should have some cash / easily liquidated savings for a rainy day / emergency but assuming you do then pay the mortgage down.
Seriously look into getting an offset mortgage. We have one and I love the flexability that comes with it, as well as knowing hthat savings are working for the mortgage, even if you are not necessarily paying it off early. Ours is with RBS (you will only get 80% LTV)
What Jambalaya says - you might find it's best to save in the ISA for most of a year, then put that cash into the mortgage at the right time.
Plus, make sure there are no fees for paying off too much of your mortgage, IIRC it's 10% overpayment on ours before some penalties (though I'm probably wrong, apparently I always am if you listen to my other half...).
Its specific to your circumstances. I borrowed significantly against my mortgage a few years ago to invest! Ask most people and that is not the thing to do however my mortgage rate was very low and the investment made me money (and I kept it liquid enough in case the worst happened)
Point being you have to do the numbers and understand your own sensitivity to risk. No good taking a punt for a few £K if you cant sleep at night!
We also have an offset as it does all of the above.
Allows us to have a rainy day fund if everything goes wrong, and pay off the mortgage at the same time.
We transferred all our cash ISA's to a savings acct that offsets, both our current accounts offset as well - saved us £1850 in interest last year.
Thanks useful answers. 6 month earning cushion sounds good. No penalties for over paying but will check on the interest being recalculated.
3 months take home pay in savings for emergencies, then overpay the mortgage.
Mortgage free just before last Christmas 8)
If I still had a mortgage I'd be over paying every single spare £ I have while rates are so low, but I remember rates in double figures.
I'd say it depends on how much savings you have vs. mortgage. If you've only got a 10 or 20k savings vs. 100k mortgage then there is absolutely no point on earning a pittance of interest on your savings vs. paying significantly more interest on your mortgage.
But then again there is a school of thought that says with interest rates being so low at the moment mortgages are essentially free, so why bust a gut to pay it down. My brother is taking the latter option and is paying sweet FA against his mortgage at the mo (converted it to an interest only so not paying any capital off at the moment) and choosing to spend the money on home improvements, a nice car and nice holidays while the kids are young and will focus on hammering the mortgage when interest rates increase. I personally couldn't deal with that and would always elect to pay the mortgage down as quickly as possible. I want to have it nailed before the kids leave school so I can help fund them in whatever choices they make in their post-school life.
Its about balance. I have a friend who never took his kids on holiday for years because he wanted to buy an ever bigger house. He was part motivated by providing for his children (part vanity) he had a health scare (fortunately he is OK) and it brought it home to him (a bit)
I have always prioritised holidays and time with my family over racing to be debt free.
Depends a bit on your tax band. You have to pay tax on interest you receive (unless it's in an ISA) but there's no tax relief on your interest payments, so that tends to favour paying off your mortgage. The rates on cash ISAs tend to be pretty miserable - unlikely to be more than your mortgage rate. An investment ISA might beat your mortgage rate, or it might go down in value.
Definitely look at an offset mortgage, but when I was last remortgaging, it made no sense due to the higher rates. The higher the ratio of your savings to mortgage balance, the more sense it makes.
Worth reading the small print on your mortgage, it may be more flexible than you think. On mine, I can make 10% overpayments each year, but I can also then take a payment holiday up to the value of my historical overpayments. So if you're worried about losing your "rainy day" fund by overpaying your mortgage, you may find that you can get some of your overpayments back if it really does start raining, albeit not as a lump sum.
I have just paid £10k off my mortgage, so will be driving round in my 10 year old car for a bit 😉
After being made redundant three years ago at the age of 46, struggled like hell to get back into work
When I was at my lowest, that mortgage payment was the kicker for me
I nearly lost my home, wife, health and mind, I would agree with saving a buffer to cover you for a year.
Plan for the worst, live every day to its full.
We changed to a offset mortgage years ago and has worked very well but every one is different and the isa allowance has changed a lot over the last year or so.
You just need to see what suits you
But as we had had a fair buffer it made it less stressful as jobs changed etc