Overpay mortgage or national savings?
Overpay mortgage or national savings?
Author
Discussion

tali1

Original Poster:

5,281 posts

217 months

Thursday 9th June 2011
quotequote all
I have a spare four figure sum to invest - should i overpay my variable rate repayment mortgage (which i can do) at it's very low intrest rate , or should i invest in a 5year national savings index linked RPI?


davepoth

29,395 posts

215 months

Thursday 9th June 2011
quotequote all
Which has the higher interest rate? Put it in that.

tali1

Original Poster:

5,281 posts

217 months

Thursday 9th June 2011
quotequote all
davepoth said:
Which has the higher interest rate? Put it in that.
I thought with low intrest rate on mortgage -less is being paid as intrest and more on repayment - so better to pay off mortgage ?
-or have i got it wrong - should i overpay when mortgage intrest rates are sky high instead ?

Mr POD

5,153 posts

208 months

Thursday 9th June 2011
quotequote all
A simple excel spreadsheet should be all you need to work it out.

BoRED S2upid

20,763 posts

256 months

Friday 10th June 2011
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Personally I see the mortgage as the biggest stone around your neck your ever going to have, id be paying off that ASAP, think of the free cash in your back pocket once its gone then you can worry about where to invest! Nobody knows whats going to happen to interest rates over the next 5 years but they ain't going to go down your mortgage is only ever going to get more expensive.

illmonkey

19,209 posts

214 months

Friday 10th June 2011
quotequote all
50/50 split? You'll be shifting the mortgage and saving some extra cash. I'm in a similar position and I just over pay on the mortgage a smidge, but come moving time, I'll owe them a few K less. Unfortunately, I don't have a 'spare' 4 figure amount.

nomisesor

983 posts

203 months

Friday 10th June 2011
quotequote all
Mr POD said:
A simple excel spreadsheet should be all you need to work it out.
....so long as you know what RPI and what mortgage interest rates will be for the next 5 years!

I suppose it depends on your circumstances, apart from predicting RPI & interest rates, ask yourself not the Harry Callahan one (d'ya feel lucky?) but three questions; Your tax bracket? How likely are you to need all your money in the next 5 years? Does your mortgage provider allow irregular lump sum capital repayments?

The tax-free element of NS&I are what make them extra-attractive for higher rate taxpayers, with a current return equivalent to about 9% for a 40% taxpayer dropping to about 5% for a non-taxpayer.

Should interest rates soar and RPI plummet you can cash in the NS&I certificates with a few days notice and put it against the mortgage. You lose all interest in the first year, and then decreasing amounts of the 0.5% over RPI as you approach the 5 year term.




anonymous-user

70 months

Friday 10th June 2011
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How large is the sum? Anything meaningful offset mortgage? Works for me smile

nomisesor

983 posts

203 months

Friday 10th June 2011
quotequote all
Offset? Indeed. Offset interest rate 1.5%, NS&I 5%+ Works for me - if the former rises above the latter (which won't happen in the next 11 months when NS&I won't pay interest on recently bought 48th issue certs) the money can be shifted back.

tali1

Original Poster:

5,281 posts

217 months

Friday 10th June 2011
quotequote all
BoRED S2upid said:
Personally I see the mortgage as the biggest stone around your neck your ever going to have, id be paying off that ASAP, think of the free cash in your back pocket once its gone then you can worry about where to invest! Nobody knows whats going to happen to interest rates over the next 5 years but they ain't going to go down your mortgage is only ever going to get more expensive.
This seems to be my line if thinking
Should have mentioned i already have a previous issue 5 years Rpi .I applied for new recent issue but there was missing details -so form returned and chaeque not banked -which got me thinking of mortgage instead

nomisesor

983 posts

203 months

Friday 10th June 2011
quotequote all
tali1 said:
This seems to be my line if thinking
Should have mentioned i already have a previous issue 5 years Rpi .I applied for new recent issue but there was missing details -so form returned and chaeque not banked -which got me thinking of mortgage instead
You can buy them online. If you've the same address as you had when you bought the last lot, and your customer number (on your certificate) you can buy using your debit card.

rog007

5,800 posts

240 months

Wednesday 15th June 2011
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+1 for mortgage (but ensuring 3 months salary is in readily available cash somewhere). Or if you're weak like me...buy a nice car biggrin

uk_vette

3,336 posts

220 months

Wednesday 15th June 2011
quotequote all
tali1 said:
BoRED S2upid said:
Personally I see the mortgage as the biggest stone around your neck your ever going to have, id be paying off that ASAP, think of the free cash in your back pocket once its gone then you can worry about where to invest! Nobody knows whats going to happen to interest rates over the next 5 years but they ain't going to go down your mortgage is only ever going to get more expensive.
This seems to be my line if thinking
Should have mentioned i already have a previous issue 5 years Rpi .I applied for new recent issue but there was missing details -so form returned and chaeque not banked -which got me thinking of mortgage instead
.
With interest rates as low as they are, then there is no real meaningfull reason to save.
Just get rid of that big stone around your neck.
The diffencebetween the cash you end up with through the interest, minus the governments cut, is next to nowt.
Getting the mort. paid would be my top priority.

V.

RedWhiteMonkey

7,925 posts

198 months

Wednesday 15th June 2011
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I'd go for mortgage, the quicker you can pay that off when rates are so low the better.

onomatopoeia

3,512 posts

233 months

Thursday 16th June 2011
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For me, NSI. Putting it into the mortgage at this point makes no sense in terms of the raw numbers.


tali1

Original Poster:

5,281 posts

217 months

Thursday 16th June 2011
quotequote all
onomatopoeia said:
For me, NSI. Putting it into the mortgage at this point makes no sense in terms of the raw numbers.
I'm leaning 95% towards mortgage-just deciding whether to reduce payments or term

davepoth

29,395 posts

215 months

Thursday 16th June 2011
quotequote all
tali1 said:
I'm leaning 95% towards mortgage-just deciding whether to reduce payments or term
Term. Do the numbers and bunging the extra money in if you are quite early on in the mortgage will save you huge amounts of money.

davepoth

29,395 posts

215 months

Thursday 16th June 2011
quotequote all
tali1 said:
I thought with low intrest rate on mortgage -less is being paid as intrest and more on repayment - so better to pay off mortgage ?
-or have i got it wrong - should i overpay when mortgage intrest rates are sky high instead ?
It's all about the differential. If the loan rate is higher than the savings rate (it almost always is) put the money into the loan. In the rare occurrence when the savings rate is above the loan rate, it makes sense to save the money, either to pay the loan off in one go when you can, or put the money into the loan if the differential swaps round.

tali1

Original Poster:

5,281 posts

217 months

Thursday 16th June 2011
quotequote all
davepoth said:
tali1 said:
I thought with low intrest rate on mortgage -less is being paid as intrest and more on repayment - so better to pay off mortgage ?
-or have i got it wrong - should i overpay when mortgage intrest rates are sky high instead ?
It's all about the differential. If the loan rate is higher than the savings rate (it almost always is) put the money into the loan. In the rare occurrence when the savings rate is above the loan rate, it makes sense to save the money, either to pay the loan off in one go when you can, or put the money into the loan if the differential swaps round.
Thanks -just checked and my mortgage rate and it is 1.69% -and the overpayment will cut about 3.5 yrs off term according to bank

Sir Bagalot

6,803 posts

197 months

Thursday 16th June 2011
quotequote all
So Mortgage is 1.69%

Nationwide is currently paying 3.05% on savings, so if a non tax payer then you make 1.36% better return than paying off mortgage, however you have to be very disciplined to do tis and don't touch the money.