My mortgage rate is 0.9% and will track the base rate at 0.4% above

However a friend of mine was trying to tell me to use any savings i have to pay off as much mortgage as i can.

My view is simply that i'd be better getting 3% on savings than paying off the mortgage

Am i missing something?

Pay it off quicker means you pay less long term & hence 'save' more

for example if paying off your mortgage 1 year early saves you £5,000 that is better than investing the money with a measley 3% interest.

Not over the same time period it doesn't does it?

If i am getting 3% on my savings over ten years i get more than i save by paying off the mortgage with those savings surely?

0.9% is over the term of the mortgage and you pay capital off at a much faster rate towards the end of the mortgage so .9% isn't the same as typical apr especially earlier in the mortgage term.

So am i better having £20k savings at 3% or use that £20k to pay of a chunk of mortgage bearing in mind my interest rate is only 0.9%?

15 years left

20k in savings will earn you £600pa (minus tax)

20k paid off a mortgage @ 0.9% will save you £180

so you gain more by having in savings whatever your tax bracket at the moment. However it often comes down to what makes you feel most comfortable so most will pay off mortgage.

It would also either

(a) reduce the term of your mortgage - hence saving you 12-24 monthly payments. Saving approx. £5-6k

or (b) reduce your monthly payments by £x per month for 15 years e.g £10 per month x 180 months £1,800 saving

Thats what i thought, and you are the man in the know

My plan is to save until my rate outstrips my savings and then pay off the capital with my savings

Or, the better option is to stick it into a savings account paying more than your mortgage rate.

When interest rates increase above savings rates, you then pay this off your mortgage.

Spot on. Some dodgy advice being given on this thread I think! For those saying that, by paying off some of his mortgage, Groomyd could end his mortgage earlier or save money overall, look at it this way - if, instead of paying off his mortgage now, he invests that money for a year at 3%, then he can pay off a much bigger chunk of the mortgage with it next year! (But obviously in reality he should wait until NET savings interest rate is below mortgage rate).

Note that I've said NET above because obviously you will have to pay tax on your savings account, unless it is a Cash ISA...

Full amount in ISAs then rest in easy access savings (3%)

Thats exactly what i thought but just wanted to check it was as obvious as you've put it!

Interest rates are bound to go up eventually and i've just been lucky enough to be on a low tracker. As soon as rates go above what i'm getting on savings then i should take all my savings and pay it all off on the mortgage ..................

well ive just given the interest earnt/cost over a 1yr period.

If interest rates were never to change the groomyd would be better to save his money at 3% rather than pay his mortgage (at 0.9%) off. He would save the amount required to pay his mortgage off quicker by saving £xpmth than simply paying his mortgage off at £xpmth

I'm on pretty much the same rate as you Groomy and have chosen to overpay to reduce the term of the mortgage. Don't have savings but overpaying by £300 + which I could have put in savings. My main thought was that we wouldn't save it and then get used to teh extra cash, this way, when the rate goes up we will still be paying the same amount so not notice the hit....and pay off a little earlier

I did do that and have built up an overpayment fund

But firstly i think its crucial to pay in your ISA to the max at least

Secondly i just got a redundancy lump sum so need to think about what to do with it

If you can be disciplined and not break into it then 'earn' the best rate you can. Usually that would mean over paying the mortgage, but these are funny times. What you're suggesting is no different to transfering a balance to a 0% credit card and saving the equivalent in a high interest account to pay off when the 0% rate ends. Go for it.


Also, sorry to hear about the redundancy.

Some very dodgy maths here - it's plain as a pikestaff if post tax your interest on your savings a/c > than your all in mortgage rate - then it makes sense not to pay off your mortgage. Our mortgage is base +29 bps -makes no sense at all to overpay - especially as your savings build up and build a healthy rainy buffer - just for the situation that Groomyd finds himself unfortunately in.

Thanks Bram, tough times ahead with so few public sector health jobs out there and more cuts in the pipeline, but it could be worse. We can just about live on my wife's income - albeit shopping at very tight.