I can’t see the catch, but my wife thinks I’m wrong.

We have an “emergency” mortgage amount sitting in an ISA attracting 1% pa – about 6 months of payments. Now, if we overpay our mortgage (nationwide @2.84%), we get what’s called a “mortgage reserve” – we can take the equivalent number of months as a payment holiday should say, I lose my job.

My argument is that we should pay it and reduce the interested incurred in the meantime with a view that I’d never really want to take the holiday, but the fact that its paid will reduce our interest and term in the meantime/hopefully forever. She thinks it should be available for “other things” if that should happen, my argument being yes but paying the mortgage is more important, and the most difficult amount of monthly expenditure to find in a job loss situation.

Pray tell me, how am I ajudged to be “wrong”?

You could argue back that ‘other things’ if they are that important, could justify a payment holiday 🙂

Mortgage first, mortgage last, mortgage always as far as I’m concerned.
No use having ‘other things’ if you’ve no roof over your head.

Overpay if you can but keep some savings for emergencys such as big unexpected house repairs?

I overpay my mortgage. When the debt interest is greater than any credit interest its a no-brainer. You could probably find an alternative investment that would give a better return than 2.85 though when it makes less sense.

It is a good idea to have some savings easily available for emergencies so would leave the amount already in the ISA where it is.

Got to keep some cash but how much depends on circumstances. Paying off chunks of mortgage is nice but depends on how much other investments you have – I’d choose to build up my investment ISAs first.

1% is utter madness. How did you ever find such a magnificent deal? I do understand the need for ‘spare’/emergency cash though. Why not put it in a current account that pays 2.5-3% if easy access is what you/you’re wife is after? Alternatively, does your mortgage provider allow you to withdraw overpayments? I know Nationwide does, but last time I did it they weren’t exactly happy about it!

tthew and mudshark – this is Mrs Kryton’s argument – and emergency fund. Hmm, maybe she right then – curses!

Eat_more_cheese – it was 3% over 3 years but the three years has lapsed so its reduced – yes I agree we could and should find somewhere better for it.

we get what’s called a “mortgage reserve” – we can take the equivalent number of months as a payment holiday should say, I lose my job.

Suggest you double-check this, as Nationwide haven’t offered this as an option on mortgages for a few years now.

If you can, I’d choose to overpay, but you might (a) get an overpayment penalty and (b) if it doesn’t serve to reduce the period it’s a pointless choice.

Spend an hour with Excel and see what difference it makes.

Suggest you double-check this

I did. I can make over payments up to 20% per annum, although each overpayment that reduces the term costs £30 admin. I can overpay with the monthly amount reducing for free but that doesn’t save much as we know.

The amounts of interest you are talking about aren’t much, I’d rather keep the cash available for any emergency. If it goes into the mortgage you can’t get it back out for any other reason.

If it’s a considerable sum and you are close to paying the mortgage off it might be worth paying it in, just to bring that magical day closer, but I’m guessing you are a while off yet.

Pay 75% and start topping the fund up again immediately.

Try not to lose your job ion the meantime.

You are wrong because you are getting a new kitchen you just dont know yet.

Your not wrong. I have been making over payments on my mortgage since new and now have a £15k reserve if I ever require it, for any emergency or say work to the home. However my mortgage has no early repayment charges so worth checking this as it has reduced the term significantly. Also I have mortgage protection should I loose my job which has happened twice, and during those months they paid off the full overpayment amount each month for me.
IMO worth doing plus reduces your mortgage term, interest paid and the banks don’t get rich at your expense.

Depends on the amount of savings you have vs. mortgage outstanding. Assuming your mortgage is a lot more than your savings then even if you were earning 10% on your savings it would not offset the amount of interest you’re paying on your mortgage – not even close. In my view there is no point having savings earning a pittance when you have a mortgage costing you hundreds of pounds a month in interest. Your mortgage will be costing you many times more in interest than your savings are earning you. In my view you’re much better off paying off more capital off your mortgage to increase the proportion of your monthly mortgage payments that pays off your capital each month. Over the outstanding term of your mortgage it will save you many thousands of pounds in interest.

No point having ‘cash for a rainy day’ set aside when you can get flexible mortgages and while its so easy to borrow money against your house. Other options are to change to a sweeper mortgage then you can set your savings aside and keep them separate if that is important to you, but the value of your savings are offset against your outstanding mortgage, so same effect as paying it towards your mortgage.

Whichever way you cut it, it makes far better financial sense to get that mortgage cleared ASAP. Just think of what you can do with the cash you currently pay towards your mortgage if you had it in your pocket every month.

I was always advised to have 3 months take home pay saved for emergencies/redundancy, after that, overpay the mortgage to get rid of it asap.

Mortgage free since Christmas! 😀 No idea where the £250 a month has gone since 🙄

You are wrong.

“We have an “emergency” mortgage amount sitting”

This quite clearly isn’t for the mortgage its for other things.

I’d pay the mortgage off.

what wobbliscott says ….

i overpay every month(term reduction) – with RBS. I can stop paying tomorrow and i dont have to pay again till the overpayment balance is used at a rate of the minimum payment – which by now is about 300 quid a month less than the initial payment terms.

I do keep an amount in other investments as savings for “projects” on the house but as muddydwarf says – mortgage first mortgage last if it came down to the nut.

Our mortgage should be about £150 a month, we pay £800, i stupidly fixed just before the rates made a nose dive. I think it’s always best to look at the bigger picture first, possibly reducing out goings on frivolous purchases, it’s amazing how a few quid here and there can make a big difference.
We should be mortgage free in three years.

Depends on the amount of savings you have vs. mortgage outstanding

Well, about 5% of the loan saved with 18 years to go. Some investigation and I can’t find savings or an ISA anything with immediate access over 1.41%.

I may as well stick it on my premium bonds account and hope for the best. :-/

Quick question – those of you overpaying, have you also managed to ditch any requirement for redundancy insurance as you had effectively self insured?

Overpaying chunks off the capital can make a big difference, especially in the early days when you are servicing stacks of interest and hardly reducing the outstanding amount.

Ours is a flexible mortgage in that it lets us overpay to an unlimited amount and even finish early with no penalties but there’s no payment holidays, (that I’m aware of). We have Term Insurance against my redundancy, it’s pretty cheap.

Santander 123 current account pays 3% on upto 20k. You can have 3 accounts if a couple, so £60k.

We also overpay our nationwide account reducing the term each month, I don’t get a £30 admin fee…if I did we wouldn’t do it monthly.

We’ve paid off loads but it’s all a bit moot really as the missus wants to move to a bigger family home, so will shortly have a massive mortgage once again

…a bit moot really as the missus wants to move to a bigger family home, so will shortly have a massive mortgage once again

but you’ve got more equity due to your overpayments, so either bigger new house or not such a massive increase on your mortgage. Winner!

Yep it is good, but I was kind of looking forward to being mortgage free in my late 40s rather than paying mortgage right up till 65. Well, if we do move I’m getting a mancave out of the deal!