I’m personally coming up for remortgage time at the beginning of December so I have a more than fleeting interest in mortgages at the moment.
Getting the best mortgage rate is an important step to not wasting money every month on owning a home. However, if you’re lucky, you might be able to save a little bit as well as taking on a large home-related debt. It’s one of the oldest sayings that ‘the easiest money you’ll ever make is the money that you don’t spend.’ The question therefore is whether any savings should be sitting in a savings account or going into your mortgage?
Interest rates on mortgages AND savings accounts are historically low at the moment. However they’re definitely lower on savings (which banks pay to YOU) than they are on mortgages (which you pay to THEM). So, if you’re PAYING 4% interest on a £100,000 mortgage and RECEIVING 1% interest on £100,000 of savings, it surely makes more sense to put your savings into your mortgage? Well, yes…and no…and it depends!
I came across the following article on Twitter today and it’s an excellent introduction to what to do in this dilemma. It points out that, for example, early redemption penalties can stop this from being such a simple decision as well as providing simple illustrations of how much borrowing actually costs versus interest received on savings: http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings
If you’re thinking of getting a mortgage, have a think about this now: if, like me, you are coming up to remortgage shortly or to take a new mortgage, the mortgage you select TODAY could affect your flexibility to pay money into your mortgage instead of savings in the FUTURE. So it’s important to think about your financial circumstances not only now, but also to think forward a couple of years. I’ve had to consider whether the mortgage with the lowest possible fixed rate of interest today is actually going to give me the flexibility that I need if I want to be able to pay any savings towards my mortgage, or indeed to move home without porting my mortgage to a new property, in a couple of years time.
It’s worth taking professional, expert advice on this kind of thing as the range of products, as well as the range of possibilities for where your life might head, can make your head spin! Fortunately, independent mortgage advisors are there to help, so I’d seriously recommend using them!