Savings account or Mortgage

[DenisP]

With interest rates dropping, would it be better to keep your level of payments the same or put it into a saving account with higher interest rate. Eg Saving account that earns 4% (nett of DIRT) or put it towards your mortgage with a rate of 3%. Is the benefit 1% or do you have to take other things into account.



Thanks

 

[PaddyW]

Personally, I would keep the level of payments the same if you can to reduce the term of the mortgage, which will save you a lot of interest. You'd have to factor inflation etc. into all that too, I'm sure others will be better able to explain it to you.

 

[Dave Vanian]

With interest rates dropping, would it be better to keep your level of payments the same or put it into a saving account with higher interest rate. Eg Saving account that earns 4% (nett of DIRT) or put it towards your mortgage with a rate of 3%. Is the benefit 1% or do you have to take other things into account.

Increasing your monthly repayment on the mortgage has the advantage that there's an extra bit coming off the capital each month.

But if your post-DIRT rate on savings is 4% and your mortgage rate is 3%, keep with the savings and transfer a lump every so often from the savings account to the mortgage account.

Other thing is discipline - if you think you might be tempted to dip into the savings every now and then for a holiday or whatever, pay it off the mortgage as it's not as accessible.