Savings account or Mortgage

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

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.

DenisP said:

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.

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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.