The Fixer: Mortgage or savings?

The Fixer logo%VIRTUAL-SkimlinksPromo%Have you been left out of pocket due to poor service or sharp practice? Do you have a money problem that won't go away?

It can seem impossible to get a fair result when you are battling a financial issue alone. But never fear! The AOL Money Fixer is here to help.

Dear Fixer,
I have just been given a pay rise and have a bit more disposable income as a result. Rather than spending this on clothes or going out, I would like to use it to pay down my mortgage.

I only bought my flat a few years ago, so I still have more than 20 years to go on my Nationwide building society fixed-rate deal.

But if I increase my payments by say £250 a month, then I should be able to pay it off a lot more quickly.

The only problem is that I have no savings at the moment - the money I had all went into the flat - and I am nervous about not leaving myself a bit of money to fall back on.

Should I forget increasing my mortgage payments and concentrate on saving up an emergency fund?

R Stone, Luton

Dear Miss Stone,

You cannot earn much interest at all on easy access savings accounts at the moment - even the best accounts are paying less than 2%.

It therefore makes sense to overpay on your mortgage if you can. Figures show that you could reduce the amount you owe on a £100,000 mortgage by £10,000 in just three years if you increased your monthly payments by £250 (based on an average interest rate of 4.38%).

While not all mortgage lenders will allow you to overpay without incurring penalties - especially in the first few years - the good news is that Nationwide will let you overpay up to 10% of the total amount borrowed per year, and at an extra £250 a month you are well within that.

Nationwide also allows customers who overpay to build up an overpayment 'reserve', which you can use to either reduce your monthly payments by a set amount – say £50 a month – or stop making payments for a set period if necessary.

However, if that does not reassure you, it may be worth switching to an offset mortgage (when you can without incurring a penalty) that gives you access to your savings while using them to reduce the interest you pay on your mortgage.

The best offset mortgage on the market at the moment is from Chelsea building society and comes with a fixed rate of 1.84% until the end of 2015, when it rises to 5.79%.

You must have a 35% deposit to qualify for this deal, though. For those with a 25% deposit, Melton Mowbray building society's three-year discounted variable offset deal at 2.15% then 4.99% is the best around.

The Fixer

Whatever your financial problem, write to and The AOL Money Fixer will get on the case.
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