The money saving expert answered viewer questions on ITV’s This Morning today and suggested how people can solve this dilemma. Suzanne called in saying she knows she could overpay her mortgage by 10 percent without a penalty.
She wondered if she should reduce her mortgage by making such a payment.
As she has around £8,000 in savings earning “next to no interest”, she asked the finance expert if she should be overpaying her mortgage with the money instead.
Mr Lewis responded: “Is your mortgage rate higher than what you can earn in savings?”
The first thing he explained to her was that she should not have savings that are earning “next to nothing”.
As interest rates have jumped recently, he suggested Britons should look around to see where they can get the most out of their money.
He mentioned the Chase app offering customers 1.5 percent on their easy access account.
Mr Lewis said: “We should be making the comparison between what you could earn in the best savings and paying off your mortgage.”
He continued: “Is your mortgage rate higher than what you can earn in savings.
Mr Lewis continued: “So you’re saying you have £8,000 – if you add it up and your bills are four or £5,000 over sixth months, then overpay with the £3,000 on top of that.
“Provided the mortgage rate is higher than the savings rate and you don’t have any penalties.
“If the mortgage rate is around the same as the savings rate then you’re better off just to save.”
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip