Mortgage Overpayment versus Saving for College

Discussion in 'Money makeover' started by Targetonawall, 11 Feb 2019.

  1. Targetonawall

    Targetonawall New Member

    Posts:
    1
    Hi,

    We are in the fortunate position of having 300e a month going aside in savings towards college for the two kids (14 years before the first hits college). However we are unsure whether this would be more valuable coming off the mortgage or in a saving account

    Info:
    Mortgage standing at 205k. 30 year term, 2.5 years done. Variable rate. Overpayment allowed off principle and can revert to remaining term with lowered required payment at any time. Overpaid for a year already but that excess is now in a loan repayment and we have dropped to 1k (the required is 950). We know that a 300e overpayment will reduce the term to approx 18 years.

    Two earners in the house. Me a public servant secure employment. Other higher earner by a margin of a total least twice. To complicate matters the higher earner could not get life insurance so in the even he dies I would struggle to repay the mortgage at 1k with two children. There is no issue if I die, two insurance policies one tied to the mortgage and the other standard.

    300e savings into a savings account gives us around 50k cash when college starts. However interest rates are complete rubbish on savings.

    The other possibility is to put the 300 into overpayment of the mortgage and then revert to term in 14 years time and as there would only be 4 years remaining to be paid it would free up a significant amount of monthly disposable income at college time. It would also mean if the worst came to the worst from a life insurance perspective that the mortgage would have been continually reducing and this would be a lot more manageable.

    However the notion of not having a lump sum saving is a bit alien to me. There’s something reassuring about it even though mathematically perhaps the money isn’t working very well for us.

    Any advice would be appreciated. We have already discussed and agreed that any other increase in disposable income (when childcare drops off or if husband gets a raise) then that goes into the mortgage. We also live in the commuter belt so if we are lucky enough they might choose to stay in Dublin significantly reducing the actual cost of college. Might be wishful thinking
     
  2. David1234

    David1234 Frequent Poster

    Posts:
    178
    I would continue overpaying the mortgage. I would reduce the monthly repayment and keep the term the same. This will give you more flexibility down the road.

    A lot can happen in 14 years. 1 or both of your children might decide that they do not wish to pursue further education.

    What is your spouses pension like? As they were unable to get life assurance I would also consider increasing their contributions provided the relief was in the higher tax bracket.