Is it preferable to move emergency savings/retirement into offset mortgage?
"Assuming no constraints on how much you can move (or how frequently) into and out of your offset mortgage account, the question becomes one of what rate of return you expect from your long-term savings/emergency cash fund. The rate you are getting from the offset mortgage account is known; since it reduces the principal amount owing and thus reduces interest charges, the return is the mortgage rate (though I would not be surprised if the offset mortgage account contract has bells and whistles reducing the effective rate, saying something like 3 pounds reduction of principal for every 5 pounds you put in). So, as a movie character once said, ""Do you feel lucky today?""  If so, move money from your offset mortgage account to savings, and earn more.  If not, move money in the opposite direction. A ""guaranteed"" 2% return on the offset mortgage account might be better than taking a risk on the vagaries of the stock market, and even the possibility of loss in your long term savings account." I think the key thing is flexibility - the money is not tied in with the offset mortgage. If you find a better investment, you can always take some of it out and put it towards that instead. Once it matures, if there is nothing good to reinvest in, then it can go back into the offset mortgage. Once you have had money in the offset account, even if you take it out, you have already (irreversibly) saved money on your mortgage. Right now you would be pressed to find an instant access ISA with a rate higher than 1.5%, so if you need immediate access, then the offset account seems good. On the other hand, for retirement, you might be saving longer term, and then you can get an ISA rate of 3%, currently, which may be better for a part of the money (or perhaps the upcoming Lifetime ISA with 25% yearly bonus may make sense for part of the money), if you do not need easy access to all of it. As Dilip says, this assumes you want safe investments. The way offset mortgages work, you are keeping savings in an account effectively earning the rate of the mortgage. You have the ability to leave it, paying the mortgage off early, or borrowing back, any time.
Let me offer what I did in a similar situation - Two points (a) we were banking $20K/yr or so to the cash fund, 2 good incomes, and the ability to go indefinitely on just one of the 2. (b) A HELOC that was prime-1.5%.   The result was to mentally treat the HELOC as our emergency fund, but to enjoy the interest savings of over $16,500/yr for the $100K that had a sub-1% return.  When I first referenced this story, I came under criticism. Fair enough, it's not for everyone. Let's jump ahead. We owe $228K @3.5%. We had tapped the equity line for brief periods, but never over $20,000. When we lost our jobs, both of us, we had hit our number and are semi-retired now. Our retirement budget included the current mortgage payment, so we are in line for that dropping out of the budget in 12 years, and starting social security after that, which I did not include as part of the budget.  Note - when we lost our jobs, the severance was 6 month's pay, and we collected unemployment as well. The first 12 months were covered without tapping our retirement funds at all. So, to Nick's point (and excellent answer) our first line of defense against unemployment was this combination of severance and unemployment insurance. Set up budget categories.  Earmark your income as it is paid, for your budget categories.  Pay your bills and expenses.  For debts, pay the minimum on everything.  There will be an amount left once everything is budgeted.  That's the 'extra'.  Then focus on, in order of priority, the following: So, when your emergency fund is up to an appropriate level (3-6 months of living expenses as a rule of thumb, adjusted according to your comfort level).   Once you have your emergency fund started, budget at least enough toward your 401k to capture any matching offered by your employer. Then use the snowball plan to pay off your debts.  (From what your post says, this does not apply to you, but you may have some small credit card debts taht were not discussed).  Earmark the 'extra' for the smallest debt first.  When that debt is paid, the 'extra' grows by the minimum payment of the smallest.  Thus the snowball grows as you pay off debts. Once the debts are gone, reward yourself, within reason (and without going into debt). Now shift your extra into fully funding your retirement savings.  Consult a financial advisor to help you plan how to distribute your retirement savings across the available retirement savings types.  They can explain why it's good to have some of your retirement savings funded from after tax income.  They can help you find the balance between pre- and post-tax funded accounts.   Eventually, you may come to the point where you're putting the max allowed into your tax advantaged retirement accounts.  At your age, this is a significant achievement.  Anything left over after retirement savings is funded can be used for whatever you want.  If you choose wealth building, it can lead to financial independence. The first two should be a one time thing.  You can/should do more than one at a time.  The fourth one is optional, and should not be considered until 1 and 2 are completed, and 3 is maxed out. What you achieve is up to you.  Look up FIRE, or Financially independent, retire early.  There are groups of folks striving for this.  They share advice on frugal living and wealth building strategies.  The goal is to save enough capital to live off the passive income of interest and dividends.  Most of them seem to have pre-50 target ages.  At your age and income, you could hit a pre-40 goal.  But it takes commitment and a certain type of personality.  Not for me but it might be for you. First of all, you should absolutely put money into savings until you have at least a 6 month cushion, and preferably longer.  It doesn't matter if you get 0% interest in your savings and have a high interest rate mortgage, the cushion is still more important. Once you have a nice emergency fund, you can then consider the question of whether to pay more towards the mortgage if the numbers make sense.  However, in my opinion, it's not just a straight comparison of interest rates.  In other words, if your savings account gives you 1% and your mortgage is 5%, that's still not an automatic win for the mortgage. The reason is that by putting the money into your mortgage, you're locking it up and can't access it.  To me, money in the hand is worth a lot more than money that's yours on paper but not easily accessible. I don't know the math well enough, but you don't really need the math.  Just keep in mind that you have to weight the present value of putting that money into savings vs the future value of putting it into your mortgage and paying less interest at some point in the future.  Do the math and see how much you will save by paying the mortgage down faster, but also keep in mind that future money is worth less than present money.  A LOT less if you suddenly have an emergency or decide on a major purchase and need the money, but then have to jump through hoops to get to it.   To me, you need to save a considerable amount by paying down the mortgage, and also understand that your money is getting locked away, for it to make sense. "For some people, it should be a top priority.  For others, there are higher priorities.  What it should be for you depends on a number of things, including your overall financial situation (both your current finances and how stable you expect them to be over time), your level of financial ""education"", the costs of your mortgage, the alternative investments available to you, your investing goals, and your tolerance for risk. Your #1 priority should be to ensure that your basic needs (including making the required monthly payment on your mortgage) are met, both now and in the near future, which includes paying off high-interest (i.e. credit card) debt and building up an emergency fund in a savings or money-market account or some other low-risk and liquid account.  If you haven't done those things, do not pass Go, do not collect $200, and do not consider making advance payments on your mortgage.  Mason Wheeler's statements that the bank can't take your house if you've paid it off are correct, but it's going to be a long time till you get there and they can take it if you're partway to paying it off early and then something bad happens to you and you start missing payments.  (If you're not underwater, you should be able to get some of your money back by selling - possibly at a loss - before it gets to the point of foreclosure, but you'll still have to move, which can be costly and unappealing.)  So make sure you've got what you need to handle your basic needs even if you hit a rough patch, and make sure you're not financing the paying off of your house by taking a loan from Visa at 27% annually. Once you've gotten through all of those more-important things, you finally get to decide what else to invest your extra money in.  Different investments will provide different rewards, both financial and emotional (and Mason Wheeler has clearly demonstrated that he gets a strong emotional payoff from not having a mortgage, which may or may not be how you feel about it).  On the financial side of any potential investment, you'll want to consider things like the expected rate of return, the risk it carries (both on its own and whether it balances out or unbalances the overall risk profile of all your investments in total), its expected costs (including its - and your - tax rate and any preferred tax treatment), and any other potential factors (such as an employer match on 401(k) contributions, which are basically free money to you).  Then you weigh the pros and cons (financial and emotional) of each option against your imperfect forecast of what the future holds, take your best guess, and then keep adjusting as you go through life and things change. But I want to come back to one of the factors I mentioned in the first paragraph.  Which options you should even be considering is in part influenced by the degree to which you understand your finances and the wide variety of options available to you as well as all the subtleties of how different things can make them more or less advantageous than one another.  The fact that you're posting this question here indicates that you're still early in the process of learning those things, and although it's great that you're educating yourself on them (and keep doing it!), it means that you're probably not ready to worry about some of the things other posters have talked about, such as Cost of Capital and ROI.  So keep reading blog posts and articles online (there's no shortage of them), and keep developing your understanding of the options available to you and their pros and cons, and wait to tackle the full suite of investment options till you fully understand them. However, there's still the question of what to do between now and then.  Paying the mortgage down isn't an unreasonable thing for you to do for now, since it's a guaranteed rate of return that also provides some degree of emotional payoff.  But I'd say the higher priority should be getting money into a tax-advantaged retirement account (a 401(k)/403(b)/IRA), because the tax-advantaged growth of those accounts makes their long-term return far greater than whatever you're paying on your mortgage, and they provide more benefit (tax-advantaged growth) the earlier you invest in them, so doing that now instead of paying off the house quicker is probably going to be better for you financially, even if it doesn't provide the emotional payoff.  If your employer will match your contributions into that account, then it's a no-brainer, but it's probably still a better idea than the mortgage unless the emotional payoff is very very important to you or unless you're nearing retirement age (so the tax-free growth period is small).  If you're not sure what to invest in, just choose something that's broad-market and low-cost (total-market index funds are a great choice), and you can diversify into other things as you gain more savvy as an investor; what matters more is that you start investing in something now, not exactly what it is. Disclaimer: I'm not a personal advisor, and this does not constitute investing advice.  Understand your choices and make your own decisions." "I've heard that the bank may agree to a ""one time adjustment"" to lower the payments on Mortgage #2 because of paying a very large payment. Is this something that really happens? It's to the banks advantage to reduce the payments in that situation.  If they were willing to loan you money previously, they should still be willing.  If they keep the payments the same, then you'll pay off the loan faster.  Just playing with a spreadsheet, paying off a third of the mortgage amount would eliminate the back half of the payments or reduces payments by around two fifths (leaving off any escrow or insurance).   If you can afford the payments, I'd lean towards leaving them at the current level and paying off the loan early.  But you know your circumstances better than we do.   If you are underfunded elsewhere, shore things up.  Fully fund your 401k and IRA.  Fill out your emergency fund.  Buy that new appliance that you don't quite need yet but will soon.  If you are paying PMI, you should reduce the principal down to the point where you no longer have to do so.  That's usually more than 20% equity (or less than an 80% loan).   There is an argument for investing the remainder in securities (stocks and bonds).  If you itemize, you can deduct the interest on your mortgage.  And then you can deduct other things, like local and state taxes.  If you're getting a higher return from securities than you'd pay on the mortgage, it can be a good investment.  Five or ten years from now, when your interest drops closer to the itemization threshold, you can cash out and pay off more of the mortgage than you could now.   The problem is that this might not be the best time for that.  The Buffett Indicator is currently higher than it was before the 2007-9 market crash.  That suggests that stocks aren't the best place for a medium term investment right now.   I'd pay down the mortgage.  You know the return on that.  No matter what happens with the market, it will save you on interest.  I'd keep the payments where they are now unless they are straining your budget unduly.  Pay off your thirty year mortgage in fifteen years." "Emergency funds have a very specific and obvious benefit; you'll have money sitting around in case you need it.  A lot of people think a big car repair or some unexpected home repair is an emergency, and that's fine.  Emergency also expands up to ""I lost my job four months ago and we're a year in to a recession, the stock market is down 30% and I need to pay my rent or mortgage.""  Sure, you could just sell some of your stocks that have lost 30% and pay your rent. I know nobody likes to think about it, but the stock market can go down.  I know nobody likes to think about it, but the economy can slink in to a recession.  In fact, here's a small list of recent U.S. recessions: No competent investment adviser would advise that your emergency funds should be subject to market volatility because that completely defeats the purpose of an emergency fund. It's possible that this manager wants you to indicate a separate emergency fund to allocate a portion of your account to a low volatility US Treasury fund or something of the like, this would be materially different than investing in a broad market/large cap fund like VOO or VTI.  The effects of inflation are not so bad that you should put your emergency money in the market.  Who cares what inflation was if you have to sell an asset at a loss to pay rent?  One last point.  Index fund ETFs are not ""safe.""  Investing in diversified funds is safER than buying individual company stocks." I would not prepay a loan with a 3.79 rate, with just a tiny bit of inflation that's nearly free money. I would always seek to first max out a tax deferred savings program before making investments that are not receiving preferential tax treatment. (outside of emergency money, which you say is already dealt with)  Especially since you effectively get an immediate return on the investment = to your marginal tax rate.  (or to look at it another way, it takes a much smaller amount of money 'out of pocket' in order to make the investment) Every thousand you could put into a tax deferred account now, is generally equivalent to putting in several times that amount 20 years from now. OTOH Once you've maxed out the tax deferred savings, or if you need to set aside money for large purchase with a big time horizon that is short of retirement age, then making regular monthly investments in a no-load index fund with a quality company is a great way to go as you will be taking advantage of Dollar Cost Averaging, and a good deal of diversity, which is a great way to put money into the market.  Just make sure you are investing in a fairly broad index, such as the S&P500 and not a little dinky 30 stock index like the Dow. "Two options not mentioned: -No information about your emergency fund in your question. If you don't have 6 months of expenses saved up in a ""safe"" place (high yield savings account or money market fund) I'd add to that first. -Could you auto-withdraw the amount over six months, then when you can start contributing, contribute twice as much so you are still putting in $18,000 a ""year""? The amount you pulled into savings the first 6 months could be used to make up for the extra income coming out after the six months are over. Depending on your income, and since you have the ability to save, it's important not to ""lose"" access to these tax efficient accounts. And also... -After-tax brokerage account (as mentioned above) is also fine. But if you will use this money for downpayment on a home or something similar within the next five years, I wouldn't recommend investing it. However, having money invested in an after-tax account isn't a terrible thing, yes you'll get taxed when you sell the investments but you have a lot of flexibility to access that money at any time, unlike your retirement accounts."