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  • FIRST POST
    • Fireflyaway
    • By Fireflyaway 19th Jun 17, 6:21 PM
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    Fireflyaway
    Overpay or wait and pay cash?
    • #1
    • 19th Jun 17, 6:21 PM
    Overpay or wait and pay cash? 19th Jun 17 at 6:21 PM
    I'm wondering if it makes sense to buy somewhere and overpay the mortgage or stay renting and save up to buy a place outright?
    I've tried the overpayment calculator and confused myself! Also isn't there often a limit to how much you can overpay? Current rent is £1150 a month where as a mortgage would be around £1900. I'm unsure if the interest saved would be greater than the difference between a rent versus mortgage payment over the course of the time we would be wasting. Also are there any other benefits or downsides?
    Last edited by Fireflyaway; 19-06-2017 at 6:28 PM. Reason: R
Page 1
    • AnotherJoe
    • By AnotherJoe 19th Jun 17, 6:33 PM
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    AnotherJoe
    • #2
    • 19th Jun 17, 6:33 PM
    • #2
    • 19th Jun 17, 6:33 PM
    In most periods of house price inflation, very few can save up faster than houses appreciate so you'd be like the Red Queen in Alice, running as fast as you can just to stay in the same place.

    So, buy.

    Your thoughts on overpayments are a diversion, what you've missed is that if you are in a position to overpay, that means you are insulated from HPI and every overpayment directly reduces your amount owed, whereas most likely the "overpayment" that you are otherwise saving (if in rental) may well not be keeping up with the price of the house you'd like to buy.

    Yes, some mortgages don't allow overpayment, but it doesn't matter you can save and pay it off in a lump when you renew it. Or if you are a high rate taxpayer then putting it in your pension is a better bet anyway.
    • Fireflyaway
    • By Fireflyaway 19th Jun 17, 6:55 PM
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    Fireflyaway
    • #3
    • 19th Jun 17, 6:55 PM
    • #3
    • 19th Jun 17, 6:55 PM
    Thanks AnotherJoe that makes sense. I was concerned that many mortgages wouldn't allow large overpayments but nothing to say you can't overpay a bit and the pay off a lump sum as you suggest.
    • getmore4less
    • By getmore4less 20th Jun 17, 7:10 AM
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    getmore4less
    • #4
    • 20th Jun 17, 7:10 AM
    • #4
    • 20th Jun 17, 7:10 AM
    don't look at the mortgage payment look at the interest.

    If the interest+the additional liabilities are less than the rent at the start you are ahead from day one.

    The capital part of the payment is just savings/creating equity.

    even if the cost is a bit more at the start as you pay down the debt you eventually get ahead, lifetime buying tends to be better than renting unless you mover a lot.
    • MatthewAinsworth
    • By MatthewAinsworth 20th Jun 17, 7:39 AM
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    MatthewAinsworth
    • #5
    • 20th Jun 17, 7:39 AM
    • #5
    • 20th Jun 17, 7:39 AM
    In all likelihood a mortgage will be cheaper than rent anyway
    • getmore4less
    • By getmore4less 20th Jun 17, 8:46 AM
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    getmore4less
    • #6
    • 20th Jun 17, 8:46 AM
    • #6
    • 20th Jun 17, 8:46 AM
    In all likelihood a mortgage will be cheaper than rent anyway
    Originally posted by MatthewAinsworth
    That's not what they said
    Current rent is £1150 a month where as a mortgage would be around £1900.
    • MatthewAinsworth
    • By MatthewAinsworth 20th Jun 17, 9:14 AM
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    MatthewAinsworth
    • #7
    • 20th Jun 17, 9:14 AM
    • #7
    • 20th Jun 17, 9:14 AM
    5% deposit I'm guessing?
    • MatthewAinsworth
    • By MatthewAinsworth 20th Jun 17, 9:27 AM
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    MatthewAinsworth
    • #8
    • 20th Jun 17, 9:27 AM
    • #8
    • 20th Jun 17, 9:27 AM
    Expected capital gains should be considered, I think in most cases just getting the deposit to the next LTV and remortgaging would make mortgage more clearly cheaper

    Your landlord must have a cheaper/no mortgage otherwise he/she is making a loss (before capital gains)
    • getmore4less
    • By getmore4less 20th Jun 17, 12:41 PM
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    getmore4less
    • #9
    • 20th Jun 17, 12:41 PM
    • #9
    • 20th Jun 17, 12:41 PM
    There is no evidence the current rental and the proposed purchase are like for like.

    Even if like for like

    The OP may also be looking at a relatively (for these days ) shorter term.

    £1900pm @ 4% over 25years supports a mortgage of £360k

    95% LTV that's a property worth £379k with a rent of £1150 gross yield 3.65%(that has been an entry point for some while rates are low and HPI has been high) which more than likely started out much higher as the place has gone up in price.
    • Fireflyaway
    • By Fireflyaway 20th Jun 17, 3:09 PM
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    Fireflyaway
    The house we currently rent was purchased for £200,000 where as the properties we are looking at to buy are around £385,000 to £420,000 mark, hence why the rent v mortgage payments are quite different. Would hope to put down a 10% deposit.
    • MatthewAinsworth
    • By MatthewAinsworth 20th Jun 17, 6:11 PM
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    MatthewAinsworth
    I think then for comparison purposes consider what the new property would rent for, the imputed rent, otherwise you could just buy somewhere like you currently rent (although what it was bought for and what it's worth now may be quite different)
    • Thrugelmir
    • By Thrugelmir 20th Jun 17, 6:32 PM
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    Thrugelmir
    The house we currently rent was purchased for £200,000 where as the properties we are looking at to buy are around £385,000 to £420,000 mark, hence why the rent v mortgage payments are quite different. Would hope to put down a 10% deposit.
    Originally posted by Fireflyaway
    Then you've the added thought that at some point interest rates will rise. On a debt of that size even modest increases will mount up. A 10% deposit won't get you the best rates either.
    "Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett
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