Mortgage payments are dropping - what should we do with the extra money?

vod

Hi there

We bought our home two years ago and are just coming to the end of our fixed rate deal. Ideally we wanted to tie into another deal, but having just had our house valued, it turns out our LTV ratio is now currently at 92% so the only option open to us is to move onto our lender's standard variable rate, which luckily has just dropped down to 3% today.

As a result, we're estimating that our mortgage payments are going to fall by approximately £300 per month but we are really unsure as to the best thing to do with this extra money.

1. Would we be better off overpaying the mortgage by this amount each month so when we do come to be able to take out another deal we've paid extra off the outstanding balance and our LTV ratio will be smaller?

2. Would we be better off using the money to pay off some debt on credit cards (currently on a 0% deal anyway) so when we do come to take out another deal our monthly outgoings are smaller?

3. Would we be better off saving some of the money and then using the rest to overpay mortgage/pay off cards? This is because we currently have very little in the way of savings after paying the deposit for our house.

4. Is there something else that might be better?

I'd appreciate any advice as I'm really not sure what to do for the best.

Many thanks.

EdInvestor

vod wrote: »

1. Would we be better off overpaying the mortgage by this amount each month so when we do come to be able to take out another deal we've paid extra off the outstanding balance and our LTV ratio will be smaller?

You've got it.

2. Would we be better off using the money to pay off some debt on credit cards (currently on a 0% deal anyway) so when we do come to take out another deal our monthly outgoings are smaller?

If the 0% deals come to an end it might be worth diverting some money this way, but aim at reducing the mortgage first.

broke_mum_of_three

I opened up an account with the local Credit Union to put the extra money into and then at the end of the year I can decide to pay it off the mortgage or credit card bill depending on my circumstances at that time.

getmore4less

1. What will the interest rate and outstanding amount on the CC be when the 0% finishes.

If this is more than the mortgage you need to be able to clear it quickly or get another deal(still got the BT charge to consider)

2. You have no saving so loss of income or a big bill could cause you problems.

3. You will have LTV issues as prices drop.


If you save you will be able to avoid 1. when the time comes mitigate the risks of 2. and use the money to improve 3. at any time.


If you pay money off the mortgage getting it back will be difficult due to LTV.


The last thing you want to do is spend it.

Trying_to_be_good

In the current climate I'd go for an emergency savings pot first. Then, if you want to re-mortgage, you can always use it to repay some of the mortgage to bring the LTV down (or repay the 0% cards - do you have enough saved to pay these off already?).

The most important bit is not to get used to having the extra money and spending it!

beecher

I'd save. It could be that when you come to remortgage, your LTV is still too high even after overpaying, and so I'd put it in something into a regular savings account - they pay 5% interest at the moment. At least by saving you have the choice of overpaying or paying off your debt.

vod

Thanks very much for the responses so far - and don't worry - we're certainly not planning on spending the money! Other commitments are far more important than splashing out on treats!

The savings idea hadn't been my first thought at all, but some of your comments certainly suggest it's worth giving that option a lot more thought than I had previously. Can anyone tell me which regular savings accounts are offering 5% or more interest at the moment?

Don't have enough money saved to repay the cards, but I'm currently paying much more than the minimum payment off them each month, and as my student loan is finally all paid off in March then I'm also planning on using that extra cash towards the credit cards too. I think the 0% deals run out in August but I have a Virgin card without any outstanding balance and I'm hoping they might offer me 0% for a transfer. My goal is to have them all paid off by this time next year.

Trying_to_be_good

I think Halifax and Barclays are still 5%, but get in quick.

StrawberryJam_2

I would not overpay anything into a mortgage at present. You will not be able to release this money on the same T&Cs if needed quickly. eg I wanted to release money from equity and was told no, that a personal loan would be my only opiton.

make sure you have sufficient savings to pay off your credit cards once the deals run out.

you could consider investing in pension (you missed that option), although personally I pay the minimum to my mortgage and have been collecting the similar 'extra' money to a savings account. If i lose my job i have a few quid saved up. If mortgages rocket up i have enough savings to throw at the mortgage. just remember to keep cash flow for that emergency! (this could simply mean sticking it in a box under your bed)

Charlton_King

1. Pay off some of the mortgage

2. Save some

3. Spend some, to improve your own life and also help the economy!

Wouldn't have thought you could go too far wrong like that.

Kez100

I only overpay my mortgage instead of finding a good deal saver account because I can redraw on my offset. If I couldn't redraw on it I would save separately so I knew I had an emergency pot.

If you haven't I would also draw up a budget so you know where the credit cards are going to be paid off from when the 0% expires and to make sure you are not overspending (as you did when incurring the credit card debt)

Use this as a great opportunity to get finances in order. Great to hear your mortgage is falling too.