Pay more off mortgage or save the extra??

bpd1301

Hi all, I'm a first timer so apologies if there are obvious answers to this query somewhere else on the site already...

My deal expires in June, I'll be going from 5.18% fixed to whatever the Nationwide Base rate is at that time, currently 3%

Purchased the property in June 07 with a 10% deposit, paying interest only

My mortgage advisor says to stay as we are and if we want to we can set up an additional direct debit to use the money saved to actually start paying off the mortgage

My question to you guys is.. is this the best course of action? I only really ask as there are a few things we could do with the extra cash, new car, kitchen or put it into savings to have a bit of back up?

Any comments much appreciated!

Thanks!

beecher

I wouldn't be looking at a new car or kitchen in your position. You're very likely to be in negative equity at the moment and need to start overpaying significantly. You're not going to have any alternative to the SVR so what will you do once rates start climbing?

I'd be overpaying at the moment as you're unlikely to get over 5.18% savings. If in June you can get savings rates of higher than 3% you could save and pay off after a year.

Also make sure you have enough savings to fall back on if need be.

Rossa_3

I agree with Beecher.

Are you on interest only or a repayment mortgage? If on a repayment you could keep your monthly mortgage payments as they are. If it's interest only then consider saving up the money for 12 months and then depending on your circumstances either keep as a safety net or make a lump sum repayment off your mortgage.

Either way the usual rule of thumb is to have at least 3 months living exps in savings but 6 months much better. Even if you have a mortgage protection policy some don't kick in for several months.

Worst case scenario and you lose your job, the DWP won't make a contribution to your housing costs for at least 13 weeks. It was 39 weeks but was changed in light of housing crisis though i don't know for sure it was brought in and not just another headline grabbing announcement with no sunstance. So I would certainly keep at the very least 3 months mortgage money and living exps in hand.

You can always spend it later and by then the cost of a new car or even a new kitchen may be somewhat less than you would pay now. The market for both will be a lot more competitve as suppliers struggle to get buyers back into their showrooms.

bpd1301

Thanks Beecher, the area we're in has only seen 1.5% fall year on year so we're not in negative equity... yet.

And we have been able to save every month during our time here so do have something to fall back regardless of how we proceed as we can continue to do that.

Just thought I'd get another opinion as my leaning is towards paying it off but I can see the benefit of using the extra money in the short term to replace the oldest car we have given the low prices of cars at the moment. And once thats done start paying off on the mortgage?

Point taken though, I think we'll be paying off as fast as we can!

bpd1301

Thanks for that Rossa, given that we are able to save and make payments off the mortgage I think we'll start making the payments as soon as possible.

The car will have to wait a bit longer that way but as you say there may well be better deals to be had

Cheers

cash-magnet

I received a letter from Nationwide saying their base rate is now 2.5%. I think you're view of it being 3% in June may be correct. I would also prioritise your finances from a car/kitchen to some over-payments if you possibly could to reduce your mortgage capital outstanding in case the rates do start to jump up in June. This will be more help to you.

Trying_to_be_good

Nationwide's base mortgage rate (BMR) is promised to be no more than 2% above Bank of England Base Rate, so will drop from 3% to 2.5% at the beginning of April. Future rate changes will similarly be incorporated into the BMR - up as well as down.