Mortgage/Savings

ironman1

Yeah its alot of money, we are gonna eventually buy it all, works been a bit dodgy at the moment and it costs quite alot to 'staircase' so we'll buy more early next year if possible.

barnaby-bear

s.h.m.w wrote: »

It says on our mortgage paper work that we can make overpayments at any time. Also lump sum payments.

Not exactly sure how we do this because it's paid by direct debit (we have an online account) but im sure they will tell us!

So are we better off with the overpayments instead of changing the mortgage to 25 years from 40? I think we can afford to pay £100-200 extra a month at the moment...

Just be aware some lenders will adjust your automatic payment if you overpay to keep the term the same so you either overpay to the same value compensating yourself each time they do this - or talk to them and explain ... lots of technical how to on the MFW board - this will increase your equity - if it's a mainstream lender linking an offset account maybe possible (e.g. Woolwich) where you can save a lump sum which might be useful as a deposit - the advantage of overpayments is that once absorbed into the mortgage it isn't taxable etc.... also look into the detail of when your interest is calculated sometimes overpayments accounted for daily sometimes annually - so if annual/monthly best to keep in savings until last minute.... MFW board will have lots of advice on best way to do things. Keeping the long 40 year term will mean your obligations are low but can set your own schedule - also check the status whether you can have a holiday in the future if work dries up / illness strikes - some mortgages will allow this until your overpayments are eaten up and back up to the orginal timescale - which may offer peace of mind or alter the decision to have income insurance etc...

barnaby-bear

s.h.m.w wrote: »

Yeah its alot of money, we are gonna eventually buy it all, works been a bit dodgy at the moment and it costs quite alot to 'staircase' so we'll buy more early next year if possible.

Work out the *interest* on the extra mortgage - if the rent is less or comparable there's no benefit to buying immediately unless you believe house prices will rise - if you think they will fall/be static just save the difference between repayment and interest so you have lump sum to staircase when you want - if work is a bit dodgy it keeps your necessary outgoings low (not sure how SO rent and housing benefit works - may be entitled in disaster scenarios on the rent portion). Often the shared rent portion can be less than the interest allowing you to pocket the difference. Also if a HA has an interest they have more legal obligations to tenants than 100% home owners regarding ASBO neighbours.

ironman1

Some of this is a bit confusing for me but the advice has been spot on. I think we will stick to the 40 year Mortgage and the half we own and for now try to overpay as much as possible.

As silly as it sounds, I didn't even know about this overpaying lark before I looked on this site

barnaby-bear

s.h.m.w wrote: »

Some of this is a bit confusing for me but the advice has been spot on. I think we will stick to the 40 year Mortgage and the half we own and for now try to overpay as much as possible.

As silly as it sounds, I didn't even know about this overpaying lark before I looked on this site

http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

Read section on correctly timing. Also think about if worrk did disappear - a buffer whether savings or if your product lets you use previous overpayments is necessary to keep your home....

ironman1

Cheers to everyone who replied, we have now set up a standing order of £100 extra going into the mortgage account each month. I thought it would be better to do it by SO as if we did it by cash every month we would more likely spend it on something else at the last minute!

Works out we will save 70k in interest if we stick to this. And also pay off our half in 22 years rather than 40!

staffie1

Hope all goes well for you.

ironman1

Cheers mate.

Anyone got advice over what we should do with our savings? We have about 5k. We want to keep the 3600 in the Isa, should we pay the other 1500 odd off the mortgage or save that aswell? I mean the rates are low (1.5%).

Is it really worth paying a grand off the mortgage in one hit? I meant it probably wouldn't make a noticeable difference to the payments or whatever...

barnaby-bear

s.h.m.w wrote: »

Cheers mate.

Anyone got advice over what we should do with our savings? We have about 5k. We want to keep the 3600 in the Isa, should we pay the other 1500 odd off the mortgage or save that aswell? I mean the rates are low (1.5%).

Is it really worth paying a grand off the mortgage in one hit? I meant it probably wouldn't make a noticeable difference to the payments or whatever...

Personally I'd like a bigger buffer - it's not just how much you owe but how long you can keep up the mortgage if disaster/life strikes - £3600 will pay the mortgage and basic bills for 3-4 months. Two of you - so you can have an new ISA each per year. £1k off your mortgage won't affect the payments much - in fact if overpaying the idea is to keep the payments as if hadn't overpaid so it's all going off the capital owed. Where this makes a difference is your LTV (loan to value ratio) - if you want to borrow more to remortgage in the future a lower LTV helps - helps stop negative equity and means you borrow less.

An 87k motgage for 40 years at 6.1 is about £490 a month - so I guess this is about your loan level - interest only is only £45 cheaper - so you were paying off £45 of the original loan - the rest is just interest (or effective rent) - so it would take a lot of £45 to bring down your LTV by much - the overpayment means you've tripled what you are paying off..... feel better.... feel free to use the thanks button too and good luck.....

ironman1

Done!

Thanks mate really understand it better now. If im right would we be better off overpaying every month rather than paying £1-2k off in a lump?