Should we continue to over pay each month on our mortgage?

jistewart

We took a 100% mortgage out 2 1/2 years ago and after the 2 years fixed rate expired our monthly payments dropped by £200. We decided to continue paying the same amount hence we are over paying by £200 per month. The value of our house has dropped by 15% and now we are in negative equity.
We would like to move to a bigger more expensive house in 12 months and wondered if it would be beneficial to stop 'over paying' and save this money to contribute to a higher deposit in 12 months time.
Any suggestions???

opinions4u

Assuming you would be selling at the same time you buy, it's as broad as it's long. Either your debt goes down or your savings go up.

I would be tempted to have a decent chunk of savings though because you will have up front fees (surveyors, solicitors, possible product fees).

If you're in negative equity, how on earth are you expecting to be able to repay the negative equity and fund a 10%-15% deposit needed to move house?

House worth £85,000
Mortgage £100,000

New House worth £100,000
Maximum mortgage £90,000

That's £25k you need from somewhere on my simplistic example. Double the house values and it becomes £50k.

brit1234

You should over pay but beware property prices will continue to fall, possibly faster than you are repaying. A move will be difficult.

thriftyminx13

CAn the mortgage be transferred to the new property without the need to negotiate a new mortgage?

jistewart

Opinions4u, we are hoping over the next 1-2 years house prices will go up and obviously more of the mortgage will be paid off, which will take us out of negative equity and put us in a better position to re-mortgage for a larger house.

thriftyminx13, no it can not because we are looking at getting a property with higher value.

opinions4u

jistewart wrote: »

Opinions4u, we are hoping over the next 1-2 years house prices will go up and obviously more of the mortgage will be paid off, which will take us out of negative equity and put us in a better position to re-mortgage for a larger house.

Here's a link from The Times.

Take a look at the house price peak of 1989 and see how long they took to recover.

All I can see over the next few years is banks unwilling to rely so heavily on wholesale funding to fund mortgage lending, little or no growth in retail savings to fund mortgage lending so, as a result, little or no reason for house prices to recover with any pace.

It's a personal view. But one that is based on recent history and a key underlying player in the house price boom - availability of mortgage finance.

dimbo61

Hi JS
you have a mortgage ( debt) and overpaying this debt will
1 reduce the debt and save you interest
2 increase the equity that you have in your property
The only thing to consider is the interest that you pay on your mortgage compared to the interest you could get from say cash ISA,s
If your mortgage is 1.5/2% then save into ISA,s as mostr paying 3%+
If the mortgage is more than 3% then overpay.
Try also to build up ISA savings or regular savers to help with fees,costs and deposit.

SelbyJay_2

I was in the same position and after meeting with a broker, his advice was to stick the money in an isa. The reason being, that the interest rate on our motgage is the same as the rate on the isa, but the isa gives us acess to the money if/when we need it i.e. when paying up front fees when we come to move.

benjo

Play around with the overpayments calculators you can find on the MF board, even modest overpayments make a difference, but balance in all things, make sure you have an emergency savings pot, enough money for fees, then stick all you can into overpayments.
Goodluck