Should I put money in savings or put it towards the mortgage?

helenO_4

Hello everyone,

I was wondering anybody out there could give me some advice.

We bought a city centre apartment for £172,000 in Manchester in May 2006 and have a mortgage of £147000 and we are thinking in the next year or so of upgrading to a house in suburbia for around £280,000.
Our current mortgage is at a fixed rate of 5.8% but this will end in May 2010. If we then go standard variable, payments should reduce by around £200 per month. We also have a mortgage window for 2 weeks in Jan 2010 where we can pay off what ever we like.
We will have £10000 in savings by Jan. If we pay it all towards our mortgage window in Jan, this would save us ~£40000 in payments over the next 20 years.
If we move we would ideally like to keep our apartment and rent it, but if we decide to sell, We think we would be able get what we bought it for. Thus getting a deposit of at least £25000.
Should we
A) Focus on our current mortgage. i.e. Use all of our savings for the mortgage window and pay off the extra £200 per month that we would save from going standard variable
or should we
Forget this idea and save all our money for a deposit for a new house?

Thanks in advance.
Helen.

Peelerfart

Personally, option B

helenO_4

Thanks, any reason why?

getmore4less

Why a 2 week window usualy any ERC stop at the end of the promotional rate.

If you plan to keep the place you need to have a new deposit.

£280k purchase so a minimum of £28k(10%) more likely closer to £56k(20%)


So save this give you more flexability, if you pay down the existing debt you may not be able to release it later unless you sell.

helenO_4

Thanks, that makes sense. I personally dont think we will be able to afford a new house without selling the current place. So if we did decide to sell, would it still be best to just save our money?

dimbo61

How safe are your Jobs ?
Having over £16k in savings means you would not get any benefits IF you lost your job.
So maybe a good idea to overpay and save 50/50 as you are paying 5.8% interest and not likely to get this rate from savings

uzubairu

helenO wrote: »

Thanks, that makes sense. I personally dont think we will be able to afford a new house without selling the current place. So if we did decide to sell, would it still be best to just save our money?

You will also have to consider what price you may get for your flat in the current climate. It might be less than what you paid for it.

I would definitely save up for a deposit of 15-20% to get a reasonable deal.