Overpayments or not?

VKay

Hello,

I know no- one can tell me THE right answer to this but I don't really have anyone to ask in real life so was interested in your opinions.

I am wondering whether to begin to overpay on our mortgage. Some background info:
We bought our first house in Nov 09.
We are on a 3yr fixed rate of 4.78% repayment mort. and our monthly payments are just under £600 (borrowed £101k, house bought for £150k).
Our monthly payments make up about 20% of our takehome pay.
We have 12k savings in the bank earning around 2.5-3% as don't want to fix money for any length of time.
We want to spend some money on a new boiler and other essential DIY.
No dependents, both full time employed in reasonable safe jobs.
No debts so quite lucky overall.


In our position would you be ploughing money into the mortgage 9we are allowed to overpay £3K per yr at the moment). Or keeping it in the bank- just in case...Should we save then out money in when we have to remortgage?

I know there's no hard and fast answer but what has worked for you?

Thank you for your time.

georgehere

You say you have a fixed rate deal, so there will be restrictions probably in how much (if anything potentially) you are permitted to overpay. First stop, check the small print in your contract to find out.

VKay

Thank you, you are right. We can only overpay 3% a yr. But to be honest i don't thikn we'd be planning to overpay much more than this anyway.

Procrastinator333

My opinion.

That means you have a take home pay of around £3k. I would therefore guess, with no debts etc, that you have at least £1500 a month after all bills and food etc to do what you want with?

If that is the case, then you have a lot of saving power if needed.

I would also guess that you could get by if 1 person was made redundant? As you are both in secure jobs, that should be quite unlikely in itself.

If all the above is true, I personally would pay the max overpayment in to the mortgage and then spend the next few months using all that excess in your wages to get that work done and then build up the savings again slightly.

I would also check to see if the extra cash could move you in to a better LTV band, you may find you can get a better fixed deal. Closer to 3%, even if there is an exit charge, it may still be cheaper.

But then having said all that, the max you can overpay is £3k. If you pay off mortgage, you save £143 a year. Compared to the £90 you will get paid in a 3% savings account. So really the question should be is the reduced flexibility of paying off your mortage with the cash worth £53 to you? Though that would add up if you do it each year.

VKay

Thank you. That was a really useful post! It's given me a lot to consider.

getmore4less

I would do a 5 year rolling plan.

Budget for all expected expenses and any planned purchase/replacement.

Set a target disaster(losss of income)fund 6 months+ spends is around right,

Some emergency funds for unexpected expenses(the better the budget the smaller this can be)

Overpay with anything left up to the penalty free amount.

Review each year or when there is a major change/expense.

With cash flow you can overpay more some months and less others.
eg say you have £100pm spare and will have a £400 spend in 10months time.
you could save £40pm overpay £60. or overpay for 6 months then save 4 months