Trying to look at the bigger picture...

Franko43

Folks

Calling on all MSE gurus to cast their eye on the following situation. Here’s my scenario. Myself + bro bought a new house 2+ yrs ago at 80,000. Funded mostly from savings but we got a mortgage of which there is £37,400 still left to pay. Since I got married last year I moved into the house and have taken over the monthly mortgage repayments of circa £260 pm. We are just out of our 2yr fixed interest rate and are now in a position to make overpayments. I have savings of 8k + I cashed in an underperforming ISA at 6k that leaves me with 14k which I could instantly make as an overpayment. My wife works and if we are very careful her wages are able to pay the monthly repayment and maintain the house. I myself have a take home pay of £1,600 pm which, most months I’d be able to save it all.

That’s the background..lets move on.. ). I come from a farming background and I own a small farm (left in my father will) on which I intend to move out to and build a new house. So my plan of action was to make as much money on our existing house before selling it and/or save like mad so that when I go to build in about 20 mths time we would have a lot of finance to build the new house, in fact the goal is to try and be mortgage free on the new build. The new house will take about 150k to build. Now the thing is – house prices where I live are going up well so the house we bought for 80k should net us about 180k in 18ths time, half of which is mine. Now back to the existing mortgage…my idea was to fire 14k at it now and make overpayments of 1k per month on it so by 16 mths or so we will be mortgage free. This would mean the more I paid off the mortgage now the more I’d get back from my bro at time of sale. For every 1k I make as an overpayment I get £500 back from my brother at the time of sale of our existing house. The benefit of this approach is that this would hopefully take down the monthly repayments that the missus has to make every month. I intended to save the other £600 every month for the new house. Question for you guys is – financially – is it in my best interests to kill off the existing mortgage with 1k monthly overpayment or instead save the £1,600 for when I start to build the new house. Should my focus be on the new build and let the mortgage float until the sale or kill of the mortgage asap in order to maximize profit at time of sale. Thanks in advance MSE’ers.

nellis10

I'm not an expert at all. But can you guarantee the returns on your existing property when it comes to resale in 18 mnths? 80K to 180K in 3yrs is an awful lot of askance from the property market. :rolleyes:

Having said that I too bought a property in Nov 05 for £80K and it's now valued Aug 06 at min £120K so what do I know!!! :rotfl:

If you can save the money in an account with a higher interest rate than the mortgage is paying, you might be better off saving it. You are still going to get a good return on the property if it goes to plan. Also you can maximise this years and next years ISAs tax free for £6K (pick a good one!!) and that would save you a little extra too.

But having said all that, that's my penny's worth and I state yet again I am no expert...:beer:

nellis10

Franko43 wrote:

Folks

Calling on all MSE gurus to cast their eye on the following situation. Here’s my scenario. Myself + bro bought a new house 2+ yrs ago at 80,000. Funded mostly from savings but we got a mortgage of which there is £37,400 still left to pay. Since I got married last year I moved into the house and have taken over the monthly mortgage repayments of circa £260 pm. We are just out of our 2yr fixed interest rate and are now in a position to make overpayments. I have savings of 8k + I cashed in an underperforming ISA at 6k that leaves me with 14k which I could instantly make as an overpayment. My wife works and if we are very careful her wages are able to pay the monthly repayment and maintain the house. I myself have a take home pay of £1,600 pm which, most months I’d be able to save it all.

That’s the background..lets move on.. ). I come from a farming background and I own a small farm (left in my father will) on which I intend to move out to and build a new house. So my plan of action was to make as much money on our existing house before selling it and/or save like mad so that when I go to build in about 20 mths time we would have a lot of finance to build the new house, in fact the goal is to try and be mortgage free on the new build. The new house will take about 150k to build. Now the thing is – house prices where I live are going up well so the house we bought for 80k should net us about 180k in 18ths time, half of which is mine. Now back to the existing mortgage…my idea was to fire 14k at it now and make overpayments of 1k per month on it so by 16 mths or so we will be mortgage free. This would mean the more I paid off the mortgage now the more I’d get back from my bro at time of sale. For every 1k I make as an overpayment I get £500 back from my brother at the time of sale of our existing house. The benefit of this approach is that this would hopefully take down the monthly repayments that the missus has to make every month. I intended to save the other £600 every month for the new house. Question for you guys is – financially – is it in my best interests to kill off the existing mortgage with 1k monthly overpayment or instead save the £1,600 for when I start to build the new house. Should my focus be on the new build and let the mortgage float until the sale or kill of the mortgage asap in order to maximize profit at time of sale. Thanks in advance MSE’ers.

Just looked at your location....maybe you are near me and will see the return in profit you state...:rotfl: