Working towards next home - overpay mortgage or save cash?

littlelostkiwi

Hi all,

The OH and I purchased our first property in Oct 2009 for £220K with a mortgage of £176K on a 2yr Fixed Term rate of 5.71%.

As we purchased this property knowing it was only going to be for the short term (to get on the propery ladder and all that) we are currently looking forward to our next house purchase which we are anticipating will be around July/Aug 2012. We have just finished renovating the property and have had valuations of around £250K for sale or £1100pcm for rental.

At this stage we looking more towards the option of renting out the current property and applying for a Let-To-Buy mortgage for the second home. But there is always the possibility that we will end up heading down the sell/buy route if the market either improves or our situation changes.

We currently have some disposable income and we have just started making overpayments on the mortgage taking it up to the maximum we can overpay without breaching the 10% limit.

What I was wanting to know was whether we are doing the right thing by overpaying the mortgage or whether it would make more sense to save the overpayments and use it as a deposit for a let-to-buy (rather than looking to release equity) or a larger deposit if we sell/buy.

Any thoughts/comments would be most appreciated. :T

Thanks

Thrugelmir

On a mortgage rate of 5.71% you'll be better off paying it down. As you'll find it hard to match this rate of return elsewhere.

Then you may find your self in a better position to remortgage next year with a far lower LTV.

getmore4less

You might want to look at a remortgage now LTV is around 70%

Whats your ERC.

If the numbers stack up you could save money in less than a year and set yourself up with a better product for what you want to do.

littlelostkiwi

getmore4less wrote: »

You might want to look at a remortgage now LTV is around 70%

Whats your ERC.

ERC is 3%.
However we have only just started overpayments (the last two months worth).

pandora205

Not sure if this applies to you but when I was in a fixed term rate I was allowed to overpay 10% per year as a lump plus to increase repayments, which I doubled. The building society didn't tell me that - I had to discover it. This has made a huge difference to the speed of repaying.

littlelostkiwi

Thanks pandora - I will look into that! RBS didn't mention it on the phone when I called to increase my payments, but then I didn't ask either.

getmore4less

littlelostkiwi wrote: »

ERC is 3%.
However we have only just started overpayments (the last two months worth).

The savings on a remortgage are independant of overpayments.
Cuurent deal over the next year
£176k 5.71% say 20years, 1232pm in one year £171,139.71

3% charge is £5280.

FD tracker 75% LTV 2.89% say £320 fees £181600 £1232pm in one year £171,936.91

So the ERC will not be reccovered in the time of the fix, unless you can reduce fees or get a better rate than this one.