Overpay and re-borrow later, or save now?

BB1984

Hi there,

My husband and I have a £135,000 mortgage on a house valued at £195,000. We have just switched deals with HSBC and are now on their 1.99% ABR tracker.

We can afford to overpay a fair bit at the moment, what with interest rates being so low - we're overpaying by about £400 per month, as well as saving a little bit for emergencies etc.

In the next couple of years or so, we'd like to have a loft conversion done, to give us more space (hopefully for a family ) A builder friend of ours has given a ball park figure of £15-20,000 to do this.

So, my question is, do we:

a.) Overpay even more than we are currently - plough everything we can (bar an emergency fund) into the mortgage. Then in a couple of years' time, go to HSBC and ask to extend our mortgage by £15-20,000?

b.) Carry on overpaying some, and save some, aiming to have approx half the money saved, then ask the bank to extend our mortgage by the remaining half?

c.) Work out how much we need to save per month to achieve the total we need by a certain time, so that we can pay for the loft conversion without needing to borrow any extra money. Obviously this will mean not overpaying the mortgage - or at not by anywhere near as much as at present.

On the one hand I think that as the interest on the mortgage is compound, we should pay it off as much as we can, and assume that the bank will let us have the money given that there'll be decent equity in the house.

But on the other hand I like seeing the savings grow, and don't like the idea of paying off so much mortgage only to have a great big lump whacked back on!

Any thoughts? Thank you!

BB

beecher2

You'll be able to get a saving rate higher than 1.99% so it makes sense to save rather than overpay. Just keep an eye on rates and reconsider once your mortgage rate is higher than savings.

Yorkie1

Might be worth double checking the T&Cs of your mortgage to see whether you will need 'permission' from the lender to draw down on your overpayments, or whether you can access them without further ado.