Mortgage Dilemma - help appreciated!

naughtymittens

Hello all,

I am trying to reduce my mortgage as much as possible and would appreciate some input (or even an explanation of the difference!).

I have a 30 year mortgage (28 years left) for around £135K. The interest rate is the RBS SVR which is (I think) 4%. My questions are:

1. Should we shorten the term? We can easily afford more than the repayments we make.

OR

2. Should we try and save up as much as possible as we plan to move to a bigger place in around 3 yars time and i know a big deposit is important to lenders now.

I don't think we have much (if any) equity in the house so couldn't rely on that for future deposit.

Or is the above effectively the same? Which is better or what are the pros and cons of each?

Any advice muchly appreciated.

hshen

I would only shorten the term if there are still early repayment charges 2 years in.
Otherwise just make regular overpayments to cut down on interest payment and build up equity.

The worst thing that can happen is you sell the house first to cash in on your equity.
Move into rental and find a place to buy.

My 2 cents.

CLAPTON

Unless there are charges or restrictions then it makes no difference if you simply overpay each month or formally change the mortgage period

It is normal that when you sell, the equity in the house is considered as the deposit for the new one, so it doesn't make any difference whether the money is in cash or in equity... although make sure you have a sensible cash float for emergencies, fees etc.

If you are paying 4% interest then there is little point in saving in stead or overpaying as you won't be able to get anything like 4% after tax.

lightwarrior

shorten the term.

LilacPixie

i'd overpay as much as possible then sell up to fund move when needed

naughtymittens

Thanks for all your comments. I think I'm going to overpay and try and build up some savings too.

slummymummyof3

I would just overpay and leave the mortgage as it is for the time being - just incase your situation changes at all. That way, if you need to, you can revert to the 'standard payments'. You need to check with your mortgage provider how much you can overpay without being penalised - some allow 10% of your monthly payment whilst others' allow 20% of outstanding amount per year so it is important to check this out.