Mortgage Dilemma - help appreciated! (also posted in mortgages and endowments)

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.

black_taxi_2

banks building societies can adjust there SVR regardless of B.O.E base rate.

not sure why bank advised a 30 year mortgage on a 135k property-especialy as you say you can easily afford higher payments---more money for them

moving so soon after taking out a 30 year mortgage?

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prob is house prices are on a downward trend--or level off at best

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its unknow the equity you will get from house in 3 years

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i would save money in a savings account -you will have that money guarantteed no matter what happens---and you can make a decision then.deposit bigger place/or large emergency fund or deposit for future

all the best

naughtymittens

Thanks for your answer BT.

In answer to your queries:

30 years - our income was significantly less when we took out the mortgage and interest rates were much higher so this seemed sensible.

We are planning on moving as we are in our mid 20s and have a 1 bedroom place. We would have been in there 5 years when we moved so I don't think there's anything particularly unusual in that.

I think I'm inclined towards saving too just worried we are paying uneccesary interest due to the longer term.

Any other opinions are appreciated.

black_taxi_2

mid 20s

i was still 10 years away from getting my first mortgage

you have plenty time

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in future go for a repayment mortgage----option too o/p as much as you want/anytime you want no penalties/charges

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heres a good site

http://www.moneymadeclear.org.uk/

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i find hsbc mortgage site excellent

good luck

dimbo61

As you have little equity in the property and bought when prices were high and you also took a 30 year term you will have paid very little off the mortgage balance.
I think you will be stuck with RBS and the SVR of 4% which is good if you have a LTV of 95/100%
The best thing you can do is build up your savings and overpay the mortgage every month.
Now I would do a 50/50 split and put savings into regular savers each month and OP with the other half.
Only my opinion but rates will rise and the less debt you have the better!

naughtymittens

Dimbo - I think that's what we'll do. 50/50 seems sensible as I like the idea of having some cold hard cash.

Still unsure about shortening term - think that may be a good diea too but will need to think. Surely shortening the term would mean that we would pay less interest?

dimbo61

Yes reducing the term would save you interest BUT and this is the big BUT you then have to pay the larger mortgage payment every month!
Now if you change your DD/standing order to a larger amount which you are happy to pay each month this has the same effect but you can stop/reduce this extra amount if things get tough.
I reduced my term from 22 years to 10 years some time ago but we have an offset mortgage and we had a good Emergency pot in the offset account to cover most of the overpayments!
As you are on the SVR you can overpay as much as you want or can afford.
Build up an emergency pot of 3/6 months of income

golfiematt

i would pay as much off the mortgage as you you can, as you need a saving account greater than 4% after tax is deducted. Plus if you get your LTV down there are cheaper mortgage products.Thats just my opinion btw!