Mortgage Help required - What to do for the best.

AdeJ81

Hi All,

I was hoping that someone may be able to help......

I currently live with my wife in a 2 bed flat, that we took a mortgage of £112,000 over 35 years, made up of of about 102,000 mortgage and 10,000 unsecured loan.

We now have a combined outstanding balance of 108,500 to pay (4 and a half years on!)

This was with Northern Rock,

We would look to move to a bigger house in the future, however, I am trying to establish the best way forward.

We do not currently have a deposit, but we can save £1,000 per month towards it (with a view to having around £18,000 in 18 months time)

Is this the best way, or would it be better to overpay the mortgage by £1,000 per month, with a view that in 18 months, we sell our flat and use the additional equity to help get a bigger mortgage?

I would assume then that we could then sell the house (to get the equity) and use this instead of a cash deposit? (Apologies for my ignorance on this, mortgages / house buying are not a strong point of mine!)

Which would be the best way of achieving this?

I would appreciate any help from those that have more knowledge me (Which trust me, is not hard!)

Many thanks

A

originalmiscellany

For what it's worth, it appears that very little overpayment has been made in the past 4 years, when generally interest rates have been as low as they've historically ever been.. Have you been able to save anything at all?

What rate is your mortgage both mortgage and unsecured loan?

Deposits for a house - ideally you're looking at say 15% deposit - so you'd need to get at least 20k saved, which includes and profit of the "value of your house when sold" which I fear could currently be in negative equity

My hunch is to clear the unsecured loan asap, as I imagine it's at a high rate and will mean you pay over the odds for that small amount of monies loaned to you.

So, I think house prices will drop over the next 2 years, you could well be wise to hold off, and get your mortgage down as much as possible, so that say in 2 years, your mortgage is down to 90k, but you should aim to save a lot more than 1k a month...

Check out the money saving section of this forum to ensure you have everything as cheap as possible, and post an SOA (Statement Of Affairs) to see if you can save anything on your bills.

Hope this helps

AdeJ81

Thanks for the feedback, to answer your key points....

We havent got any savings at present, however, we have only a small loan for a car (about 3k). In the past year (when our wages have increased to their current level) we have got married, so we were saving hard for this, and also to pay off our Honeymoon. So, in a way, I think we are in a reasonably good situation (in that we have no other debts)
I do wish however, that we had saved more in previous years! You are right though, we have not made any overpayments previously.

The rate on the mortgage and the unsecured loan elements are the same, and are at 4.78%

Look at the housing market near my I dont think we are in negative equity just year, but would say we are about even (we paid for improvements to the flat when we moved in)

On this basis, I think you are saying that we would be better to overpay in the equity instead of saving and use this as a deposit in the future? The mortgage calculator on this site implies a significant saing on interest (and mortgage terms).

Maybe my ignorance, but if I sold and had 20k equity in the property and wanted a house for 160k, i wouldnt need a cash deposit?

dimbo61

The £20K equity would give you a depost of 10/12% so the more you can overpay/save the better.
With an interest rate of 4.78% you are better overpaying rather than saving BUT you still need to build up an emergency fund of 3/6 months of income so if you have no savings start by putting say 50/50 into cash ISA,s and OP the mortgage for 6/12 months then hit the mortgage big time if you want a bigger place

slummymummyof3

You might want to check to see if you have limits imposed on your mortgage for overpayments.

AdeJ81

Thanks all for the advice so far.

Slummy, thats a good point, ill contact Northern Rock to find out (unless of course anyone else knows)

Sounds like overpaying is the way forward.

Just to double check though, am i right in assuming that as long as you have the equity in your house, you wouldnt actually need to have any money in a cash deposit?

originalmiscellany

AdeJ81 wrote: »

Thanks all for the advice so far.


Just to double check though, am i right in assuming that as long as you have the equity in your house, you wouldnt actually need to have any money in a cash deposit?

Yes, that is correct. It doesn't matter ultimately if the money is in gold bullion or in the difference between your mortgage and the price you've sold your house for (once you've included all costs etc)

Thrugelmir

AdeJ81 wrote: »

Maybe my ignorance, but if I sold and had 20k equity in the property and wanted a house for 160k, i wouldnt need a cash deposit?

You will need a deposit (up to 10%) of the purchase price of the new property when you exchange contracts. Though there are various ways of raising money if cash is not available.

Suggest you follow the advice of overpaying the mortgage initially to maximise your saving, also to start building an emergency reserve. This could provide the basis of a cash deposit, as the future unfolds then change your course accordingly.

pwllbwdr

If I read the OP right, this was a together mortgage, so the original house valuation was 102000 at the start of the mortgage. If so, it is likely that the OP is in neg equity.

AdeJ81

Pwllbwdr - The house was valued at 108,000 and we got a mortgage for 112,000 to decorate and install GCH.

I would expect that after these improvements, the house is about the same as we bought it for (I hope) and we have paid near 4k on the mortgage now so back ay 108,000.

brit1234

You bought at the peak of the housing bubble, pretty certain you are in negative equity. That negative equity will continue to grow as prices continue to fall.

Personally I would pay off all your loans first and then work on mortgage repayments.