What to do??......I'm confused!!!

co-co

Hi,
I have read some of the threads on here with interest, and thought I would look into overpaying on our mortgage, whilst we wait to move home in approx 3 years when our DD has finished GCSE's etc.

Both myself & OH work full time in secure jobs & looking at our household expenses I was playing with the idea of saving £500 pcm & overpaying the mortgage by £150 - £200 pcm (+ any other bits & bobs from Ebay sales etc).

We currently have savings of approx £9,000 & a mortgage of £83,000 at 3.5% interest (approx 16 years left).

Some how we have managed to talk ourselves into total confusion!!
Partially because we made a 'test' overpayment to the mortgage of £180 only to find that only £60 came off the balance as the rest was eaten by daily interest (apparently we pay £7.95 a day)....a lovely lady at the Halifax tried to explain how this is calculated / why we had lost so much etc but I am soooooo confused.

I suppose what I am asking is:-

would we be better saving the £700 pcm in a savings account towards future house deposit etc?
OR
are we better saving some & overpaying the mortgage at the same time so that when we sell the house we have the equity availabe then for next house deposit (+savings)

House is currently valued at £120,000
I am 42yrs, hubby 48yrs, DD 14yrs

I hope that makes sense
Thanks x

lincoln-potter

co-co wrote: »

Hi,
I have read some of the threads on here with interest, and thought I would look into overpaying on our mortgage, whilst we wait to move home in approx 3 years when our DD has finished GCSE's etc.

Both myself & OH work full time in secure jobs & looking at our household expenses I was playing with the idea of saving £500 pcm & overpaying the mortgage by £150 - £200 pcm (+ any other bits & bobs from Ebay sales etc).

We currently have savings of approx £9,000 & a mortgage of £83,000 at 3.5% interest (approx 16 years left).

Some how we have managed to talk ourselves into total confusion!!
Partially because we made a 'test' overpayment to the mortgage of £180 only to find that only £60 came off the balance as the rest was eaten by daily interest (apparently we pay £7.95 a day)....a lovely lady at the Halifax tried to explain how this is calculated / why we had lost so much etc but I am soooooo confused.

I suppose what I am asking is:-

would we be better saving the £700 pcm in a savings account towards future house deposit etc?
OR
are we better saving some & overpaying the mortgage at the same time so that when we sell the house we have the equity availabe then for next house deposit (+savings)

House is currently valued at £120,000
I am 42yrs, hubby 48yrs, DD 14yrs

I hope that makes sense
Thanks x

hello co-co,

Firstly welcome to MFW.

Secondly have you looked at the mortgage calculator to see how much you would save on interest by making OP's? If not heres the link http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

Once you get your head around the logistics of it all you will soon be very happy at chipping away at the mortgage, especially when you see how much extra the banks take for loaning you the capital.

You state your mortgage interest is 3.5%, is that fixed? if so for how long?


Edit: Its funny how we all look at our mortgage as the amount we borrowed but really we should all view it as the amount we are going to pay back.

Your's co-co is £108,516 so thats £25,516 in interest if you make no OP's (based on the rate staying the same for 16 years)

co-co

Hmmmm.... I think you are right about looking at the amount we 'owe' rather than borrowed.

I have had a play on the calculator & realise with the overpayments the available equity in our house when / if we sell would increase to a nicer sum! We are both aware that we are getting on in years and will need as much deposit as possible.

I think we were unprepared for how much of the overpayment is eaten away by interest, we genuinely thought if we overpayed by the £180 we would see the mortgage drop by more than the measly £60 it did.

The mortgage isn't currently on any deal as the one we were on ended last year so we are on the standard variable rate until we feel the need to change it.

lincoln-potter

co-co wrote: »

Hmmmm.... I think you are right about looking at the amount we 'owe' rather than borrowed.

I have had a play on the calculator & realise with the overpayments the available equity in our house when / if we sell would increase to a nicer sum! We are both aware that we are getting on in years and will need as much deposit as possible.

I think we were unprepared for how much of the overpayment is eaten away by interest, we genuinely thought if we overpayed by the £180 we would see the mortgage drop by more than the measly £60 it did.

The mortgage isn't currently on any deal as the one we were on ended last year so we are on the standard variable rate until we feel the need to change it.

Well I too have my mortgage with halifax and I can't say I have noticed anything other than the full amount being taken away. Although the next day the amount owed would go up again as interest it calculated daily.

The £180 has already saved you £135 in interest over the next 16 years!

I guess you need to work out 1) how much of a deposit you need, 2) how long you have until you will need said deposit.

I am no expert on mortgage rates but one thing is for sure, rates can only increase. How soon were you looking at moving house? and how soon do you realistically think you will sell?

co-co

I've had a play with the figures & have figured out that although the full amount is taken off, by the time it hits the mortgage account online / or I log in to check the balance, daily interest at £7.95 per day has been added hence the balance has crept up again.

We aren't 100% positive we will move but would love too.
DD goes to school outside our catchment area & as such we still have school runs every day ( I absolutely hate getting up in the morning...grrrrrr) so myself & DH work opposite 12.5 hour shifts to accomodate these (no buses run betewen the two areas unfortunately).

We would love to move nearer school so DD could walk to school, me & DH could work the same days & that way we would actually have some time in the month when we are ALL at home!! As it is now we have to book time off work to even go on day trips, birthday meals, weddings etc. DD starts her GCSE's next year so we thought we should hang on until she has finished these & decides where she would like to go from there (6th form @ the school, sixth form college, other college, work etc) as these places are dotted aroung the city & I refuse to e taking her when she's 17!! If it's somewhere not near to where we live now, then we will move within the city somewhere on bus route etc.

The more deposit we can save the better as the house we would purchase would be totally dependent on this. The £500 / £700 pcm we are saving now is a lower estimate of what we could manage & hope to increase it in the near future.

lincoln-potter

well co-co have you done an SOA at all? if you are wanting to either save, make OP or both then knowing what you spend and where is a great place to start.

You should look at what size house and what cost you ideally want to mvoe to and can afford and save up to that level, beyond that and I personally feel you would be better of making OP's. Or possibly do 50/50 as the housing market is somewhat slow at present.

co-co

Ok...I'm off to do a SOA & a house search on Right Move!
Many, many thanks for your advice Lincoln-Potter, I'm definately less confused.

dimbo61

The more you Overpay the less intersest you will pay over the rest of the term and the more equity you are building in your existing home!
Now with a value of £120K and outstanding balance of £83K you LTV is less than 75% but if you OP each month you may well have the LTV below 60% within 3 years