Pay money towards mortgage or save?

EagerLearner

Hello everyone,

We have a 2 year fixed mortgage with Northern Rock at 5.39%, coming to an end this December, which allows overpayments. I believe it is 85% LTV.

We have our first baby on the way, and £11.5k in savings.

My question is a) would it be worthwhile to put some of this £11k into the mortgage and b) how would we find out what amount would make a difference to give us best options with mortgage companies at renewal time - should we talk to NR?

£3,000-£4,000 would be a comfortable amount for us to put towards it if we went ahead.

As this is our first mortgage I am not sure what info you may need from me to help on this - we owe £133k on the mortgage right now and we have made £400 in overpayments this year.

Many thanks :T

[Deleted User]

EagerLearner wrote: »

Hello everyone,

We have a 2 year fixed mortgage with Northern Rock at 5.39%, coming to an end this December, which allows overpayments. I believe it is 85% LTV.

Generally speaking it's better to pay towards the mortgage unless you can recieve a higher rate of interest on your savings - it's unlikely that you will get a savings account paying 5.39% or above.

Do you know what rate you will go on to after the fix?

We have our first baby on the way, and £11.5k in savings.

It is also recommended that you have 3-6 months salary in savings for emergencies that you can access if necessary

My question is a) would it be worthwhile to put some of this £11k into the mortgage and b) how would we find out what amount would make a difference to give us best options with mortgage companies at renewal time - should we talk to NR?

a) it makes sense if you cannot recieve a greater interest rate on your savings, so long as you have an emergency fund in place

b) sorry I don't know the answer - hopefully someone more knowledgeable will come along and answer this.

£3,000-£4,000 would be a comfortable amount for us to put towards it if we went ahead.

As this is our first mortgage I am not sure what info you may need from me to help on this - we owe £133k on the mortgage right now and we have made £400 in overpayments this year.

Many thanks :T

HTH

D9

EagerLearner

Thanks D9, yes true re overpaying as on our ISA we get 3% I believe. On our mortgage info from Dec 2009 it said we'd go on to their variable rate of 4.79% at the end of the 2 years but this is likely to have changed by Dec 2011 I guess.

My husbands salary will just about cover our main bills from August onwards when I start maternity leave, and from September onwards we plan to draw down roughly £400 per month from savings to cover extras. So, as I plan to be off for 9 months, we hope what we have in savings is more than enough to cover our needs and also allow us to overpay on the mortgage a little so that in Dec this year we can get the best possible deal on a new mortgage agreement.

Any other thoughts much appreciated!

whatyadoinsucka

with regards savings vs overpayments.

I have always overpaid rather than save. but as a couple we tend to spend the money we have available, therefore having money transfered to the mortgage on payday i don't get to spend it, my mortgage is unlimited overpayments and on a tracker. so i'm in a completely different circumstances.

If we had a baby on the way, we'd be building up savings too. when the words 'baby' or 'wedding' are mentioned we all know premiums are charged, and the kit is expensive.

in your position many banks offer better rates at a 80% LTV it may be worth asking NR for a valuation and a balance, then you know your LTV and know how much you need to put down to get to the better rate ie at the value mentioned 133k you'd need to reduce down to £125k for an 80%LTV so it may be feasible.

anh1904

You need to get a value for the house, there are many sites which will estimate, but depending on when you bought (if since 2006 you're likely to have depreciated) then the picture of an 85% LTV at completion might have changed significantly.

There are deals available below 3%, which given each 1% will cost you £1330 in interest each year, make the best well worth seeking out.

EagerLearner

Hi everyone, thanks so much for the input...
Hmm, I guess we need to put in a call to NR then and get the latest picture. I should have a statement soon, but not sure we can pay them £8k to bring it down to £125k as this would be too much with baby on the way sadly, so I guess 80% LTV won't be possible this time around when it comes to renegotiate.

ANH1904, would we get a valuation in December when it comes to renegotiate then?

A rate below 3% would be brilliant, we had to take what we could in Dec 09 due to the rush for stamp duty completions...

anh1904

If you remortgaged in 2009 at 85%, likelihood is that the LTV is now higher and you may well be very limited in choice of remortgage product.

I am not a financial advisor, but have worked in the mortgage industry for well over 10 years some time ago, a quick online search and you will find plenty of deals under 3% if you are willing to forego your savings. If you do all of the calculations, the loss of lump sum may be easier to take if it means you have a few hundred pounds a month of disposable income.

Get all your facts and figures together, for only then will you be able to make the most informed decision.

EagerLearner

Hi ANH, we were first time buyers in Dec 2009, so it wasn't a remortgage if this makes any difference.

Sounds like we need to chat to the IFA that sorted the deal for us as he was pretty good, plus I will have a look online and see what's around - as once baby is here i am sure my brain will be elsewhere...

anh1904

IFA is a good start - but be sure to ask if there are deals they cannot recommend (we saw an IFA, but the deal with First Direct was better and he wasn't able to offer their products!)

Independant is one thing "whole of market" it seems is another.

EagerLearner

Hi, thanks ANH, I think ours is Whole of Market, so will keep that in mind! Am due to e-mail him anyway so will start the ball rolling...