Not allowed to make overpayments for the fixed term duration

MrOrchard

Morning all,

It's so nice to move away from the IVA/Bankruptcy and DFW boards to the MFW boards! A lot of this is down to the advice from this site, and I'm hoping for a little more now.

I'm due to make my first ever mortgage repayment tomorrow having bought a new property as a first time buyer at the beginning of the month.

We were fairly restricted on mortgage choice as we only had a 5% deposit, but decided to take a restrictive deal as we're also due to become parents in a couple of weeks and needed to leave our financially efficient one-bed flat before the baby arrives. With some considerable hoop jumping we were accepted for Yorkshire Banks 95% LTV 3 year fixed FTB mortgage, with the absolute intention of sitting out our 3 years then moving to the cheapest possible rate!

One of the conditions of this mortgage is no overpayments are allowed. We are in a fortunate position that we can save up to £1000 a month (until my wife's salary drops to statutory maternity pay in April) and on top of that I have just had a spot bonus of £14k net, completely out of the blue.

We can't be the first people to want to overpay, but unable to actually do so, and I was hoping for some first hand experience of maximising the value of our theoretical overpayments until the restriction is lifted in 2014. We both maxed out and cashed in Cash ISAs earlier in the year for the mortgage deposit, but intend to use these from April 2012 again!

Sorry for waffling on.

Mallotum_X

If you are unable to overpay or can only do so with a penalty then your best option is to find the best savings interest rate you can and save - assuming you are now totally free of all other debts.

Then once you are out of the restrictive period you can put everything you have saved - from what you have said 3 years x 1k plus interest is going to be of a good size.

It is unlikely to be worth incurring any penalties, so save the money.

MrOrchard

Yes, aside from the mortgage we are completely debt free. With regard to the £1k a month, that's only possible for the next 6 months or so, then my wife's salary will drop to statutory maternity pay and things will have to tighten up a bit! We also don't want to lock it away in case we need to access money quickly for something.

Thanks for the advice, it sounds like I'll have to put up with pitiful savings rates for a few years!

katsu

consider perhaps a monthly saver each for the next six months as high as possible, then drop what you save?

misscousinitt

yes, get saving and then you will be able to make a hole in that mortgage in 3 yrs time.

Just a suggestion, but I would put a bit away in an instant access account and then find a higher interest account for the regular payments and then transfer to isas next year.

Good luck.

MrOrchard

Sound advice, thank you.

Another factor - When we remortgage we'd like to have enough money for a dormer extension and conservatory.

Is it more practical to pay for this with savings, or put a higher deposit forward? Or, is it actually better value to increase the mortgage and make overpayments?

Spiggle

Hi,

If you satisfy the criteria you could consider a first direct current account in joint names which would enable you to take out two regular saver accounts, one in each of your names. Then you could put the max amount in each account each month (£300 per account) and then if necessary reduce your monthly payments down to the minimum (£25 per account) when the time comes. Of course if you have an easy access savings account you could put £7200 into that now and then max the reg saver for a year. The FD reg saver pays 8% gross which according to the calculator on this site would mean I would need an ISA paying 6.4% to match it. Hence, this year I don't have an ISA! (Couldn't afford both.)

We are using the reg saver purely for the purposes of over paying the mortgage and the chunk will be paid off the mortgage when the accounts mature next March.

Just my thoughts and I wish you luck in your first home with your new family.

All the best,
Spigs

MrOrchard

That sounds like a sensible solution - Putting the bulk of the savings in my wife's name will also help as we're on different tax bands.