Buying an bigger/more expensive house

lesta1980

Hi, hope i've got the right board for the this question firstly.

Right, basically I have a mortgage which I am am over paying on already but want to move to a bigger house which will normally mean bigger value.

My question is I have extra money over and want to know whether to save this money towards a larger deposit or pay more of the existing mortgage off with it so we more when we sell, if that makes sense?

so basically, save in a savings account or use it all to pay off as much as we can as quick as we can?

thanks

hazyjo

How much equity is there in the house?

What's the price difference roughly from what you have to what you'd be buying?

How much interest could you earn compared with what interest rate you pay on your mortgage? That's probably your answer as to which is more cost effective. Obviously it all depends on the equity/deposit too, which again relates to how much more you'd be spending.

Jx

Niv

The equity in your existing house is effectivley the deposit for your next house (along with any savings you wish to add) so the main difference between the two options as that by over paying your existing mortgage you may lower your monthly repayments (depending on what mortgage you have). Also if you overpay it may be harder to get that money than it would from a savings account if you need it for something else.

Example: I buy a house for 50k with 100% mortgage. Two years later I move house, I have no savings but the house is now worth 100k. I have 50k deposit for the next house I bought enabling me to get a better deal on the interest rate.

Niv

lesta1980

hello, thanks for the replies. here are some of the figure. The house now is probably worth about 155k with 116k oustanding on the mortgage at the minute. Im over paying by £100 a month but have just upped that to £175 over a month

kingstreet

What is the mortgage rate and is that rate portable to a new mortgage?

If, for example, you're on base + 0.75% or something similar and it is portable, stop overpaying!

lesta1980

2.5% tracker

kingstreet

aidan1980 wrote: »

2.5% tracker

Is it portable?

See mortgage offer or section 10 of key facts illustration which you were given before application.

lesta1980

kingstreet wrote: »

Is it portable?

don't know mate, im on a monthly rolling contract now at the moment as when the deal ran out Nationwide stuck me on their standard mortgage rate, and that rate was miles better than what I'd get anywhere else, i think

kingstreet

Right. Nationwide's base mortgage rate is portable. By overpaying, you are effectively increasing the cost of your next mortgage.

It's probably better if I give you an example.

Current mortgage £100,000 @ 2.5%. You need to borrow £200,000 for your new home. You pop along to Nationwide who agree to lend you the £200k you need.

They say they will allow the first £100k to remain on 2.5% as it is being ported from the old mortgage. They offer you a new deal on the new £100k you need now and that is, for example, at 3.5%.

The total interest you'd pay each month is £100k @ 2.5% + £100k @ 3.5% or £500 per month.

Now, before you think about this, you pay off £10k, leaving only £90k behind. As a result, you have only £90k you can port to, so you now need £110k at the new rate.

The total interest you'd pay each month now is £90k @ 2.5% + £110k @ 3.5% or £508 per month.

The difference isn't great at current rates, but don't forget there's no way to get that base + 2% guarantee now or in the future. The long term savings will be a lot better.

Don't forget you should be able to achieve a better savings rate than your current mortgage rate, so it's a win/win situation.

lesta1980

kingstreet wrote: »

Now, before you think about this, you pay off £10k, leaving only £90k behind. As a result, you have only £90k you can port to, so you now need £110k at the new rate.

forgive me if im being a bit thick but wouldn't the 10K come from the sale of the house in more equity?

kingstreet

aidan1980 wrote: »

forgive me if im being a bit thick but wouldn't the 10K come from the sale of the house in more equity?

No. We're talking about a £10k overpayment versus £10k in a savings account. One cancels out the other. In each case, you still need the same mortgage to buy your next property, except one way you keep more on a lower rate.

ie 100+100 or 90+110. The savings, or overpayment, are already taken into account before you calculate the new mortgage amount.

Hm. I need to work on how to explain this for future cases. You're a bit of a guinea pig here, aidan.