Use savings to pay off mortgage or for cash deposit?

mister_pister

Hi,
We are currently on a 4 year fix at 5.99% (not great I know) with about 2 years left.

We have around 28k of savings at the moment and are looking to upgrade to a new property around the same time the 4 year fix ends - hoping to have around 40k by then.

My question is baring this in mind, are we better off plowing that cash into the mortgage, or keeping it as a cash deposit for the next property?

Thanks!

talana

mister_pister wrote: »

My question is baring this in mind, are we better off plowing that cash into the mortgage, or keeping it as a cash deposit for the next property?

Aren't those just two sides of the same coin?
Whatever equity you have in your current property becomes your deposit if you sell up and move.

mister_pister

That was my main area of confusion really. I don't know if banks have any preference for lending with a cash deposit or money tied up in equity.

I'd assume overpaying works out better since it probably offers better returns then the current savings rates?

kingstreet

You'll struggle to get a net savings rate as high as 6%, so paying down the mortgage is a good idea. Check the penalty-free allowance you have and make sure you stagger overpayments so you get them penalty-free.

Lenders don't care if your deposit is cash or equity. It's all the same to them. The LTV is whatever it is either way.

mister_pister

Perfect, thanks!

getmore4less

Keeping the cash may give you the option to let and buy, you never know how easy it will be to sell when the time comes.