How does overpaying work and is it better to put a larger deposit?

Tom_B_

I'm a first time buyer. I have made an offer on a house and spoken to a mortgage advisor. My savings cover well over 25% of the value but I don't have enough to bump me into the next LTV % band and still have enough for fees/furniture/etc.

After running the numbers my mortgage advisor gave me, if I pay a deposit of 25% I'll more than likely have a significant amount (around 4% of the property value would be a conservative estimate) of savings left even after all the fees, moving, etc.

So, my question is: What do I do with that money? My thoughts are it's best to secure the mortgage and have money in the bank for any unforeseen extra costs until after I've moved in.

However, once I've moved and have the mortgage and know I have no more outgoing costs is it then possible to pay those extra savings back into the mortgage? If it is, what happens at that point? Does the term get adjusted so that I'm paying the same amount monthly over a shorter period or does the monthly repayment get adjusted to compensate?

I'm just wondering how it works/whether it's possible and what the best course of action is. Ideally I'd rather secure the mortgage knowing I have far more savings in the bank than I'll need than push the deposit up and potentially broke myself.

Thanks for any help!

hcb42

I think they say make sure you have at least six months take home pay in savings..

it is impossible for anyone to advise, we dont know house value 4% of a £100K house is not a big buffer as anyone can see, but then most people could stretch that to 2-3 months if they had to.

After you have a cushion you are comfortable with, if you make a one off overpayment then you are normally given the choice to reduce the term or the monthly payment. Speak to lender to confirm, and you also need to know whether there are any redemption fees on overpayments...

t508

Mortgages are calculated monthly so an overpayment will generally reduce the amount of interest you will pay in every future month, most lenders will allow you to continue or decrease the payments.

My advice is to only pay in a lump sum after a year in the house just to be sure that everything is ok and you can manage, in the mean time try to overpay a small amount each month, visit the debt free wanna be forums for great tips though!