Extra Mortgage Payments

mck100

Hello all,

I have a little money put aside and have filled up my ISA allowance for this year. I have read the MSE guide to over-paying mortgage as this would make financial sense. However, we would like to move house (upgrade) in about four years' time and I wasn't sure how this works. Should I keep the extra money I save in a less lucrative account so I have a larger deposit when we upgrade or do lenders look at the amount of money paid off on an existing mortgage? In short, what happens when more money is required for the next house?

Thanks,

HelenDaveKids

In terms of money paid off morgage or money in savings, I would imagine that a lender wouldnt see the difference. As your old house - morgage left to pay would equal the same.
I think that unless you have an exceptional morgage interest rate then you'd be far better off paying off rather than saving in a normal savings account.
Good luck.

chirpchirp

It's about gaining equity in your house. Equity is the amount the house is worth - the mortgage. It can grow in two main ways, the house increasing in value or the mortgage lowering. As you pay money off the mortgage, the mortgage shrinks so the equity grows.

When you sell your house, provided you aren't in negative equity, you will pay off your mortgage and the equity becomes the deposit on the new house plus any profit you made on the sale of your house.

For example you bought a house for 50k, you have 40k outstanding mortgage and you sell for 60k. You will now have a deposit of 20k for your next house. If you pay off 5k more now, you will pay less interest before you move and should then have a 25k deposit provided that house prices do not slide.

If you want to make the most of overpaying and increasing your equity/deposit, then ensure you tell your bank to keep your direct debit at the amount it is now, so that you are effectively overpaying a small amount each month as well as putting your savings in.

If you get more for your savings than the interest rate ( bear in mnd you have to take tax into account - Martin has a calulator to check paying off v saving in the mortgage link at the top of the screen) then it is worth paying off your mortgage.

plane_boy2000

Your deposit wouldn't be larger if you saved as your deposit = amount of money you have towards new house. It makes no difference to the lender if this comes from cash savings or equity in the property you are selling.

Unless your mortgage rate is really low then in most cases you are better off making OP's as the interest being paid on your mortgage will likely be higher than what you would earn on your savings