Overpay on Mortgage or save money for deposit on next house ...

a51_ufo

As the title says really. We have been in our current house for just over 3 years and are looking to move to a bigger house in a year or so. We already overpay on the mortgage £100 a month and save between £800 and £1000 a month in various accounts(ISAs, regular savers). With interest rates being low on savings would it be better to pay more off the mortgage each month?

We already have an emergency fund and I know we will need some savings ready for moving fees (stamp duty etc)

G_M

What's the difference? If you overpay, you will have more equity in the property when you sell, which means have greater 'deposit' available on the new property?

Will you earn /save more by earning interest (taxable) in a savings account (2.5% gross?) or by reducing the interest you pay on your mortgage (X%?)

kingstreet

What is the mortgage rate? (A)

What's the net savings rate? (B)

If A is greater than B, pay more off the mortgage.

If B is greater than A, save more.

Now we've got the easy bit out of the way, here are the caveats.

If you have a good mortgage rate you think you might like to take to the next mortgage, you need to establish if it is portable. This would allow you transfer the rate to the first part of your new mortgage, with the same lender. Any increased borrowing would be allowed on a new product. You can port the rate on the amount you owe at the point of completion. So, if you are on 1.5%, making overpayments would mean you would get less on that 1.5% after you move!

One or two lenders allow you to "borrow-back" any overpayments, so to make the most of porting, you could actually increase your mortgage just before you move. This maximises the amount you get on that very good rate.

The other caveat is ensure you do not face any early repayment penalties by overpaying by more than you are allowed.

a51_ufo

Will you earn /save more by earning interest (taxable) in a savings account (2.5% gross?) or by reducing the interest you pay on your mortgage (X%?)

That's the question I'm looking to answer!

kingstreet wrote: »

What is the mortgage rate? (A)

What's the net savings rate? (B)

If A is greater than B, pay more off the mortgage.

If B is greater than A, save more.

I didn't think it was that easy! ATM saving % is higher than mortgage %.

a51_ufo

kingstreet wrote: »

If you have a good mortgage rate you think you might like to take to the next mortgage, you need to establish if it is portable. This would allow you transfer the rate to the first part of your new mortgage, with the same lender. Any increased borrowing would be allowed on a new product. You can port the rate on the amount you owe at the point of completion. So, if you are on 1.5%, making overpayments would mean you would get less on that 1.5% after you move!

I doubt we will want to transfer though I didn't know this was possible!

kingstreet wrote: »

The other caveat is ensure you do not face any early repayment penalties by overpaying by more than you are allowed.

We are allowed to overpay 10% or the remaining balance if we did have more to put against I would look at the penalties to see if it was worth it in the long run.

kingstreet

Lender?

Rate?

Portability?

Likelihood of this lender wanting to lend to you again? - loan to value, income, credit history, mortgage payment history - all relevant.

Look into it, once you have the answers to the above.

JimmyTheWig

a51_ufo wrote: »

ATM saving % is higher than mortgage %.

Then I would say that there is almost no question that you are better off putting money into savings than paying it off the mortgage.

There are benefits to having it in savings rather than paying off the mortgage (it gives you more flexibility, e.g. you will have money to pay upfront moving costs) but the only benefit I can see to paying it off the mortgage would be if it saved you more money. In this case it doesn't, so I'd say no question.

kingstreet

Something doesn't add up here...

10% overpayment limit, sounds like a fixed rate or similar and a 2.5% net savings rate is higher than the mortgage rate?

I can only think of one or two rates under 2.5% in the last twelve months, 1.99% with YBS, Tesco or something similar...?

a51_ufo

Saving rate is not 2.5% I cut and paste and didn't change the number!

kingstreet wrote: »

Lender - Natwest

Rate - 5.99% fixed for 5 years

Portability - can be transferred T&C's would remain the same

We have never missed a payment and overpaid the past 6 months - they almost laughed at the small amount we wanted to lend on our wages! Credit history is good - accidental missed payment on a credit card (thought the dd was set up and it wasn't!)

We have a First direct regular saver each at 8% net and I have a HSBC regular saver at 4% Net. We also have cash ISA at 2% ish (I will have to check the ISA rates). Our current outstanding mortgage is just over 110k and our joint income is 70k.

G_M

a51_ufo wrote: »

ATM saving % is higher than mortgage %.

Lender - Natwest

Rate - 5.99% fixed for 5 years

????????

So you believe you can get a NET saving rate that is higher than 6% gross!


PLEASE TELL ME WHERE! i HAVE SOME CASH I WANT TO EARN INTEREST ON.

Please tell me where I can get 6% or more net. That's, what? 7.5% gross?!

(edit: and if you post the bank/savings product name in the "savings & investments" forum your thread will reach 100 reply posts within 12 hours!)

james_toney

G_M wrote: »

????????

So you believe you can get a NET saving rate that is higher than 6% gross!


PLEASE TELL ME WHERE! i HAVE SOME CASH I WANT TO EARN INTEREST ON.

Please tell me where I can get 6% or more net. That's, what? 7.5% gross?!

(edit: and if you post the bank/savings product name in the "savings & investments" forum your thread will reach 100 reply posts within 12 hours!)

tell me too pleaseeee