Planning to get mortgage and make large overpayments - thoughts?

tsg20

We're planning to buy the flat we're currently renting for around £280,000 with a £70,000 deposit. We could afford to make mortgage payments of around £4000 per month, or maybe a bit more, so we'd like to be mortgage free in 5 years.

I'm trying to figure out the most economical way of doing this. One way would simply be to put all the extra money over the amount of our actual payments (which on a typical 25 year loan would appear to be around £1000/month, so we'd have an extra £3000/month to save) into a savings account, wait 5 years, and then pay off the balance. However, I suspect we could do better than that; for example, it looks like remortgaging after a couple of years and using the savings to reduce the amount of the loan would be better (assuming that rates haven't gone up hugely in that time, of course).

It seems to me that the two key things are to have as low as possible an initial interest rate (because most of the interest is going to be accrued in those first couple of years under this plan), and I guess if possible to have the ability to make overpayments (I've no idea how typical this is - I've seen people on here mentioning that their mortgages allow 10% of the balance to be overpaid each year, but I've also seen mortgages with no overpayments allowed). Am I missing anything? I don't think offset mortgages make sense, for example, because the rates tend to be higher, and we don't have the savings now, but will be building them up as we go.

counting_down_the_days...

Hiya, Have you considered taking out a good fixed rate mortgage and reducing the term to make your payments around the £4k mark? Alternatively an offset mortgage, I know what you're saying, but if you're saving £3k a month, that will build very quickly. Good luck

kingstreet

Use a product with no early repayment penalties, such as a lifetime tracker, or an offset product, where you store the overpayments into a savings account which, by giving up the credit interest, reduce the debit interest on the mortgage account.