Overpaying mortgage versus saving for another property?

plarka

I guess the point of overpaying is that you don't want any mortgages, but I can't decide if it's better to overpay on our current property, or save up that money to buy a second property and rent this one out. We live in a flat we bought 6 years ago do do up and sell, then the market crashed and we're stuck. We never planned on or wanted to live here more than 6 months and now it's been 6 years!

I read Martin's 'Should I Overpay' article, and I can't figure out what's the best thing to do. Is overpaying only for people who plan on living in the property long term? What would be the benefits of having no mortgage on a place you don't like?

edinburgher

Can you afford to pay two mortgages? Because that's what you might be faced with if you have longer than expected void periods between tenants. Do you know what goes into being a landlord? Because done right, it can require a fair bit of effort and I have seen first hand how poor *some* amateur/accidental landlords can be.

Overpaying means you pay less interest and saves you money. So although it ties up money in equity, I can't see why you wouldn't overpay just because you don't like a property. You'll save money regardless of your feelings about it.

ch3101

Considering you're paying interest on the money you've already borrowed, I'd be looking to get as much of that paid off as I could.

plarka

What if I could either save up £60,000 in 5 years, or overpay it towards the mortgage? If I save it up, in 5 years I can take more out on the mortgage and have lots of cash to get a nice house. If I just overpay the mortgage with it, in 5 years, I'm just still stuck in this flat, right?

I really need to think out loud and bounce these thoughts off you all, I don't have anyone in real life to talk about this with and I just can't figure out the right thing to do!

edinburgher

If I just overpay the mortgage with it, in 5 years, I'm just still stuck in this flat, right?

But if you get another mortgage and are left with the first you're still stuck with the flat. Is there anything wrong with the flat, or does it just not suit you at this point in time? Because if you want to let it, it will obviously need to be of a reasonable standard.

R_P_W

Sell the flat?

Beckyy

Overpay your current mortgage, it will save you a lot of money in interest. But also start saving towards your new home. Don't rely on just being able to borrow more.

When you get to a point where you can afford to buy a second property you can remortgage your current flat with a BTL mortgage, or ask for 'consent to let' from your lender. You will need to have considerable equity to do this, so I wouldn't consider it until you own the majoirty of it, otherwise you could be left with two mortgages to pay.

Could you give us some numbers to make it easier?

Current house value, current mortgage balance/interest rate/term remaining etc.

TheFactory

actually you don't need any amount of equity for a CTL, I have one with a 99% LTV....

I would agree we need figures, projected income, LTV of current property, and potential cost of new property or we are just guessing!

plarka

Maybe it would be more feasible sell this and buy a house, because if we bought a second place we'd most likely only be able to afford another flat.

The problem is we now have 2 kids and are in this 2 bed flat. Another big problem for me is that it's in a council estate. Sure, it's a decent one, but it's still a council estate, and maybe I'm a snob, but I want to live in a house, in a private owned area.

We bought it at about 100,000 with a 95,000 mortgage 6 yrs ago. It was in a bad state, did it up in 6 mo and brought the value up to 130,000. Now it's valued at about 105,000. Dh says he thinks there's 93,000 left on the mortgage, we were on interest only for a few years. PLUS we didn't know they were planning major works before we bought it, and soon afterwards, they did and charged us £13,000. Long story short, I think we need to pay it when we sell. So need to have at least that amount as profit. (Nightmare!!!)

Our interest rate is 3.99. We have 29 yrs left on the term. Dh's income is 26,000 and mine is about 4,000. The type of houses I'd like are 200,000.

I wish we could get out now, I mean now, but it will be yeeeeeaars. Dh is useless with money and plans and things, so it's all up to me to and I don't know much, and just don't know what to do!!!! Thank you so much for helping me!

TheFactory

So if ive read this right you owe 93,000 + 13,000 = £106,000 and the property is valued at £105,000?

your Joint income is £30,000 PA

Ill be honest with you, I don't think you will be able to get another mortgage with that much debt on your annual income - sorry I know thats not what you want to hear but thats what I think!

The best thing you could do is to overpay your mortgage as much as you can now while rates are low, do this for the next 4-5 years and wait for the prices to rise. I don't know how much you think you could overpay in that time scale but lets say its £15,000 for the sums, you would then owe £91,000 and the property could be worth anything from 105,000 - 130,000 (because hopefully this will all pick up) then I would sell - if it is worth 130,000 again by then you would take £39,000 equity out and once you had paid the tax due you could use that for a deposit on a new mortgage and start again. I think thats the way I would look at it.

plarka

Thanks so much! I also realised we aren't saving for retirement and we're 37 this year. Since the best ISA is less than our mortgage interest rate, would overpaying the mortgage be like saving for retirement? I'm really hopeless at this stuff so forgive me if that's a really stupid idea!

Dh can opt into the retirement plan at work (council) but he says he won't be there forever so it's not worth it. I don't know!!!!??