Overpaying mortgage versus saving for another property?

plarka

I know this probably sounds like a stupid question but I just can't get my head around it. What's the difference really between 1. Overpaying our mortgage, the selling and using the equity towards a house in 5 years (or whenever) and 2. Saving up that money and using it for the same thing? I know we'll be paying less interest the more we pay off the balance, but apart from that?

edinburgher

I know we'll be paying less interest the more we pay off the balance, but apart from that?

Your interest rate is 3.99%. Overpayments to the mortgage mean you get a real return on your money of 3.99% (because you pay the mortgage from your salary etc., that has already been taxed). As someone paying basic rate tax, you won't be able to beat that in a savings account (you'd need a 3.99% ISA, or a taxed account paying 5%). On the down side, your money is tied up in the equity in the property that you are struggling to sell.

bodmil

I'm also a flat owner and thinking of taking the opportunity to rent it out in the coming years. I'm a few years away from that at present but I think motivation is a big factor and for me I feel like I need to see a pot of money building up. That said, I'll continue to OP though (I round my monthly payment up) until I get to 50% equity as it makes sense from a BTL point of view.