LTV bracket or put more down for cheaper mortgage?

ironlady2022

For arguments sake lets say the property I'm looking at is £200k. I've got £60000 deposit which is more than 25% but less than the next bracket eg 30/40% in order to reduce the interest rate.

I'd like to overpay my mortgage to reduce payment term and interest. To make it easier let's say I can overpay up to 10% each year.

Do I put down the 25% which will allow me to overpay OR do I put down the full £60k in order to reduce mortgage repayments? It's more than affordable if I only put down 25% deposit.

I have monies aside for decorating etc

amnblog

Why would you borrow more than you need to if you can afford to overpay by 10% a year?

ironlady2022

I was referring to mortgage terms which will allow for overpayment. I can't overpay off 10% per a mum.

NouZid

If you have £60k deposit for a £200k house you'll get 70% LTV interest rates, usually slightly lower rates than your intended 75% LTV. This means your borrowing would cost you less over the period of the deal. You can overpay the difference, i.e. you can repay your mortgage as if you were on the higher interest rate/amount borrowed if you went for 75% ltv. win win situation.
It also seems you are thinking of holding back a percentage of your available deposit then using it as overpayment? this won't be beneficial either. Because even if what you held back didn't push you into a higher LTV rate, the sooner you pay what you can afford the better, otherwise you're just accruing more interest than you need. Unless of course you can invest your surplus at more than your mortgage interest rate.

All of the above assumes you have emergency savings, initial fees and house improvement funds etc.

ironlady2022

The above is prob a bad eg. What if I had say 27% as a deposit. Do I put down 25% only or 27% to bring the mortgage payment down. As both deposits would generate same interest rate - hope this makes sense.

NouZid

If you hold 2% back by only putting 25% deposit, you will owe the bank 2% more, and pay more in interest. You can put the different figures in the mortgage calculator on this website to give you an idea; what you want to know is how much interest the borrowing costs you, and how much you owe at the end of a deal.
What's your reason for wanting to hold some of your available deposit back?

ironlady2022

My colleague mentioned that I should just put down enough to get into the interest bracket. And use the 2% to overpay.

I'm trying to figure my head around it.

NouZid

Overpaying serves the purpose of reducing how much you owe the bank, and hence how much interest it costs you to borrow, as does putting in a larger deposit. The earlier you overpay the better. So depending on how interest is calculated, you could be out of pocket if you hold some of the money back.

Hope that helps.

Yorkie1

As others have said, you don't want to pay more than you have to from the outset. However, you do need to consider the bigger picture. If you put down the extra 2%, will it leave you completely without savings, for example? How tight will your monthly finances be in either scenario - would you prefer the flexibility of lower monthly repayments plus overpayments you can manage, or a higher monthly repayment?

ironlady2022

Thanks everyone. I've hot my answer! I'll put down as much as possible and ensure I have adequate savings cover.