Gifted money, should we overpay mortgage? Updated mortgage application declined

Martha1_2

Hi all, hoping you may be able to help. We have been gifted some inheritance money 14k, which was gifted early as we were looking to move.
Due to a lack of properties and us not wanting to stretch our finances it looks like we might not move in the very short term. So my question is should we overpay this money into the mortgage? Are there any disadvantages to doing this.

We are on a 5 yr fixed rate mortgage with First Direct, and it looks like unlimited overpayments are allowed.

Any advice would be gratefully received.
Thanks

Edit 27th may

Since my previous post we've been knocked back by First Direct when applying for a new mortgage! They will give us one but at less than we're already borrowing from them. We are tied into a fixed rate with First Direct for another 1 year and 5 months, if we were to move / remortgage with another provider during this time we have 2% early repayment charges - about £2700 in total. Is it still worth overpaying the mortgage with the 14k that we've got? We are in a lucky position that out LTV ratio is about 40%, but with the changes to affordability I'm not sure whether we should keep 14k freed up. Any advice welcome. Thanks.

Foxy-Stoat_3

Make sure you won't get charged and if you have no other debt then yes, pay some of the mortgage off and you will save a far bit of interest and take years of the term.

Or half in premium bonds and half in mortgage....up to you really.

Martha1_2

Thanks, just wanted to make sure there wasn't a catch - obviously will check out any clause re overpayment amount.

kingstreet

How good is the rate and would you want to port it to a new FD mortgage if you move?

If so, check out the re-draw prospects to ensure you don't end up reducing the mortgage and porting less, leaving you borrowing more on a new higher rate at the time.

Martha1_2

Rate seemed good at the time (autumn 2010)- as we thought rates would go up, so we are fixed at 4.2% until October 2015. In hindsight I should have shopped around as we had a good LTV.

I think we would probably port the mortgage to avoid the ERC, but then look around once the fix is over. I am going through the process of the new affordability checks with FD to see what they would lend us and to be ready if we did find somewhere to move to.

Kingseat what do you mean by re draw, is that the new amount we would borrow when moving?

Thanks very much

kingstreet

No, I meant overpay say £10,000, then re-borrow it a few weeks before completion, so your port at the better rate would be £10k higher.

TBH at that rate, you're likely to be able to get better so the overpayment probably remains the most sensible option.

pivotalgubbins

At 4.2% then overpaying definitely seems a good option - you won't get a better interest rate in traditional savings accounts or ISAs.

Obviously, make sure you have a rainy day fund (between 3-6 months salary depending on job security) in the meantime!

Thrugelmir

Overpaying can become addictive.

Martha1_2

Since my previous post we've been knocked back by First Direct when applying for a new mortgage! They will give us one but at less than we're already borrowing from them. We are tied into a fixed rate with First Direct for another 1 year and 5 months, if we were to move / remortgage with another provider during this time we have 2% early repayment charges - about £2700 in total. Is it still worth overpaying the mortgage with the 14k that we've got? We are in a lucky position that out LTV ratio is about 40%, but with the changes to affordability I'm not sure whether we should keep 14k freed up. Any advice welcome. Thanks.