Overpay or save??

stalkah

Sorry if this has been covered many times, I've done a search and not really found the answers I'm looking for.


So here goes:


Buying a new build property using HTB EL have mortgage offer with Nationwide fixed at 2.29% for 2 years for about 230k the equity loan is about £61k


We're looking to save around £500 a month, I'm trying to work out if it's best to over pay the mortgage or save elsewhere?


We can make overpayments on the mortgage penalty free up to 10% of the total amount borrowed in the fixed period so 23k in the first 2 years.


The plan is to pay off the EL by the end of the 5 years either one lump sum at the end of the 5 years or in two stages. I plan to do this with the savings and by releasing the equity we'd have paid off on the mortgage (eg re-mortgage again at 75%)


So my question is, are we best off overpaying the mortgage by £500 a month (would it be easy enough to release the equity in the house to get the money back to pay of the EL) or would it be better in a savings account?


According to the mortgage overpayment calculator if I overpaid by £500 a month for the first 60 months this will have paid off an extra £38624 on the mortgage by only using £30000 so could I really get an extra £8624 by putting that money in savings? or is the calculator far from the truth?


TIA

stalkah

Oh and should state yes I know those calculations are based on the rates not changing but it was easier just to do it that way keeping it simple.

JimmyTheWig

stalkah wrote: »

would it be easy enough to release the equity in the house to get the money back to pay of the EL

Not necessarily.

According to the mortgage overpayment calculator if I overpaid by £500 a month for the first 60 months this will have paid off an extra £38624 on the mortgage by only using £3000

What numbers did you put into the calculator?

stalkah

Current Mortgage debt £230,000
Remaining Term 30 Years
Annual Interest Rate 2.29%
Recurring overpayment £500 monthly


Which gives me at the start of year 6:
Without overpayment With overpayment
195,693 157,069

JimmyTheWig

stalkah wrote: »

Which gives me at the start of year 6...

Ah, I see.
You've read the table wrong.
The row is "At the _end_ of year x".
(Note that there is a year 0 row.)

So you need to look at the year 5 figures.

stalkah

Ahh yes... Doh :wall: