Over-paying from the start

dutchcloggie

Hello,

We are about to exchange on a house. Our first house. Yay! As I am a little older, we got a small mortgage which is (according to the mortgage adviser) about £250 less than what we can afford every month. The plan is to be paying that mortgage off as soon as possible, rather than have a larger mortgage that we would have to pay off for a long time, whilst still feeling safe in the knowledge that if interest goes up or one of us loses their job, we can still afford the mortgage. My question is should we pay (at least) £700 instead of £581 every month from day 1? Or should we save the overpayment every month and pay it annually? We can overpay 10% of the purchase sum every year (I'd be happy if I could pay £16,750 extra every year :-) so the £119 every month isn't going to hurt us.

Is this a good idea or not? Please note that we are about to exchange so I would prefer not to discuss whether we should have bought a more expensive house with a £700 moth mortgage instead :-) For us, feeling financially safe whilst still being able to go on a nice holiday is 100% more important than having a bigger house.

Edit: Ourr mortgage is a 2-year fixed deal for 2.39%. Should we instead of making the small overpayment every month, pay of the absolute maximum of what we can afford in these 2 years (meaning not refurbishing the kitchen just yet and not having any holidays) in order to get a better rate in 2 years time??

SueP19

You won't get judgements on here :T

It just depends on what savings account you can get %-wise

Your rate is similar to mine and if you can get a 5% account the difference is quite a bit.

try the snowball

http://www.whatsthecost.com/snowball.aspx

Good luck

A_Frayed_Knot

First of all, Hello, congratulations and welcome.

Secondly, you need to find out if your interest is added on a daily or monthly/yearly basis, if daily then o/p as soon as you can.


You don't mention if you have an EF saved or in place. You say you would be happy paying £16,750 every year - I imagine that would take you over your 10% allowance to o/p each year, so with that in mind, you could o/p, and save the rest for EF and holidays, and improvements etc etc.


Or if interest is added daily, then I would be tempted to o/p 10% as a lump sum asap (if you have the savings), then save the rest in EF, etc,etc


Your absolute maximum in the 2 years is 10% and I presume only allowed to o/p 10% at the beginning of each year.


Some more facts needed. Good Luck

dutchcloggie

Sorry for lack of details. Yes we have an emergency fund of over £10,000 but that is supposed to include a few thousand quid in some repairs to the house before moving in. I guess we should just do whatever we need to do to the house and if we have money left at the end of that, overpay whatever we feel we can get away with.

When I said I would be happy to pay £16750 per year (i.e. 10% of the purchase price of the house), I meant that I would feel happy if I had that much spare money every year (which I don't).