Better to pay off current mortgage or save it as a deposit

skyranger

Is there any point on using savings to pay off some of my current mortage (equity) or just use that as an increased deposit on the new property

Willow101

We always overpay as the interest rate on our mortgage is larger than any rate any bank will give us for our savings. When we come to move we'll remortgage to release the equity.

Thrugelmir

You may need to find "cash" towards funding the deposit on your new property. So yes pay down the mortgage however don't over commit.

AlexMac

I'd generally agree you should keep the mortgage on, but surely its down to the numbers; rates of interest on the old mortgage, whether that's portable and at what fee, and rate of the new or additional mortgage and whether a larger deposit will get you a better rate on that, plus of course, what rate of interest you're getting on any savings...?

I feel a spreadsheet coming on!

We were faced with exactly the same dilemma when we last traded up four years ago- but that decision was a no-brainer. Interest on savings was a decent 3-5% and we had an incredible, portable 15-year-old lifetime tracker loan on base rate plus 0.75%; so still only 1.25%! (Blessed be the Nationwide who obviously never anticipate BoE rates that low; they were 5-6% when we started)

The 'additional borrowing' top up mortgage for the extra costs of the new house came at a 3% or so, however, so, as savings rates tumbled, we have paid some of that off (keeping a bit of a cushion for emergencies and to trickle feed into the few decent savings rates around; such as Nationwide's 'flex regular saver' which offers 5% for the current year) and a few prime rate current accounts...

But your decision probably won't be so no-brain... happy spreadsheeting!

kingstreet

Willow101 wrote: »

When we come to move we'll remortgage to release the equity.

When you move your sale proceeds will repay your mortgage and you will have a new mortgage on your next purchase. Your solicitor will take these funds and use them to pay the purchase price for your new home to the vendor's solicitor.

A remortgage is a new mortgage with a new lender on an existing property to repay the existing mortgage.

Unless you are planning to "let to buy" of course.