Mortage question, overpay, or save for remortgage?

rossplym

Hi guys I recently brought my first house/shared ownership. My Mortage is fixed for 2 years my question is if I save as much as I can before I have to remortgage hopefully save an extra 10k and keep paying the standard rate of my Mortage now,can I use 10k as a deposit to lower the Mortage? Or would I be better to ring them now and pay extra a month now. I'm new to all this and it's all really confusing to me.

Thanks for you advice in advance

Katzen

You can absolutely save the money and use it to reduce the amount borrowed when you remortgage. E.g. You owe mortgage 1 £100,000. You set up mortgage two for £90,000, they pay that to M1 company and you transfer the remaining £10,000 to M1 also to clear the outstanding balance.

You would be better off paying extra monthly if possible because you save money on interest. If you go the the mortgages section of the main website and find the overpayment calculator you can put in how much you want to OP by each month and it'll tell you how much interest that will save you. If you want to see it laid out month by month then download a mortgage OP spreadsheet and fill that in (be warned, fiddling with numbers in that is addictive)

2 cautions with regular OPs. 1. Most fixed mortgages have a maximum you can OP by during the fix. Often 10% of balance per year but not always. Find out or risk paying a penalty. 2. Make sure you have plenty of emergency fund saved as money paid to the mortgage is (usually) gone. So, if you don't have a back up and need to do major repairs or replace your car you could end up stuffed. In which case, the first option may be most sensible, or a hybrid of the two where you save a chunk before you start to OP

rossplym

I think I will cal my Mortage company tomorrow and see what they suggest. I think my Mortage adviser told me I could overpay by £500 a month. I only pay £187 now and I could afford £100 overpay each month and still save, or just kee Mortage as it is and save like crazy for 20 more months. Thanks for the reply

dimbo61

I would guess the rate you are paying on the mortgage is more than you will get on any savings account.
Now most people tend to spend a lot of money on buying a new property and it can cost a lot of money paying for extras in the first few months. IE broadband, sky, insurance, new furniture etc.
I would build up savings till you have at least 3 months income saved then overpay every penny you can afford and are allowed without paying ERC
Most lenders allow 10% overpayment each year. Please check with your lender first.
Overpaying is the best way to build up equity and clear that mortgage debt quickly

rossplym

I have already saved 4K, my interest rate is 2.24% I will call them today. I can over pay by 10%

getmore4less

Overpaying or saving depends on the mortgage and savings rates which gives the best return, when it comes time for a new deal/remortgage as the amount you need to borrow will be similar.


What you need to do is plan your shared ownership exit.

The issue you may have with shared ownership is the lack of options when the deal ends.

Have a read of the posts where people have had issues.

TheShape

With your mortgage rate being low I'd save rather than overpay. Look at the banking and budgeting thread for ways to earn between 3% and 5% which is a better return than overpaying.

Keep plenty of your savings accessible so that if your savings rate becomes lower than your mortgage rate you can start overpaying.

rossplym

Ok I decided to pay £63 extra a month and will put what other money I have in to a savings or isa account.

dimbo61

Good luck on finding 3% or 5% savings accounts.
Most ISA,s are paying less than 1% so make sure every penny is earning the most you can get.
We overpaid every month and built up the overpayments pot. Over 6 months of mortgage payments.
We then had payment holidays when needed.

TheShape

dimbo61 wrote: »

Good luck on finding 3% or 5% savings accounts.
Most ISA,s are paying less than 1% so make sure every penny is earning the most you can get.
We overpaid every month and built up the overpayments pot. Over 6 months of mortgage payments.
We then had payment holidays when needed.

You'll have to make use of current accounts and regular savers but very little effort will allow a single person to put away £20k+ at 3% and a bit more effort will get you closer to £40k at 3-5%. A couple could manage in excess of £100k.