is it really better to add those few extra ££ towards deposit or use same to overpay?

edited 30 November -1 at 1:00AM in Mortgages & Endowments
7 replies 1.2K views
starshine000starshine000 Forumite
4 Posts
edited 30 November -1 at 1:00AM in Mortgages & Endowments
Property value £217,500
Mortgage requested: £89,185 over 12 years
LTV 41% precisely
Monthly mortgage cost: £700.78
Total interest paid after 5 years on a fixed rate at 2.09% = £11,727

Now here is the question:

By putting down a lower deposit of £91,000, but only increasing LTV amount to 41.84%, with £715.04 monthly mortgage payments, the total interest paid would be £11,966 - after 5 years at 2.09%.

Is it better to put those £1815 as part of deposit, barely affecting LTV and mortgage term staying the same at 12 years OR overpay within the first year, whereby 10% overpayments are permitted?

I am calculating that its better to overpay using the online calculators....anybody who can illuminate this further?

Replies

  • glosoliglosoli Forumite
    738 Posts
    Eighth Anniversary 500 Posts Combo Breaker
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    You only pay interest on the capital balance outstanding so if you could afford to put down the extra deposit this would seem to make more sense than staggering the reduction over the course of the year, as you would just be paying interest on the amount.
  • edited 31 January 2017 at 1:32AM
    glosoliglosoli Forumite
    738 Posts
    Eighth Anniversary 500 Posts Combo Breaker
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    edited 31 January 2017 at 1:32AM
    Unless what you mean is by doing the lump sum repayment straight away, and then retaining your monthly repayment at the original amount so effectively you are overpaying by 15 pounds on a monthly basis... you will probably find that even if you went with the 700 a month option you could just phone them abd increase your direct debit to a higher amount anyway so its swings and roundabouts
  • I see what you mean. I somehow understood (but not fully and convincingly) that overpaying those £1815 later would benefit more regardless of having the added costs of higher monthly payments by: reducing term time, therefore debt, and ultimately interest owed.

    Many thanks GLOSOLI for your insight on this.
  • If I put the £1815 to obtain a lower monthly payment, I wouldn't have another lump sum to add further at the moment :(
  • If you can put the £1815 in a FlexDirect account at 5% interest you would earn more interest in the year than you would save by paying it off the mortgage. As a couple you can have an account each + a joint, so even if you have 1 account already doesn't mean you can't do it
    It may sometimes seem like I can't spell, I can, I just can't type
  • getmore4lessgetmore4less Forumite
    44.1K Posts
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
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    Property value £217,500
    Mortgage requested: £89,185 over 12 years
    LTV 41% precisely
    Monthly mortgage cost: £700.78
    Total interest paid after 5 years on a fixed rate at 2.09% = £11,727

    Now here is the question:

    By putting down a lower deposit of £91,000, but only increasing LTV amount to 41.84%, with £715.04 monthly mortgage payments, the total interest paid would be £11,966 - after 5 years at 2.09%.

    Is it better to put those £1815 as part of deposit, barely affecting LTV and mortgage term staying the same at 12 years OR overpay within the first year, whereby 10% overpayments are permitted?

    I am calculating that its better to overpay using the online calculators....anybody who can illuminate this further?


    better show your workings because you will have done something wrong.

    ..........
    £89,185 paying £701 2.09% after 5 years,

    owe £54,705 interest £7,580. (not £11727 that's 12 years interest)

    £1815 in the bank

    £91000 paying £715pm 2.09% after 5years

    owe £55,835 interest £7,734

    now £1815 - (15*12*5) = £915 left in the bank.

    take that off you owe £54920 net still £200 more than just getting the smaller mortgage in the first place
  • better show your workings because you will have done something wrong.

    ..........
    £89,185 paying £701 2.09% after 5 years,

    owe £54,705 interest £7,580. (not £11727 that's 12 years interest)

    £1815 in the bank

    £91000 paying £715pm 2.09% after 5years

    owe £55,835 interest £7,734

    now £1815 - (15*12*5) = £915 left in the bank.

    take that off you owe £54920 net still £200 more than just getting the smaller mortgage in the first place


    very nice breakdown! Thank you so much for that, so its best to put it towards the deposit then! :T:A Much appreciated
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