overpay before sale due to penalties?

mdori003

Hi there

I'm new her so apologies if this is too specific and it is quite a read but I'm trying to crunch numbers and coming up short; any input would be appreciated!

Basically I bought a flat for 120K in 2014, Its now worth something in the region of 160K +/- 5-10k

18k deposit, fairly poor rate 25 year mortgage initially

I refixed the mortgage last year with Bank of Ireland for a much lower rate over 2 years. I'm now paying 600 quid a month and the length is down to about 19 years. No other debts aside from student loans (sizeable but low interest)

I am however thinking of selling and buying a family house as I've now married. The wife and I have a combined pre-tax income of approximately 100k so we are thinking of quite an upgrade.

I'm basically wondering; I can overpay 10% of remaining mortgage (93k) in a year without incurring a penalty of 3% of total cost (at present that is around 2800. Penalty drops to 2% in August.

Is it worth overpaying by 10% before April so there is less of a penalty (as a percentage I reckon I would only save around 300 quid but paying 9k off.

The other side of the coin is that we obviously want as much liquidity for deposit as possible.

We have savings of 40k all in, in bank accounts, Vanguard LS, and a help to buy ISA (wife was saving before we got married. whether we can use the bonus from it I doubt since I'm not a first time buyer).

We're lucky enough to be in a fortunate position, but there are so many factors im not sure what to do at present! a house move is necessary in the next 6 months or so (wife's orders!) but don't want to overstretch and unsure whether to overpay this close to a potential sale. I'm also clueless to what capital gains and fees etc I would have to pay and what i'd be left with.

Dream scenario; sell at 170k, sizeable deposit, 350k detached house. Doable?

...do i need to see a financial advisor. Maybe I should have lead with that

mdori003

"i'm new here."

>_<

dimbo61

How much are you earning on your savings ?
How much is the mortgage rate you are paying ?
I have just paid 10% off our outstanding mortgage balance and that was a nice feeling BUT my mortgage interest rate is 4.34%

dimbo61

PS some help to buy ISA,s were paying 4% so make sure she is putting the max in each month

makemesumdosh

Do you really need to sell the flat at this point in time
How much income would you receive from the rental market, Even if its only a couple of years until you can leave mortgage fee free.

mdori003

Thanks for the responses

Rate is 2.20 (down from 3.99 previously)
Savings are earning really negligible aside from the help to buy ISA which is being maxed each month. Vanguard LS is putting out around 3% return at the moment but variable obviously and more a longterm thing.

To be honest I think our next house is probably in the realms of a long term house - we are both 30, hoping for kids in the next few years. The flat is nice and has appreciated in value but was a new build and had alot of grief issues , NHBC and whatnot. Also my dad is a BTL landlord and i've seen the diminishing returns; Probably could get 800-900 a month if it was rented but management fees are fairly substantial (maybe around 1.5 grand per annum...we have a lift). So hoping to sell to have a large deposit for a 4 bed detached. Dream ceiling price 400k but more likely just over 300k

dimbo61

Then pay off 10% now and another 10% in April if allowed ? Without paying ERC,s
If you have to clear the mortgage before the end of the fix you might pay less ERC,s
You will have a little more income to save each month towards the deposit

mdori003

I reckon that is the way I am leaning as we are likely to have a large enough deposit even if the sale of the house is slow. I'm also assuming that I qualify for private residence relief so there shouldn't be any tax implications. Head is in knots a little bit with so many different factors though!

mdori003

One additional question - i appreciate I'll have to check with BOI but generally speaking if anyone has any experience, when a bank talks about ERG charges per year, is that a financial year or a calendar year? thanks