Overpaying vs Saving

mottyt

Hi,

I just have a query on mortgage payments;

I am in a three year fixed term deal, which expires in Feb next year, at which point we will be looking to move house, so am looking to get us into the best position in terms of available equity.

What do I need to consider when trying to establish whether we'd be better off overpaying between now and Feb to increase our current equity, or putting the same amount that we would overpay away as savings to put towards the deposit on next house.

Our mortgage was £144k, we've paid off around £4.5k and our interest rate is around 3.3%.

If the advice is that we'd be better off overpaying, would we also be better off extending the term of our current mortgage to increase the value of our over payments?

Thanks in advance for any advice.

anfieldred

I'd check current LTV: https://www.azmoney.co.uk/tools/loan-to-value-calculator

Use the overpayment calculator to see what LTV you'll have by the time the fixed term ends: https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

Work out if you're going to come under one of the main LTV bands
90/85/75/60

If so, you may get a better rate (check current remortgage rates with your current lender to see what sort of amount you'll get)

Use the mortgage calculator to see what your new payments will be on the new rate: https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator

That will give you an idea of your estimated new payments vs current payments & if it's worthwhile. Long term it makes sense to overpay, but someone more qualified than me can probably elaborate/give a better answer.

mottyt

Thank you for this - I'll give these things a look

Thrugelmir

You may need to find some cash to use towards the deposit on the new property. Don't lock it all away by overpaying the current mortgage.

HornetSaver

I'd be interested to know whether your intention is to move to a cheaper, similar priced or a more expensive property.

A 3.3% fixed rate taken out in early 2016 suggests to me that your LTV on your current property is very high. Therefore keeping the money and figuring out how much of it to use to get yourself below the next LTV band when you take out the mortgage on your new home seems like the way to go.

mottyt

Thanks for this; next house will be an upsize, so we'll need to borrow more.

Current equity is around 45k; 16k deposit + 20k increase to value + 5k paid off mortgage.

So i suppose it all depends on value of next one and then see what expected interest bracket might be.

Id had some "advice" that every pound overpaid is worth two, but that was "friend of a friend" stuff

julicorn

If I were you I'd make sure you have enough money saved so you can make up the difference in deposits if you need to (you know, the 10% you might need for exchange - you'll get most of that from your buyer), plus an emergency fund of course, and then overpay your mortgage. I guess the only real reason not to would be if you could find a savings account that pays more interest than what you're paying on your mortgage.

Thrugelmir

mottyt wrote: »

Id had some "advice" that every pound overpaid is worth two, but that was "friend of a friend" stuff

The less you owe the less interest you'll pay. Nothing complicated in that. Once the mortgage is ultimately cleared. You'll have that money free every month to do what you want with.

datlex

Personally I plan to chose a balance- save for emergencies/ 3-6 months contingency fund. rest to pay extra on mortgage. (once get the contingency fund will pay all savings to pay off mortgage as early as possible. For me mortgage paid off = ability to work part time or maybe retire a bit early.