Looking for advice re overpayment

Pirnmill

OK, I'm new to this so go easy!

Situation:

Married couple (1 child, one on the way).
We bought a 100k house via an 85k mortgage nearly two years ago.
The mortgage (2 year fixed rate, 30 years, Natwest) was taken out in my wife's name as I was studying full time at the point of application.
I'm now working full time and we are saving about £1300 per month (goes into a savings account)
We have about 30k in savings.
We own a flat (my name, no mortgage) worth about 60k, currently rented out giving us £350 per month.
We are happy in our house and have no current plans to move, at least not in the next 2/3 years.


The question is really what should we do re our mortgage?
We don't really need anything from our savings (car, home improvement, etc), just looking to secure things for the future.
Should we overpay the full 10% Natwest allow (didn't even know you could do this!)
We will look to remortgage in a few months, adding me into the new mortgage (joint) and reducing the term. It seems to make sense to reduce the ltv % at remortgage, yes?
Is that best done by overpaying now or can we just throw in a chunk at remortgage time....or both?
If we did nothing in terms of overpaying, when we remortgage we would owe about 81k with the house worth about 103k.


Sorry if this sounds daft but neither of us have had a mortgage before and we've been so busy with family/work the last couple of years we've simply never looked at it till now.

middleclassbutpoor

The simple principle is that you should only retain it in savings if the interest rate is higher than that you are being charged on your debt.

You should consider that it's good to retain an emergency fund - would normally suggest that you keep 3-6 months of expenses in something easy access.

The rest is all down to which pays/saves the most interest. When you come out of the fixed rate, you could probably overpay more than 10% if required. Whether you should pay anything depends on the rates you are attracting though.

Farmerbob

If you can afford to clear the full over payment allowance now then you can make savings in the interest straight away so it could make sense.

Generally best rates as far as products when remortgaging is concerned is to be below 60% LTV however given the size of your mortgage the money saved as far as payment and rates may only be small, Id have a play about with figures/term and monthly costs see what your comfortable paying etc. Also take into account the rates you are getting for your savings if its more than what you will have to pay to the mortgage then it makes sense to save than pay the mortgage down.

I’m sure others will be on shortly to give some mores ideas

getmore4less

What rate is the mortgage?

You have a 7% gross yield on the flat, what are you netting after all costs(including tax)?
Any maintenance looming?

with the current saving rate you can restore £8k of saving quickly.

need a bigger picture but with this income rate I think I would be looking for the next move up into a nicer place possible the long term one.

in the mean time(depending on the first question) do the 10% now.

do 10 year plan looking at the next house, car needs, ISA and pensions with long term retirement plans.

Short term a 60% LTV 2 year fix leaving a long term to restore saving for a move up.

Pirnmill

Thanks for all the replies. To answer the above questions:

Our current mortgage rate is roughly 2% and we pay £320 a month

I just had a check with the tool on this site and current remortgage rates (2 year fix) would only be slightly better at 70% or 60% LTV with repayments down to 275ish. This is with a reduced term (25 years) of course.

Re our flat, the £350 is after all expenses, including tax.

I hear what you're saying about maybe moving to a better house but I suppose we just haven't thought about it because we like our house, neighbourhood and neighbours!

I realise this is in the 'nicer problems to have' category but it's still managing to cause me some confusion!

getmore4less

if you can net 7% after all expenses on the flat.

Start buying more flats if they only cost £60k you will get economies of scale on your landlord overheads.

With 75% LTV mortgages you should get some serious returns on capital invested.

dimbo61

Life has its up and downs.
If you can get savings paying more than 2% put your money into savings (Nationwide have 5% savers) and have no other expensive debts then paying 10% overpayment now sounds a good idea.
This will give you a better mortgage deal at 75% when you look for your next deal.
Consider an offset mortgage if you can save £1300 a month.