Should I overpay on my Mortgage?

Computer_Beginner

OP,

Do you own this flat with your partner?
Equal shares?
Joint mortgage?
What do they think?

What's your plan should your relationship fail?
What if you lose your job or get sick?

Why are you planning to become a landlord?

Would you prefer a freehold house?
What's the early repayment charge on your mortgage?

AliceBanned

atush wrote: »

Hve you taken into account the fact that BTL is highly taxed on both gains and income? Whereas a pension/S&S isa isnt?

Have you taken into account the new charges you will face (higher stamp duty in your new home) and the fact that things you could once deduct from your income is no longer possible?

Sell yoru place when you buy a new one. And slam money into s&S isas and pensions.

Or put it into a bigger property for you to live in, with one or two lodgers for a few years- much more tax efficient and you are in a stronger position than with a BTL, as far as I understand it.

Computer_Beginner

atush wrote: »

Hve you taken into account the fact that BTL is highly taxed on both gains and income? Whereas a pension/S&S isa isnt?

Have you taken into account the new charges you will face (higher stamp duty in your new home) and the fact that things you could once deduct from your income is no longer possible?

Sell yoru place when you buy a new one. And slam money into s&S isas and pensions.

I agree.

But I'm curious where this continued enthusiasm (amongst the general public, not this particular poster) for becoming a BTL landlord is coming from.

If the government actions haven't discouraged people already, perhaps they will reduce the incentives even further?

Computer_Beginner

YorkshireBoy wrote: »

Interesting statement. The OP has a choice. They can overpay the mortgage each month and save 2.88% APR on the amount overpaid. Or they can open a couple of regular savers and make 5% AER, ie getting on for twice the return on their "leftover cash".

Your advice would also result in an "emergency fund" against any unforseen events.

Alexland

YoungDumbNBroke wrote: »

I understand that £106k is left on the repayment and interest balance, not just the repayment aspect (we started initially with a mortgage of £112k).

You may wish to play with a calculator that shows a full amortization schedule to see the impact of interest in the early years of a mortgage. I find the one below useful and don't worry its in dollars not pounds as the maths is the same.

http://bretwhissel.net/cgi-bin/amortize

For example £112k borrowed at 2.88% over 300 months / 25 years would be £524.15 per month. However of that in the first month only £255.35 is repayment and £268.80 is interest repayment. So by month 16 the debt has only reduced by around £4k.

YoungDumbNBroke wrote: »

It is interesting that you note about the mortgage may not let me to access equity that I have in it (we have about £70k equity in the flat with our own investment and deposit/inflation). How much of this would I be entitled to?

Unless your mortgage deal contains specific entitlement to withdraw overpayments then you wouldn't be entitled to anything back and it would depend on the lender's criteria at the time you ask for additional borrowing. For example if house prices had dropped, the lender was already overexposed or had changed their affordability calculations then they might not lend any of it back again.

YoungDumbNBroke wrote: »

Any proceeds from sale and then port the remaining amount and remortgage on another property? (ie meaning only my investment and inflation would be what I am entitled to, according to property price at the time).

Yes if you sold your property then the mortgage would be redeemed early and your solicitor would return any surplus. Or if your mortgage allows porting then you might end up with a multi-part mortgage with one loan on the original deal and another loan for additional borrowing they allow is on a new deal. But I thought you were not planning on selling the property?

Alex

fairleads

If property prices go down the mortgage overpayment may be worth less than the amount you invested or even worthless.

kidmugsy

fairleads wrote: »

If property prices go down the mortgage overpayment may be worth less than the amount you invested or even worthless.

The amount you owe the bank is unrelated to the market value of the house unless you intend to default on the loan.

enthusiasticsaver

I would vote for overpaying on your mortgage but if you intend moving in the not too distant future you could also open one or two regular savers. Some out there still pay 5%. Bear in mind doing buy to let involves usually a higher interest rate on the mortgage, the rent is now taxed with no allowance for mortgage payments and your new house will be treated as a second home with double stamp duty. For those reasons we chose to fund our early retirement through investing more in our occupational pensions, sipps and stocks and shares isas. We started in our twenties with a plan to retire by 60. We actually retired at 58 and have a gross combined pension income of around £35k per annum with no mortgage. That goes up when we get to 66 to £51k gross. That is in addition to our savings/investment portfolio. No rent or dodgy tenants or maintenance to worry about either.

atush

Computer_Beginner wrote: »

I agree.

But I'm curious where this continued enthusiasm (amongst the general public, not this particular poster) for becoming a BTL landlord is coming from.

If the government actions haven't discouraged people already, perhaps they will reduce the incentives even further?

No1, many people buying now dont remember the bad old days of negative equity. they dont understand how fast and how hard prices can fall.

no2, most people dont realise that property has not outpaced equities over the years. They mistakenly think that property always does better. It doesnt.

no3, while people made a lot from being BTL landlords in the past- things have changed re the taxation of BTL. So it isnt as good as before.

You only need to read the fame and fortune in the weekend newspapers that shows how celebreties feel about money. they almost always say property is better tan pensions when asked. And they are wrong really.

System

DiggerUK wrote: »

If you don't use the extra to pay off the mortgage, you are taking risks. Doesn't matter if those risks are in cash savings due to inflation, or equity risks with the economy changing against you.

If you overpay, then your outgoings on the mortgage reduce the outgoings even further, and increase the ability to further overpay. If you buy more of the equity in you home, it's yours, at an ever reducing risk of losing it.

I guess DiggerUK is fairly young and has never lived through a housing crash such as the one in the early 90s. All of the above advice assumes the value of the property won't fall. If the value falls, as it is starting to do in many parts of London for example, then you'll lose your money just as if it was in stocks and shares. Difference is that stocks and shares tend to recover faster and by larger percentages than house price increases.

However overpaying will do one thing regardless of the value rising or falling, secure the roof over your head earlier.