Should I overpay on my Mortgage?

Terry_Towelling

At the end of the day, if reducing the mortgage is what you have decided to focus on then it is just a case of finding the most efficient way of doing it.

Simply overpaying is guaranteed to produce a quantifiable saving - as you know. Investing and then using the proceeds to pay it is risky because you just don't know how your investment will perform. Yes, one would expect a longer-term gain but that isn't guaranteed or quantifiable in advance.

If you can find a way to save cash at a rate higher than 2.88% for the length of the 5 year fixed term and then throw the proceeds at your mortgage in order to renegotiate the loan at more favourable rates with another (perhaps lower) fixed term period, that may be the best way to do it.

There are high-interest current accounts paying 3% - 5% and some regular savers paying the same. True those deals are not guaranteed to always be available and there are some hoops to jump through to get some of the account offerings but a bit of effort should get you a bigger mortgage reduction than simply overpaying.

If the thought of sorting out and administering numerous accounts - and moving them about when rates change - is not to your liking, then simply overpaying the mortgage may be best for you.

That said, I would certainly advise (as others have said) that you ensure you have an emergency fund to cover 3 to 6 months of all outgoings before you commit cash to a debt that won't allow you to get it back out again.

Someone else also raised the issue of your relationship failing - not a nice thought - but were that to happen you may feel slightly aggrieved if you have made efforts to overpay a joint debt and then have to give up some of that effort as part of any separation agreement.

As for your car, a £2K car may not end up saving you as much as you think as it is likely to be in need of more maintenance work than a newer offering and could be less fuel-efficient (even if it is less 'sporty') - swings and roundabouts.

Best of luck!

steampowered

Come March/April we will also have cleared out some other debts

Surely you should focus on clearing your debts before worrying about overpaying the mortgage or saving?

YoungDumbNBroke wrote: »

So my query is this. It has always been my partner and I's plan to try to maintain the flat (we did extensive renovations and invested ~£25k into it, plus a £22k deposit), and use it as a cash cow for renting in the far and distant future, hopefully letting us both retire comfortably! This puts us in the predicament of having to save up another deposit/legal fees/storage fees/moving fees etc., and we would hope for our next property to be in the ~£350k mark.

BTL is extremely tax inefficient when compared to pensions.

You will be paying tax on the rent. You will be paying higher rate stamp duty each time you move home. You are putting all of your eggs in the property investment basket so very exposed to the property market. And you are throwing away the tax relief you could have got on pension contributions.

If your savings goal is to fund your retirement you should seriously rethink whether saving your money into BTL is a better option than increasing your pension contributions.

I wouldn't really consider a lifetime ISA (or any bank/building society ISA for that matter) as I want my money to be accessible.

????? Money locked up in the equity of the property is not accessible at all.

An ISA is just a tax wrapper. You should consider cash savings or stock & share investments as options. Money in an ISA is perfectly accessible unless you decide to open a fixed term account.

It sounds like your tolerance for risk and volatility is high given that you want to own two properties both of which you want to highly leverage with mortgage debt. It also sounds like you are trying to invest for the long term. So stocks are probably the way to go. If you don't know what you are doing with investments simply invest money each month into a low cost tracker fund, ideally through an ISA so that it doesn't get taxed. If you keep doing that over the years your investment pot will build up nicely.

trailingspouse

Pay off the highest interest loans first.
Having done that, the mortgage would logically be the next loan to target BUT - once you've paid money into your mortgage, you can't get it back. And if you have any plans to move in the future, chances are the sale of the house will pay off the mortgage anyway, and you'll start again.
You're young - there are likely a lot of expenses ahead of you, even if you're not thinking about them just yet. Getting married, starting a family - both are expensive hobbies. I would want to be sure I had enough in savings to go some way towards those before thinking about paying off the mortgage early.

aw77

steampowered wrote: »

You will be paying higher rate stamp duty each time you move home.

I understood the rules to mean that when you sell your primary residence, you are not buying an additional property so you should only have the extra stamp duty hit the once. After this because you are selling your primary residence, the extra tax does not apply.

fairleads

kidmugsy wrote: »

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

But the OP's equity is and as the OP is considering increaseing theirs my comment is relevant.