Pay off the mortgage ?

Abzinthe

Hi All I have currently been with a mortgage provider for 5 years and coming to the end of the term in end of October, I have been paying 10% overpayment every year on my mortgage current LTV is 26% and owe the lender about 82k

I have a few options:

I can still make a 10% payment now and from November 2019 when the term ends, I can pay as much as I want but at an interest rate of 4.24% SVR

or pay 30% overpayment soon but would have to stay with the lender let say for 2yrs fixed at 1.61% with an additional product fee of £995.
or there are longer terms at different interest rates.

or do I pay all of my mortgage off by end of my 5yr term in October 2019

I am also potentially looking at buying a second home as an Investment.

any advice appreciated cheers.

sal_III

As long as you don't incur ERC overpay as much as you feel comfortable. Otherwise just get a new fix and "offset" it by putting any extra funds that would trigger ERC into a savings account, plenty of 2%+ 1y-2y fix vs your 1.61% mortgage.

Paying ERC just for the privilege to call yourself mortgage free is daft IMHO.

Abzinthe

sal_III wrote: »

As long as you don't incur ERC overpay as much as you feel comfortable. Otherwise, just get a new fix and "offset" it by putting any extra funds that would trigger ERC into a savings account, plenty of 2%+ 1y-2y fix vs your 1.61% mortgage.

Paying ERC just for the privilege to call yourself mortgage-free is daft IMHO.

Hi, Thanks for your reply so I will not incur any ERC for paying the 10% but the lender has given an option to pay 30% overpayment without ERC on the condition I take out a new rate with them,
I am not too sure whether to come end of October 2019 to just pay off the mortgage in full or to take out another 2yr deal ?

because I am looking to the money I save on the mortgage to buy another house as an investment.

sal_III

You have to sit down and to the math. On one hand you would blow your savings on clearing the exiting mortgage. On the other the existing mortgage potentially reduces your affordability, but I don't think it's a big deal for BTL mortgage. Like I sad you won't lose money to interests, since there are plenty savings accounts offering better interest than 1.61% so you will actually be making money by not overpaying the mortgage.

That being said I don't believe this is the best moment to buy a property as an investment, at least not in majority of the UK. IF anything it's probably the worst possible moment.

Abzinthe

sal_III wrote: »

You have to sit down and to the math. On one hand you would blow your savings on clearing the exiting mortgage. On the other the existing mortgage potentially reduces your affordability, but I don't think it's a big deal for BTL mortgage. Like I sad you won't lose money to interests, since there are plenty savings accounts offering better interest than 1.61% so you will actually be making money by not overpaying the mortgage.

That being said I don't believe this is the best moment to buy a property as an investment, at least not in majority of the UK. IF anything it's probably the worst possible moment.

Ok makes sense to put the money into a savings account like you say then to pay off the mortgage in full .
What my thinking is to buy another property and rent it out so I can generate some income as a secondary income and long term investment, I do pay into a company Pension where I put in and the company pays in.

I would think I would have to get a Buy to Let mortgage but also not sure as i have heard as a landlord and renting they have started Taxing more and the incentive to rent out is not as good as before.

sal_III

Most BTL mortgages are interest only and the rent more or less covers the mortgage payment + income tax + cost of being a LL. The expectation of actual profit come from the increasing asset value. In the current market you shouldn't expect much asset appreciation if any in the next 5 years or so, quite the opposite.

Doesn't look like you are fully aware how property investment works. If you have money/income to invest I suggest visiting the Saving&Investment sub forum, as there are likely better options for you.

Abzinthe

sal_III wrote: »

Most BTL mortgages are interest only and the rent more or less covers the mortgage payment + income tax + cost of being a LL. The expectation of actual profit come from the increasing asset value. In the current market you shouldn't expect much asset appreciation if any in the next 5 years or so, quite the opposite.

Doesn't look like you are fully aware how property investment works. If you have money/income to invest I suggest visiting the Saving&Investment sub forum, as there are likely better options for you.

Yes complete Newbie when it comes to Renting sides of things, A few of my friends have been renting out properties for years, and there are ups and downs with it depending on if you get decent tenants in and if they look after the property and pay on time
which has put us off in the past.
but I guess not all are bad.

Zero_Sum

Since you only owe £82k chances are despite the lower rate, mortgages with product fees will usually work out more expensive. You'd be better off paying a slightly higher rate without a fee

Thrugelmir

Abzinthe wrote: »

What my thinking is to buy another property and rent it out so I can generate some income as a secondary income and long term investment, I do pay into a company Pension where I put in and the company pays in.

Pension is likely to be the most tax efficient way of building a secure pension pot. Personally I would target the pension until such time as you reach your goal for this. A decent pension requires a significant pot of money to be available.