Advice on overpaying mortgage

HayleyB26

Currently have a 32.5 year mortgage which is fixed for another 2.5 years. The lender currently estimates this to be at a 69% LTV.

I'm looking at opening my own business in the next 3-5 years, and am contemplating if it's worth overpaying my mortgage by £1000 a month, in order to extrapolate some of the equity to start this up at a later date.

I understand my money could probably be better invested elsewhere, but feel that overpaying on my property is the safer investment and if for whatever reason, my business doesn't materialise, at least I've significantly reduced my mortgage.

Along with this, am I right in thinking by overpaying my mortgage, when I do renew my mortgage in 2.5 years, due to overpaying, I will get a better rate considering I've reduced the LTV?

Just looking for some advice on to what people would suggest to be the best course of action.

Thanks in advance 😊

ElwoodBlues

Depends what the interest rate is on your mortgage? If savings rates can match or beat it then put your money there instead. Gives you the most flexibility too, can always overpay later.

JustDavid

It's worth noting, most mortgage lenders wont allow you to borrow money from your home for business purposes. Because of the risk associated with being a business owner, or investing in business, it's not deemed responsible lending and therefore cant be done. So, in your case, over paying the mortgage would result in you not being able to release the equity later for the business venture. So, you likely best bet is to do something else with the money if that is your plan.

Newbie_John

I'm in similar situation - things to consider:
1) Can you overpay your mortgage as on off at some point?
-This would help you get you to 60% LTV when needed for the better offer in the future
2) What would you use these money instead?
-Emergency pot, another investment, bigger purchase etc.
3) What tax rate you're on? 
-If you earn £50k+ you get tax on savings over £500

In theory if your mortgage is at 2% and you can get savings of 5% (with or after tax) then it's better to keep it there, especially when you can do a one off overpayment close to your end of fixed term, otherwise you may do a bit now and larger payment later.

If you can't get better savings rate than your mortgage and no idea what to do with excess of money - overpaying it may be the right choice.

In my case I can overpay 10% of balance a year without extra charges, my mortgage fixed term (2.3%) ends in Oct 2023, so currently put money into 1 year saving account (close to 5%) and will use it in August to do one off overpayment to get me to 60% LTV so I get better rate applying for next fixed term.