Mortgage strategy help!

oakwood123

We have 3 mortgages (our original, the one we had to port when we moved house and a third we have just taken out for extensive renovation of our current house). 
The first two are fixed and are due to end in around 2 years, one is at 1.84% and £315k left, the other is at 1.64% and £260k left). Our third mortgage we only took out a couple of months ago, 5-year fixed at 4.64% (for £130k).
Once our building works are completed we will be in a position to start overpaying a mortgage each month (maybe around £1000 a month). Is it better to overpay the one at 1.84% knowing that it's very unlikely we'll get a low interest mortgage rate in 2 years and thus we should try and pay off as much as we can to get a better LTV mortgage rate, or should we pay off the 4.64% mortgage which is obviously accruing serious interest?

georgehere

In the next 2 years you'll have £24k 'extra'. Your mortgages are £700k, so maybe your home value is in the region of £900k-£1m, in which case an extra £24k is 2-3% of value  - doesn't seem like focussing on LTV is that critical. Maybe your house value will have increased anyway in 2 years which then improves your LTV by maybe the same amount anyhow. As we are thinking 'strategically' here, at least for the first pass, ignore LTV.

In 2 years time, £565k of mortgage is up for renewal ... who knows what rate you'll find then ... say 5% for argument. At that point the payments of £800/mo you have now will jump to £2,350/mo. If you have used the £24k the £565k is now £541k, payments £2,250/mo - not much difference - either way you need to pay about £1,500/mo extra vs today. You have £1,000 per mo. -so where is the other £500/mo coming from? IF you keep the £24k in hand, then that is 48 mo of £500/mo payments. -that could keep you out of trouble for 4 years ... if that level of payments in 2 years time is going to be onerous.

So, I suppose if you feel that things might be a bit tight in 2 years when your mortgage goes up, put the £1k/mo into a Regular Savings account and use it to ease the burden of the extra payments for a time ... who knows your circumstances might improve over that period and you weather the storm.

On the other hand, if the extra payments don't concern you, because you are confident that your circumstances are going to get better anyway, then the strategy is not about surviving but about minimising your overall interest payments. In this case put the £24k against the highest interest rate as that's how you pay less overall.

Caveats: Don't know if mortgages are interest only or repayment / don't know current LTV. However, the numbers are likely in the right ballpark either way so the choices are the same.

oakwood123

georgehere said:

In the next 2 years you'll have £24k 'extra'. Your mortgages are £700k, so maybe your home value is in the region of £900k-£1m, in which case an extra £24k is 2-3% of value  - doesn't seem like focussing on LTV is that critical. Maybe your house value will have increased anyway in 2 years which then improves your LTV by maybe the same amount anyhow. As we are thinking 'strategically' here, at least for the first pass, ignore LTV.

In 2 years time, £565k of mortgage is up for renewal ... who knows what rate you'll find then ... say 5% for argument. At that point the payments of £800/mo you have now will jump to £2,350/mo. If you have used the £24k the £565k is now £541k, payments £2,250/mo - not much difference - either way you need to pay about £1,500/mo extra vs today. You have £1,000 per mo. -so where is the other £500/mo coming from? IF you keep the £24k in hand, then that is 48 mo of £500/mo payments. -that could keep you out of trouble for 4 years ... if that level of payments in 2 years time is going to be onerous.

So, I suppose if you feel that things might be a bit tight in 2 years when your mortgage goes up, put the £1k/mo into a Regular Savings account and use it to ease the burden of the extra payments for a time ... who knows your circumstances might improve over that period and you weather the storm.

On the other hand, if the extra payments don't concern you, because you are confident that your circumstances are going to get better anyway, then the strategy is not about surviving but about minimising your overall interest payments. In this case put the £24k against the highest interest rate as that's how you pay less overall.

Caveats: Don't know if mortgages are interest only or repayment / don't know current LTV. However, the numbers are likely in the right ballpark either way so the choices are the same.

Thanks, this is so useful, really appreciated!