Over Pay Mortgage or Save up for bigger deposit next time?

Corley

which would you do??

dccarm

I'm overpaying. I'd rather not pay the tax on my savings' interest. The saving is minimal though as the difference between the two rates is practically zero.

Corley

ahhh thats a good point, althought i would probably put this "saved" money into a tax free ISA, and also woudnt it be more handier to have this small stash incase of emergencys aswell tho? theres not really much in it i know im just trying to get a feel for what other people think

KTF

I am torn between reducing the term and paying X a month or keeping my current term but then overpaying to bring the monthy payment up to X.

The end result is the same (I assume) but there is the safety net of being able to stop the overpayments if they become to much. The flip side is that you lose the psycological aspect of having a shorter term on your mortgage.

Any ideas on which is best?

Joe_Bloggs

By overpaying you are increasing the 'deposit' for your next mortgage. You should also be reducing the interest charged on the outstanding capital.

The alternative phrase for deposit with a remortgage is equity. This is difference between how much your property is worth and the capital sum owed to your lender The larger the positive difference the better the remortgage interest rates you can get for your next deal.

There are other considerations. The value of the property is subject to market forces. It could fall in value. If it falls below what you owe then this is negative equity.

The other thing of importance is to have some savings in reserve so that you do not have to borrow money at poor rates when unexpected events occur. You can often claw back your overpayments. This may take some time however.

Another reason to have some savings in reserve is for remortgaging itself. I have found that the fees can be around £500+ when changing lenders. Also the old lender has no incentive to process your new lenders redemption payment. I have made two mortgage payments this month as my old lender is close to three weeks behind in handing out mortgage discharges and my new lender is keen to get my money.
J_B.

Ian_W

Joe_Bloggs wrote: The other thing of importance is to have some savings in reserve so that you do not have to borrow money at poor rates when unexpected events occur.

Spot on Joe - totally agree. CORLEY poses simple alternatives - but they both acheive the same end, without much real advantage either way.

If you've got spare cash, apart from enjoying it, IMO you should look at your savings and if they're not enough to give you a cushion when " unexpected events occur" I'd go the ISA route because of the flexibility it gives.
I try [don't always succeed!!] to have some "rainy day" cash in accessible savings, better yet where GB :mad: can't get his sweaty mits on it !!

You can budget for some things and insure against others - but it's nice to know you've got a few ready's if something unexpected happens that you've not thought of. Small things like CH boiler blowing or DPC needing renewal, big things like sickness or unemployment - it gives you a breathing space if you've £5-10k [6 to 12 months mortgage payments] available in the bank.