Beigemaster Posted January 7, 2014 Share Posted January 7, 2014 Hello all. First things first, I don't want this to turn into a thread where I have to spend the majority of if defending the fact that I am buying a house so here's the headlines/disclaimer -I have been on this site/forum for 3 years and are well aware of the arguments of renting vs buying etc. -I'm buying in South Yorkshire (Sheffield) where prices (in most areas) are much better value (relatively) -We've very kindly been given a deposit through the passing of a relative- all the more reason I'm trying to be prudent and careful with finances. We've officially received the mortgage offer and (with a bit of number crunching) I'm interested to hear people's opinion on whether I should overpay on the mortgage or not. Headline figures: £105,000 loan 25 year term. 3 year fix @ 2.29% = £460 per month SVR after 3 years (currently) 3.99% = £542 During the fix, can over pay up to 10% of the loan per year without incurring a charge. After the fixed period there are no over payment charges. So the question is, should I (while the rate is low) overpay as much as humanly possible during the fix period as we can overpay up to £10,000 a year. Although the 3.99% SVR is reasonably low now, I have no doubt (like most here) that will be considerably higher eventually, so obviously the idea would be to overpay while rates are low to not be caught out too much when the fix ends. OR, would it be wiser to simply pay into a savings account and simply have a lump some that could be used to pay down the capital as/when interest rates rise? Problem with that idea, is savings rates are low and I would be wary of a potential "bail in" attempt if the brown stuff hits the fan, so having a big lump sum lying around may not be the smart move. Plus, no one knows when rates will rise (only that they will) and we've no idea what "policies" the government will come up with to keep those who have over-borrowed or on IO mortgages over the next few years above water. The problem is it's hard to know what to do when the government keep melding and moving the goal posts all the time. To give an idea how much we could overpay. Our current rent is £650 so instantly there's £200 per month without changing lifestyle. I think we could stretch another £400 top of that if we kept an eye on our finances- and that is a realistic figure. Anyone have any thoughts or opinions on what I should do? I know there's a lot of number crunchers on here who speak with prudent knowledge and not the usual spend now/ worry tomorrow bullsh1t that most people seem to have adopted. Thanks in advance. Quote Link to comment Share on other sites More sharing options...
Butthead Posted January 7, 2014 Share Posted January 7, 2014 In your shoes I would overpay as much as I could. There's nowhere else to put the money that's worthwhile (Savings = pointless, shares = dangerous at the moment, BTL = ) and by overpaying you are reducing exposure to the bad things that may come. Overpay by £500pm and your outstanding loan will be around £78k in 3 years. That puts you in a strong position to manage any interest rate rises at that time. Quote Link to comment Share on other sites More sharing options...
renting til I die Posted January 7, 2014 Share Posted January 7, 2014 Short answer yes, pay the mortgage off as quick as possible. However you might consider keeping at least 6 months payments in cash just in case you fall on hard times. If you are paying the debt off so quickly though you should stay on top of things. Good luck. I don't begrudge anyone who wants or needs to buy a home. If prices go down, you may feel a little aggrieved that you couldn't wait but life just doesn't work like that and once the mortgage is gone you won't have to worry about house prices or rent costs again! Quote Link to comment Share on other sites More sharing options...
Shrink Proof Posted January 7, 2014 Share Posted January 7, 2014 Overpay, definitely - try to get rid of the mortgage asap. The arguments from the above two posters are very sound, but it's not just about money. When you've paid for it, it's yours; until then it their's. The relief of becoming mortgage-free is hard to express in monetary terms but it's very real. Quote Link to comment Share on other sites More sharing options...
Monkey Posted January 7, 2014 Share Posted January 7, 2014 Yes over pay, the question should be how. I would see if they will allow the extra 10% in one go or no. As you might find that 6 months time £3000 cash would be needed for a repair/car/cover a time of unemployment, then at the end of the year if you wish you can thrn pay off £10k in one hit Quote Link to comment Share on other sites More sharing options...
sisyphal Posted January 7, 2014 Share Posted January 7, 2014 I like the idea of overpaying. Somebody on here floated the idea that the old model of borrow as much as you can and let inflation take care of the rest is dead now. However the new paradigm is to use low interest rates to overpay and end your mortgage earlier that way. If it was me I'd look into if the mortgage had a payment holiday option. This would allow me to get the money back in case of an emergency. Lloyds TSB do a kids saver account at 3%, so it would make sense to me to put money in there rather than overpaying a 2.29% mortgage. Depends if you have a kid though. Quote Link to comment Share on other sites More sharing options...
Beigemaster Posted January 7, 2014 Author Share Posted January 7, 2014 Thanks for the replies so far gents. Overpaying is definitely the way to go, the crux is how much to pay and how, as people have mentioned, having the cash available may prove to be more useful than chucking it all into the mortgage. Once again, boils down to how long rates will stay at these low levels. If I knew the SVR after 3 years would be considerably higher, then that would be the motivation to pay off as much as possible at the cost of not having an easily accessible cash sum. Minimum 6 months worth of payments does sound a very sensible idea. Thanks again, Quote Link to comment Share on other sites More sharing options...
tc9604 Posted January 23, 2014 Share Posted January 23, 2014 I'm not fussed about regular monthly overpayments. I think it's important to put aside enough savings for you to be able to reduce LTV in 3 years but it might be useful to keep the money in cash in case the boiler breaks, you need a new car etc. If you're talking about overpaying 500/month then that's 6000/yr. The interest on that is 2.3% or 140/yr. As you won't be 'investing' that entire 6k at the start of the yr then call it 70, or 6 quid a month. That's the saving to you from making regular overpayments vs. a lump sum at the end of the year. Quote Link to comment Share on other sites More sharing options...
StainlessSteelCat Posted January 23, 2014 Share Posted January 23, 2014 Build up a pool of savings for emergencies, then overpay. If, like me, you've only rented before you'd be surprised at some of the additional expenses that can pop up from time to time. A blocked toilet, broken washing machine, tile off the roof are now your responsibility. Even if you are a brilliant DIYer - you still need money for materials and parts (and many ex-renters won't have much DIY experience). I suggest a buffer of £2-3K which is topped up if the unexpected happens. Personally, I like to have an FU fund too of at least six months expenses in case the job gets too much. I have never been one for debt though and it may be that the credit card can take some of the above strain. I can tell you though, that after many of years of saving and scrimping - it is a wonderful relief to be mortgage free. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.