Does this sound sensible? Mortgage related.

[JollyMoneyQs]

At our last mortgage statement in September we had 27 years and £126,000 remaining. Mortgage is currently on a variable rate which I think is 3.99%. So this September we will still owe around £123,000. (I think)

We are in a shared equity deal with the developer owning 25% of our property. We have to buy them out by Sept 2019 and need to give them 25% of valuation price when we do so or 1/4 of the price we've sold our property for, whichever is highest. Our property current value is around £180,000.

Due to a few things, we are likely to have £4000 this month. We are planning to use this to make a lump sum overpayment on the mortgage. There is no penalty for doing so provided we don't pay more than 10% in any one year.

If we do this, then we'll have a mortgage for around£119,000 on a house worth £180,000. But we will also owe the developer around £45,000. This means we'll have 'debt' of £164,000. Which means we'll have £16,000 of equity.

We are hoping to move house in the next few years so would like to remortgage to pay the developer sooner rather than later. We'll, presumably, be in a better position to remortgage if our current mortgage is reduced by the £4000.

Does that all make sense? Are my figures or assumptions totally wrong? Any advice anyone could give would be hugely appreciated.

What you say is correct but I would suggest that you start overpaying too. 27 years on £126k at 3.99% would be approximately £634 a month so if you paid £4k next month and continued at that rate the mortgage would be approximately £100k by September 2019. However, if you paid off the £4k and also upped your monthly payment to £700? then by September 2019 your mortgage would be approximately £93k.

My calculations may be a little off as I am basing it on your statement being produced now but here is a calculator for working it out.

I also assume that you have no other credit card/store card/loans/overdrafts etc as they should be paid off first.

Would you be able to pay the £4k to the developer, to reduce your obligation to him when you come to sell?
You don't know what your circumstances will be, and it might be difficult to get a bigger mortgage when you need to move.

Problem with paying to the developer is that money paid to them is based on valuation of property when sold or money borrowed is paid off in full so won't be any benefit in paying them in installments.

Thank you for your responses.

There's no option to pay the developer in installments. We need to pay the £45k (ish) in one go.

We are 10 months into a 5 year £8,000 car loan. We have no other debt.

I wasn't sure if this should be paid first as our objective is not to save ourselves money in repayments or time on the mortgage. The objective is to be in a position to remortgage to get the 25% from the developer. Should the car loan still come first?

In the case of a car loan I would say, don't repay it, especially if the £4k isn't going to clear the loan.

However, I think it is madness not to overpay if you can afford to. If your objective is to be able to remortgage to get 25% of the value of the property then you realistically need to have 35-40% equity in the property to be able to get that additional 25%. No one offers 100% mortgages any more. Overpaying what I suggested would save you £20k in interest alone on what you currently owe.

Yup, I agree that overpayments are the way to go. The £4000 is a one off but we are having a discussion about overpaying. I've brought it up before but not been able to convince DH. This time I think he clearly sees the benefit and if we can afford to overpay going forward then we will. It may not be a the same amount each month but we should be able to put some extra in regularly.

Thank you for your advice :)