advice about savings/mortgage

[banananugget]

I am after some advice regarding savings/mortgage. I have just bought the house I am currently renting. My mortgage is £150000 and is £70 less a month than what I was paying in rent. I love the idea of overpaying my mortgage and reducing the term and interest etc but think I need to save more money first? I would ideally like to save £10000 (5 months salary - I have aprox £1200 so far) but don't know whether I should save first, then overpay later or save and overpay a bit at the same time? I'm a bit worried I'm over jumping the gun! My payments are locked in for 5 years and I am worried about payments increasing after that and don't know if overpaying now would help put me in a better position then? (My mortgage is 60% if the property).

Sorry if I sound a bit thick, this is all very new to me and the mortgage is in my sole name so slightly scared and excited all at the same time!

(The significance of the £70 is that I could easily overpay that amount as a minimum without noticing and then save as extra)

If you have no savings other than the £1200 at the moment then I would prioritise that.

There's a really good guide on MSE about things to consider before overpaying your mortgage.

www.moneysavingexpert.com/mortgages/mortgages-vs-savings

Right, so what you're saying is that you're on a fixed rate for 5 years? If this is the case, save the extra £70 per month in the higest interest rates you can get. This way, you have access to the money if you need it. Then, in 5 years time, when you remortgage, I'd make an additional payment to reduce the next mortgage you take out. In the meantime, if you feel you have enough of a savings buffer you could overpay once a year, depending on how the year has gone. With a fixed rate mortgage you're likely to be capped on how much you can overpay in a year anyway (typically 5-10%) so also watch out for that.

I'd always say pay down the mortgage as your chance of getting an interest rate on savings anywhere near as much as you are paying to borrow is rather slim

I suppose it depends. Do you know what loan to value ratio you are on now? In 5 years time, assuming no house price rise, what will you be? It may be worthwhile paying in £35 now to your mortgage, and £35 into your savings account.

I always find something else to spend savings on, will you prioritise remortgaging when it's 5 years away?

What will your mortgage allow you to overpay? There are restrictions on some mortgages.

I think the suggestion above of overpaying £35 and saving £35 is a great idea.

Thanks for the advice. My mortgage is 60% and my deposit was 40%. I'm looking to cut right back and save aprox £300 a month. I think I might overpay the £70 difference (so pretend my mortgage is the same as my rent was) and save the rest and increase the overpayment once I have increased my savings. Does that sound sensible? I know I'm overthinking this and definitely appreciate tips from more experienced people!

I can overpay by 10% (way more money than I will ever have!)

If you overpay, can you take the money back / have a payment holiday if needed? If so, I would overpay as much as I can afford, up to the limit allowed but draw it back if needed for some reason.

This is because (I assume) rate on your mortgage is likely to be higher than you'll get on savings.

But if you can't get it back without penalty I might increase savings first to 3-6 months of expenses / expenditure first then overpay to the max.