Overpay or save for next deposit?

[Kindlynow]

Hi,

Am not savvy at all with mortgages /savings so excuse me if this is really obvious.
I am set to inherit about £45,000 soon. We owe £170,000 on our house that is worth about £210,000. We overpay our mortgage by £100 each month. This is all we can currently afford to overpay as I'm the only earner. We want to move before our toddler starts School so in about 2 years.
Am I better of overpaying the mortgage in a lump sum (up to the 10% that is allowed) this year and next or saving the money for the deposit for the next house? If we don't use it on the mortgage we will just put in premium bonds most probably.

Essentially, is equity better than deposit? I'm so unclear about how it all works.

Depends on the interest rates. If what your money could earn in interest exceeds the interest rate on your mortgage, you’re better off investing that sum in an easily accessible fund.

Premium bonds don’t pay any interest. They are just lottery tickets for monthly draws.

I’d go to motley fool or money expert and research your different options.

You don't need a cash deposit if you move. The difference between the value of your current house and the outstanding mortgage will be your "deposit".

Check you don't need to pay early repayment charges for a big overpayment

Posters on here are mad for premium bonds but I think they're pretty rubbish- very low returns atm.

I don't need a cash deposit? God, I really know nothing. All the calculators I've done have asked what deposit I have. Does that simply mean equity?

Will check out Motley Fool, thank you.

Your equity is your deposit.

Have enough cash for legal fees, moving costs and estate agent fees, stamp duty possibly. 10k being cautious?

Use the rent to pay off your mortgage up to what is allowed (10% you said).
Save the rest

Rest to pay off your mortgage **

@Kindlynow

I don't need a cash deposit? God, I really know nothing. All the calculators I've done have asked what deposit I have. Does that simply mean equity?

Will check out Motley Fool, thank you.

No your equity is your deposit So if you owe £170k and sell your house for £210k you have £40k deposit (ish, you need to factor in solicitor/estate agent fees etc unless you pay that separately, we’ve paid it out of the equity)

Thanks everyone - very inexperienced with having any savings at all. Really appreciate your input.

If it was me, I'd keep some aside in savings and put rest on mortgage. Depending on what savings you have, that number would vary. I'd make sure I had 6 months income saved for emergency fund, and perhaps another 3-5k for any bigger emergenices and put rest on mortgage!

Slight nuance to the 'don't need a cash deposit' thing. Whilst yes as far as mortgages go your equity is your deposit, it is worth having a few thousand saved for this if you are expecting quite a steep step up the housing ladder when you move.

When you are in a "chain" of property purchases all interdependent and happening simultaneously, the first time buyer at the start of the chain will have an actual cash deposit of usually at least 10% of their purchase price but it may be more or less depending on what mortgage deal they have qualified for.

On the day of "exchange" when everyone in the chain exchanges signed contracts committing to the sale, it is normal for each purchaser to hand over a % of the purchase price as a deposit and the default % expected is 10%.The property vendors never handle this cash, it is all dealt with virtually by the solicitors and the banks. If it's a fairly short chain with relatively modest step-change in property value between each person's sale and purchase then it might be that the £15,000 cash that the FTB hands over for property #1 (buying for £150,000) is then accepted as an 8% deposit for the purchase of property #2 (for £187,500) and then is accepted as a 6% deposit for the purchase of property #3 (for £250,000) so the same lump of cash changes hands 3 times on exchange day.

If your "forever home" is likely to be a significant step up in value from your current property, the above pattern may not work out - it could be that the cash deposit that your buyers hand over is not deemed to be adequate security by the vendors you are purchasing from, and you may need to top up the deposit a bit. I wouldn't worry about this if the difference in value between what you buy and what you sell is less than say 20% but if it is more than that, having cash in-hand to top up your deposit might be wise.

But with £45,000 coming to you and a 10% limit on what you can overpay without penalty, you should have a few thousand left in-hand anyway?