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Original poster

Paying more off mortgage

10 replies

DustinTime · 03/08/2012 12:58

Hi, just hoping to get some advice/opinions on whether it?s worth paying a bit more off our mortgage each month.

Background is we bought the house 18 months ago, plan to be here for another 18 months. We bought the house at a good price, we are in London and so although prices aren?t going up, they seem to be static which is fine. We never bought this house to make money on it, I was pregnant and we agreed that we wanted a bit more security and space (were previously living in a 3 floor flat with no outside space) and as we had the deposit thought it was a good thing to do. The house is a two up two down so not what I would consider a family home but there are lots of families on our road so maybe I am wrong!

I say moving in 18 months but that is not set in stone, we are moving O/S (back home) and so can be flexible with the timing etc. Obviously if things go really tits up and the market takes a massive turn downwards then we will stay. We would happily have another DC while living in this house but now have our hearts set on moving before our next one (which is not planned, and hopefully a while off yet Smile).

Is it a good idea to pay off more each month if the time we are here is so short and if so, what would be the minimum you would pay? We are saving each month but I just would like to do a bit more but a few people I have spoken to it about in RL have said not to bother.

Thanks for any advice!

OP posts:
WhereMyMilk · 03/08/2012 13:01

We are paying ours off as and when we can. IMO it's worth it. You get negligible interest on savings if any at all, but you do pay interest on your mortgage.

NeitherShreddedNorSmug · 03/08/2012 13:05

I agree with Where. We're also trying to whack down the mortgage as and when we have spare cash.

Just check your mortgage deal - some (like ours) will only allow you to repay up to 10% a year without a penalty, so there's little point busting a gut to pay off the mortgage if it's going to cost you more to do so.

OneLittleToddlingTerror · 03/08/2012 13:09

I think it's worth it. Your next deposit is either from the sale of the house or cash. (Though I think you still need 5% in cash). If your mortgage rate is higher than the cash interest rate you are getting, then it makes sense to pay more into the mortgage. You'll be 'saving' more in interests.

RCheshire · 03/08/2012 13:11

There are a couple of ways of looking at it to my mind:

  1. Financial - what is the mortgage interest rate vs that you'd get by saving

If you've a mortgage interest rate that's >3% then you're probably best paying off additional mortgage debt. If your mortgage rate is below 3% then your money may do better in savings (at least until you're maxed out on cash ISAs)

  1. Behaviour - by overpaying a set amount on your mortgage (& this being fixed) it 'forces' you into saving. You may save less otherwise depending how much self-control you have!
OneLittleToddlingTerror · 03/08/2012 13:13

Oh people at my work just told me I'm stupid and you can get the cash deposit needed through the chain. So you do't actually need to actually save up any cash!

Original poster
DustinTime · 03/08/2012 13:21

thanks everyone... I think I will pay more! We are pretty good at saving (well I am, DH just goes with whatever when it comes to our money) but I think it's a wise move. I just checked and we can't pay more than £500 a month without being penalised which is fine.

OP posts:
RCheshire · 03/08/2012 13:25

The only other thing I meant to add is that I'd always keep a decent buffer back accessible in case of emergency/unemployment/etc.

For some that's 3 months salary or 3 months outgoings.

Whatever it's size, keep that amount in an accessible savings account (even if it's one that only allows 1 or 2 withdrawals a year - unless you expect more emergencies!) which you should be able to et ~3% gross on.

janmoomoo · 03/08/2012 14:01

Prob no use to you now, but when you move... The best thing we did was get an offset mortgage. Bung all spare cash in there, including money DH is saving for his tax bill, etc. Then its bringing down the cost but you can still get it if you need it. Works brilliantly for us.

tricot39 · 03/08/2012 17:59

If you are with nationwide you are limited to 500 per month when on one of their products but can increase if on basic rate. You can withdraw the overpayments with little notice or take a payment holiday.

Beware mortgages that calculate interest annually as this means your overpayments dont do much.good.

It is more tax efficient as you save on your gross lending rate (higher than for savings) without attracting the tax on interest you would get in a savings account.

It is rarely mentioned by financial advisors because it has zero benefit for them. We have done it quite a bit over the years and it is a brilliant way of building up a bit of extra cash reserve.

tricot39 · 03/08/2012 18:01

Ps yes the deposit gets passed up the chain but having extra cash reduces your LTV and/or allows you to buy a better house!

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