overpay mortgage or bung in ISAs ?
Discussion
right, so we own our flat with a mortgage on it in london. its very recently been remortgaged and the bank valued it at 265k. There is a mortgage of 198,750 on it. So we have 25% equity now.
We want to keep this flat and rent it out when we come to buy a house in 2.5-3 years time from now.
the 25pc equity (assuming it doesnt go down in value between now and 3 years when we want to move) is sufficient to get a BTL deal on it. The figures stack up, so we are happy keeping it.
what we are doing now is saving for the house and the stamp duty etc on that house. I think that we will need about 65k all in - 53 ish for the deposit (15pc) stamp duty (10k) and fees (2.5k give or take). So lets call it 65k.
so if we want to get that together in 3 years, we will need to save about 1.8-2k a month which we can do.
we have a couple of grand set aside if the boiler breaks etc.
The question is this - the mortgage is now at 3.04pc for 3 years. I can overpay 10pc a year without penalty. however once I've overpaid - its gone and isnt offset. That aside, should I still be overpaying it and then simply draw it back down when we remortgage it in 3 years time (this will clearly only work if the flat is worth at least what its been valued at recently).
we will be remortgaging the flat at the end of the 3 year fixed rate in any event because the follow on rate isnt great, but would we be better off taking the slight hit off keeping the cash liquid in ISAs etc over the next 3 years because there is the outside risk that the flat wont value up in 3 years time (I think it will but appreciate nothing is certain these days) or should we just bung it in then remortgage it when the time comes?
my fag packet calculations indicate that we will be marginally (i.e 2k ish) better off over the 3 years by overpaying when compared to putting it in ISAS (which is obviously good but not the be all and end all - I'm more concerned aout getting the cash when the time is right)..
any thoughts?
We want to keep this flat and rent it out when we come to buy a house in 2.5-3 years time from now.
the 25pc equity (assuming it doesnt go down in value between now and 3 years when we want to move) is sufficient to get a BTL deal on it. The figures stack up, so we are happy keeping it.
what we are doing now is saving for the house and the stamp duty etc on that house. I think that we will need about 65k all in - 53 ish for the deposit (15pc) stamp duty (10k) and fees (2.5k give or take). So lets call it 65k.
so if we want to get that together in 3 years, we will need to save about 1.8-2k a month which we can do.
we have a couple of grand set aside if the boiler breaks etc.
The question is this - the mortgage is now at 3.04pc for 3 years. I can overpay 10pc a year without penalty. however once I've overpaid - its gone and isnt offset. That aside, should I still be overpaying it and then simply draw it back down when we remortgage it in 3 years time (this will clearly only work if the flat is worth at least what its been valued at recently).
we will be remortgaging the flat at the end of the 3 year fixed rate in any event because the follow on rate isnt great, but would we be better off taking the slight hit off keeping the cash liquid in ISAs etc over the next 3 years because there is the outside risk that the flat wont value up in 3 years time (I think it will but appreciate nothing is certain these days) or should we just bung it in then remortgage it when the time comes?
my fag packet calculations indicate that we will be marginally (i.e 2k ish) better off over the 3 years by overpaying when compared to putting it in ISAS (which is obviously good but not the be all and end all - I'm more concerned aout getting the cash when the time is right)..
any thoughts?
Max out both ISAs that's >£20k a year.
If you take cash out after you have sold you will NOT gone able to offset the interest on the mortgage of that element against rental income.
You may have a plan to buy to let in 3 years time might never happen also have a look into how easy it is to get a buy to let these days it isn't just the LTV it is getting very hard to play in this game. Might get much harder in the future so you may not be able to do it. Look into it anyway do you know the score.
If you had an offset mortgage then clearly you'd put everything into the offset account and it is possible to link in cash ISAs (I do this so don't lose our entitlement).
If you take cash out after you have sold you will NOT gone able to offset the interest on the mortgage of that element against rental income.
You may have a plan to buy to let in 3 years time might never happen also have a look into how easy it is to get a buy to let these days it isn't just the LTV it is getting very hard to play in this game. Might get much harder in the future so you may not be able to do it. Look into it anyway do you know the score.
If you had an offset mortgage then clearly you'd put everything into the offset account and it is possible to link in cash ISAs (I do this so don't lose our entitlement).
Welshbeef said:
You may have a plan to buy to let in 3 years time might never happen also have a look into how easy it is to get a buy to let these days it isn't just the LTV it is getting very hard to play in this game. Might get much harder in the future so you may not be able to do it. Look into it anyway do you know the score.
^This.Also, you need to consider that when you remortgage in three years time, your intending on moving to a BTL product and raising the capital for your deposit. Not all BTL providers will allow you to raise money out of the property, especially for the reasons you will want to. You will also be a First Time Landlord (I'm assuming) which will further narrow your options.
I'd keep it simple and save the extra cash somewhere else other than the mortgage in this instance.
Sarnie said:
Welshbeef said:
You may have a plan to buy to let in 3 years time might never happen also have a look into how easy it is to get a buy to let these days it isn't just the LTV it is getting very hard to play in this game. Might get much harder in the future so you may not be able to do it. Look into it anyway do you know the score.
^This.Not all BTL providers will allow you to raise money out of the property, especially for the reasons you will want to. You will also be a First Time Landlord (I'm assuming) which will further narrow your options.
I'd keep it simple and save the extra cash somewhere else other than the mortgage in this instance.
princeperch said:
many thanks gents - that sounds like a bonkers rule to have but was one that I wasnt aware existed
Lending is much more restrained now and the controls which should have existed are now in part being used. Clearly it will create a more of a those who have and those who don't but also those new entrants will be far safer bets and bets is what every investment is.
If Europe goes pop buy to let lending might need 50% LTV or just not be offered or have such small amounts they can lend each year.
It is great to have plans ambitions but with any business plan be prepared for change. Clearly your life goal is happiness great family health then I'd assume nice big house nice car etc etc.
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