Mortgage-Free Wannabe Welcome and Explanation

chirpchirp · 27 August 2009 at 10:11PM

I'm not sure why so many people ask questions in this thread. I tend to find they get overlooked here. I think people are more likely to get a response to questions if they create a thread and then I think it's more likely to get answered.

black_taxi_2 · 5 October 2009 at 2:09PM

ive just re-mortgaged to modernise my flat/pay off all loans

now have a 40k mortgage left on a 100k property.i can overpay am much as i want--no over payments penalties.

whats your thoughts--putting money monthly in a all-share investment tracker instead of overpayments?

Ugi · 9 October 2009 at 12:09AM

You probably need real independent financial advice to make that call - overpayments on your mortgage will generally beat most types of cash saving, at least if you are a taxpayer, because you would pay tax on interest earned but you don't pay tax on the interest you save on your mort'.

ISAs come close because the're tax-free but you need a pretty cheap mortgage for it not to be a higher rate that even the best cash ISA.

Whether the FTSE will exceed the rate of your mortgage over the period you are interested in? - that needs a crystal ball, which if I had I would have no mortgage and a massive lottery win instead! Conventional wisdom seems to be that over longer periods (5 years at least preferably 10 years) share trackers will probably outperform, but they are defo' more risky - you probably won't but you could not only lose the interest but much of your savings as well!

If you are looking far enough ahead to smooth out the ups and downs, then I suspect you would be advised to take a balance of mortgage overpayments and share trackers (that's what I do - I'm 37). However, the less risk you want the more you should overpay and the less you should put into shares.

Best I can suggest I'm afraid.

Ugi.

black_taxi_2 · 9 October 2009 at 8:30AM

big thx ugi

i will put 75% into overpay--25% into tracker fund

Sonia_L · 12 October 2009 at 6:09PM

tahanks for your valuable post

andyjohnbiker · 17 October 2009 at 5:27PM

I overpaid my mortgage for several years before paying it off completely. My way of explaining it to people who thought I was mad is as follows.
Say you had a credit card and youd taken it to its limit of say 100k. Would you only make the minimum payment every month? Of course you wouldnt the interest would cripple you and it would probably take around 25 years. Sound familiar?
With a debt, and a mortgage is a debt (just a so called cheap one) its compound interest that makes the lender richer and the borrower poorer.
By overpaying the capital you start to rebalance this and its a mighty powerful tool in your armoury.
No financial adviser or mortgage broker will ever tell you this because they rely on your business to pay their salary and hence their own mortgage probably.
For example my overpayment initially reduced my monthly fee by around £6.50. Sound paltry? In 10 months thats £65.50, in 2 years its over £120...a month less. That compounding working in YOUR favour not the banks,estate agents,mortgage broker or IFAs.
Why is it now the lenders are starting to worry that they may not get some of their money back because they lent unwisely that they are eventually encouraging people to overpay? Overpaying capital is one of the biggest "secrets" in the financial industry.
Most people I try to persuade tell me "Oh its alright for you I cant afford it etc. etc."
Well I scrimped, saved, lived frugally at 1st and DID find it and so can you.
Walk to work, share a lift, give up smoking, take sandwiches, do a Martyn Lewis makeover. Do whatever it takes, but do it and you wont regret it.
Being mortgage free is like the biggest pay rise youll ever get.

abouttimetoo · 18 October 2009 at 11:34AM

Great post AndyJohnBiker - think you should repeat it on the next thread down as well - the mortgage free roll of honour including pearls of wisdom.

I really liked your credit card comparison!

Regards

pixie359 · 20 October 2009 at 10:57AM

Hi all, first post.

I am just about to take out my first mortgage - £57,024 (the odd numbers are for fees etc.). I'm on a seven year fixed (I'm the only one working, contract ends soon, so while I should be fine, I'm really very happy to have all that security) with a 30 year term, which allows overpayments by 25% of the outstanding balance per year.

Due to larger than originally expected inheritance, I'm probably going to be able to pay another £10k or £12k off about 2 months in. This means that minimum repayments will be about £120 per month under my original budget, so I should be able to overpay enough to bring it down to 14 years. This is reasonable, and still leaves me enough to have a fairly fun lifestyle.

Therefore, based on my current situation, never getting an above inflation pay-rise in my life, my dad sticking around, and my girlfriend not being able to get a job when she finishes uni, I'll still be totally debt free before I'm forty. Seeing it expressed like that makes me very happy indeed.

Any more hints and tips would be welcome, and good luck to all.

my_definition · 9 November 2009 at 8:24PM

hi guys

my mum pointed out the savings i could be making on my first mortgage and when i looked at the figures i was shocked at how much i could save. As both me and my other half are students i was doubtful but i got a letter last week to say that my two overpayments have taken a year of my mortgage.

im over the moon as it was only 2 monthly mortgage payments and im only 20

sooo happy

abouttimetoo · 11 November 2009 at 4:23PM

Great news My Definition

Yes, it's amazing isn't it how much difference making Overpayments can make. have you thought about joining any of the MFW challenges?

Regards

Mortgage-Free Wannabe Welcome and Explanation

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