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  • FIRST POST
    • RichyRich
    • By RichyRich 2nd Sep 17, 8:44 AM
    • 1,811Posts
    • 2,188Thanks
    RichyRich
    Balancing multiple goals
    • #1
    • 2nd Sep 17, 8:44 AM
    Balancing multiple goals 2nd Sep 17 at 8:44 AM
    I've been lurking on this board for some time and thought it about time I set up my own diary to maintain commitment and measure against my objectives.

    A bit about me: I'm 31 and so is my wife. We live in east London and have lived in our flat since 2010 which we bought on a shared ownership basis. In 2014 we staircased to 100% ownership which landed us with a 30 year mortgage of around £240,000. Our monthly payment was around £960 with an interest rate of 2.49%. In May this year we switched deals and our new rate is 1.19% which reduced the monthly payment to approx £810.

    We both earn reasonable salaries and my wife works in the public sector with a defined benefit pension. I work in finance and have a defined contribution pension to which I contribute 10% of my salary and my employer contributes 6%. My goal is to retire at 55 but I understand that the minimum age at which I'll be able to draw my company pension is going to rise soon to 57, and track the state retirement age by 10 years thereafter, which irritates me a bit, so outside of this I've opened a S&S ISA in the hope that this will be able to "tide me over" between the age I want to retire and the age at which I can draw my pension. Or at least give me the option to. Currently there is only £100 per month going in but I would hope to increase that.

    The lower mortgage payments have enabled us to make reasonably large overpayments since May of north of £700 per month. Our strategy for this is simple. We each get paid our salaries into our own single accounts and contribute £1000 per month each into our joint account, from which all the household bills are paid. Whatever is left in that account at the end of the month is transferred into the mortgage. Any unexpected "windfalls" (e.g. I got a cheque for student loan overpayments last month) are paid straight off the mortgage. Our current balance is £220,000 plus a hundred or two. I'm addicted to checking it.

    Assumptions are a huge thing, but assuming no change in interest rate (unlikely), overpaying the mortgage by this amount could bring the unexpired term down from 27 years to 13. The thought of still paying the mortgage at 57 fills me with fear.

    I have savings of approx £20,000 In cash, spread across highish interest bank accounts including a FD Regular Saver, a Nationwide Regular Saver, a Ford Regular Saver (Yes, I got one!), Tesco, TSB and Bank of Scotland, which I've predominantly built up over the last two years. While i could in theory at least put this straight towards the mortgage I want to keep some reserve for emergencies (worst case scenario would be a job loss and ideally I'd like this figure to be £10k higher to feel more secure.)

    Where i suppose I struggle is determining what proportions to apply to the various goals. I want to pay the mortgage, I want to retire early, and I want an emergency fund big enough to tide me over if an unfortunate event happens. I could build up my emergency reserve by not overpaying the mortgage (but lose out on the ability to overpay by so much due to the low rate), I could increase my pension contributions by paying less into my emergency fund (but lose the security of having cash), or I could increase my overpayments by paying less into the pension or emergency fund (but lose the tax/NI relief on my contributions). As for the actual percentages applied, I just guess!

    My wife is not interested in finance at all and if I said let's both add an extra hundred to the joint account each month for the mortgage she'd trust me and do it. The £1,000 each and overpay what's left was just plucked from the air. It could just as easily have been any other number that's higher than our monthly outgoings. My 10% to pension was plucked out of the air. Why not 9 or 11? Why not 15?

    In the more immediate term, I'd like my mortgage to be under £200,000 by the end of the two year fixed term (May 2019) and I'd like my cash pot to be at £30k by then too. At current levels of contribution the value of my pension pot should be around £90k by then. So it's a nice position to be in; I'm just not sure that I'm optimising it in anything approaching a scientific way.

    Anyone else in a similar quandary?
    Last edited by RichyRich; 02-09-2017 at 10:09 AM. Reason: Correct typos
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
Page 1
    • RichyRich
    • By RichyRich 2nd Sep 17, 8:51 AM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    • #2
    • 2nd Sep 17, 8:51 AM
    • #2
    • 2nd Sep 17, 8:51 AM
    Actual mortgage balance as at today's dare (for tracking purposes):

    £220,266.44
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
    • RichyRich
    • By RichyRich 2nd Sep 17, 8:57 AM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    • #3
    • 2nd Sep 17, 8:57 AM
    • #3
    • 2nd Sep 17, 8:57 AM
    Mortgage payments since May:

    May: £1568.21 (£758.89 op)
    June: £1786.31 (£976.99 op)
    July: £1544.65 (£735.33 op)
    August: £1535.66 (£726.34 op)

    Contractual monthly payment: £809.32

    Total overpayment May-August: £3,197.65 (that I will never pay interest on again)
    Last edited by RichyRich; 02-09-2017 at 9:00 AM. Reason: Add total overpayment amount
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
    • Betterthanever
    • By Betterthanever 2nd Sep 17, 9:10 AM
    • 365 Posts
    • 1,511 Thanks
    Betterthanever
    • #4
    • 2nd Sep 17, 9:10 AM
    • #4
    • 2nd Sep 17, 9:10 AM
    You seem to be doing ok without the need for a scientific approach? Sometimes a more flexible one activity works best as your gut feelings change from month to month or year to year. What feels most important right now? How secure is your job? What is the likelihood of base rates being low when your current deal comes to an end, allowing you to roll over to another good rate? Etc etc. Whilst the answers are largely unknown, your attitude to the questions and your gut feeling will give you the direction you need.

    There is no right answer but for you there is also no wrong answer, so whichever way you approach it, you're moving in the right direction. Whether you are maximising your potential savings etc is of less importance if you are working on the basis of security and peace of mind, if that makes sense.

    I'll be following your diary with interest. Good luck?
    • RichyRich
    • By RichyRich 2nd Sep 17, 9:28 AM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    • #5
    • 2nd Sep 17, 9:28 AM
    • #5
    • 2nd Sep 17, 9:28 AM
    Hi Betterthanever. Thanks for your reply!

    I agree with you in principle and I don't really take a scientific approach to much. It's just that we work hard for our money and want to put it to the best use we can. Obviously we don't know what will happen to interest rates (or house prices, or much else) in the future so defining "optimal" is difficult. You're absolutely right that I can readjust priorities as I go along.

    There are no immediate concerns on job security although I work for a large international finance house so there is some uncertainty regarding Brexit. Our main office will move from London to another European country but a presence will be retained here. My job will need to continue to exist - it's just a question of where! Whatever happens it won't be overnight, there should be opportunity to plan for it, and if the worst happens and I am made redundant, I've worked there 6 years so I would be eligible for a payment. We are extremely fortunate that we could exist on one salary.

    My main problem is that I want to do everything at once! Maybe I need to sit down with a pen and a piece of paper and, as you sugget, map out all of the goals and decide which is most important.

    I forgot to add: when we retire we'll be looking to move out of London. So being able to sell our London property and have as much of the proceeds as equity as possible rather than repaying the lender would be a bonus!
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
    • michelle09
    • By michelle09 2nd Sep 17, 9:54 AM
    • 395 Posts
    • 1,471 Thanks
    michelle09
    • #6
    • 2nd Sep 17, 9:54 AM
    • #6
    • 2nd Sep 17, 9:54 AM
    We're in a similar position to you (in London, couple of years younger, slightly larger mortgage, aiming to retire early etc.) - and I'm not sure there is a scientific way to approach it.

    We have a much smaller cash pot than you as we're still carrying out repairs. It doesn't bother me because I have two jobs, OH has one and we have two spare rooms that will immediately go up for £500/month if either of us are given notice. An emergency fund of 10k is enough for us to stop worrying.

    Right now my plan is to throw any spare cash at the mortgage and to finish paying it off before we're 40. Then we can use the mortgage payment as retirement savings. But no-one can predict what the future holds so I think it's about what lets you sleep at night!

    Good luck though, you seem to be racing through your mortgage.
    • RichyRich
    • By RichyRich 2nd Sep 17, 10:02 AM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    • #7
    • 2nd Sep 17, 10:02 AM
    • #7
    • 2nd Sep 17, 10:02 AM
    Thanks michelle09! I see the low interest rates as a golden opportunity to overpay. While there's an argument of "why save interest of 1.19% when you can gain interest of more than that in a savings account" (and I have some sympathy for it) the way I see it is that if I overpay while the rate is low the balance will be less if (when) rates rise again. We can overpay 10% of the original advance each year (so about £24k) - we'll, we could if we had £24k a year to overpay with! We have been through the whole "not overpaying because we're doing home improvements" stage and we have only just got the place the way we want it. We've been here seven years! And I swear I never want to see a paintbrush again!

    Good luck on your journey. We'll get there!
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
    • michelle09
    • By michelle09 2nd Sep 17, 10:23 AM
    • 395 Posts
    • 1,471 Thanks
    michelle09
    • #8
    • 2nd Sep 17, 10:23 AM
    • #8
    • 2nd Sep 17, 10:23 AM
    I detest being in debt. (I never have been, got my degrees fully funded, paid rent in advance, didn't have a credit card until I was 25 etc). So even though you're right and we could make more in a savings account, I'm not interested. I want the mortgage and OH's student loan gone so that we don't owe anything to anyone.

    We're on 1.74% but it's a lifetime tracker and we could pay it off tomorrow if we had the funds with no ERC. They even give us "today's redemption balance" on any statement they send.

    Maybe one day you'll have more than the 24k and can stick the remainder in a savings account! We will have the home improvements done in 2 years because we didn't have much of a choice (we moved in with no hot water, a smashed in back door, lights in less than half the rooms and windows that didn't close). The joys of London property, right?

    We will! And then retire in luxury nice and early. My grandparents visited all 6 inhabited continents in their retirement (and my grandmother is now planning an Icelandic cruise) and I want the same lifestyle.
    • RichyRich
    • By RichyRich 5th Sep 17, 7:59 PM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    • #9
    • 5th Sep 17, 7:59 PM
    • #9
    • 5th Sep 17, 7:59 PM
    September overpayment: £1,041.57
    Today's mortgage balance: £218,437.03

    Nice chunky overpayment this month due to a refund of student loan repayments which I'm not quite sure how I overpaid given that I specifically set up a direct debit to avoid such a situation. But it feels good to have the mortgage down below £220,000.

    I like that my lender updates the balance daily - makes it easier to track just how much interest is being charged (even at 1.19%!) I calculated that this month's overpayment reduces the interest charged by 99p per month. It doesn't sound a lot, but that's 99p more of next month's contractual payment that goes towards the principal rather than the interest. Every little helps!
    Last edited by RichyRich; 05-09-2017 at 8:00 PM. Reason: Correct typo
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
    • wishingthemortgaheaway
    • By wishingthemortgaheaway 5th Sep 17, 10:55 PM
    • 575 Posts
    • 2,208 Thanks
    wishingthemortgaheaway
    You are going great guns well done. I used to knock £1k capital a month from our mortgage it was a good feeling.

    Just a warning about hmrc and student loans grrrrrrrr

    I paid off my loan in June 2015. They took the next month's payment because their systems are too slow, so I knew I was due a refund, but didn't Persue it.
    In August 2016 I get a letter saying 'we owe you money, give us a ring' so I did and I received a refund. It was more than I was expecting, but 'hey ho' I thought 'they know what they are doing'
    Roll forward to July 2017 and I get another letter saying 'hmrc have updated your contributions in the tax year 14-15 and you owe us £163.00'

    I was hopping mad!!! They couldn't restart my paye style contributions because I gave up work during maternity leave. I paid it off a couple of weeks ago when I received my tax rebate from 16-17 (owed due to maternity leave)

    i hope this isn't the case with you, but forewarned is fore-armed and all that.

    Wish.
    The 100 payment countdown (each payment = £400)
    2017 July : £36,800 8/100 Aug: £36,411.85 8/100 Sep: £35,945.66 10/100 Oct: £35,500 11/100
    Term Mortgage free date: October 2029
    Current mortgage free date: April 2025
    • RichyRich
    • By RichyRich 6th Sep 17, 7:17 AM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    Well, thanks for the heads up, Wish. I found out in exactly the same way (a letter telling me to ring them) so fingers crossed the same thing doesn't happen! I have provided up to date income details so it "shouldn't ", but I'm not that naive!

    Cheers
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
    • Happier Me
    • By Happier Me 6th Sep 17, 7:34 AM
    • 375 Posts
    • 815 Thanks
    Happier Me
    It is difficult to get the balance right and many will say overpaying a low interest mortgage with taxed income instead of paying into a pension is not making the best use of your money...but I undertsand the psycological benefits of reducing the mortgage balance and eventually being mortgage free.

    In your position I would consider paying enough into pensions to remove yourself from higher rate tax (if you pay it and can afford it), calculate the income you want from 55 so you can work out the gaps in savings, try to save in such a way as to make the best use of your tax allowances during retirement.

    And don't neglect your partners public sector scheme. I don't know what scheme she is in but the acturial reductions for taking this early can be brutal - I plan to save into a DC scheme to fund my earlier retirement years, delaying taking my public sector pension into my 60s. It's worth considering.
    • RichyRich
    • By RichyRich 7th Sep 17, 6:49 AM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    Hi HM. Some great thoughts. I hadn't thought about using the tax boundary as a lever to magnify the position before. Your suggestion would shift the current allocation %s significantly but I can see how it would produce an outcome where the money could be used more efficiently. A quick calculation indicates that it would involve roughly doubling my pension contributions so a complete rebalancing would be required. I will certainly give it some thought!
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
    • Madcatgirl
    • By Madcatgirl 7th Sep 17, 1:59 PM
    • 327 Posts
    • 3,956 Thanks
    Madcatgirl
    Hi - just wanted to say hi and you're doing well! I also use my pension contribution as well as childcare vouchers to take me under the higher rate tax threshold, but I'm just scraping it, so it's not too much of a problem.

    We're paying nearly 4% interest in the final year of our five year fixed mortgage deal (which seemed a brilliant deal at the time) and now have more than 50% ltv and under £150k. However, we're still paying more per month than you! I can't wait to get a new deal. It makes no sense for us to keep anything more than emergency funds in cash (although I have a couple of grand in s&s ISAs) as the mortgage interest is so high.

    My situation is pay off the mortgage as quickly as possible, both financially and psychologically. However, many in the FI community disagree with me!
    March 2016 - £178,914.59; July 2017 £146,160.38
    Mortgage end Sept 2043; Target - pay off by March 2022, now Sept 2021
    Target balance July 2018 £112,560
    • RichyRich
    • By RichyRich 10th Oct 17, 8:37 PM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    October overpayment made: £726.88.

    Going to be an expensive month as going on holiday, major watch repairs and the service charge accounts have just come through demanding an additional £300-odd.

    These things are sent to try us. Let's see how we get on!
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
    • Poorlittletightgirl
    • By Poorlittletightgirl 10th Oct 17, 9:20 PM
    • 29 Posts
    • 87 Thanks
    Poorlittletightgirl
    Have you looked at what your LTV may be at the end of your fixed rate? May be worth trying to OP enough to get you into the next band and a better interest rate next time. Especially if interest rates are set to rise.
    • RichyRich
    • By RichyRich 11th Oct 17, 6:39 AM
    • 1,811 Posts
    • 2,188 Thanks
    RichyRich
    Hi Poorlittletightgirl

    Yes, we're already in Nationwide's lowest LTV bucket (according to the desktop valuation they did when switching products) but you're quite right - at the end of the two years (of which we have 18 months to go) ideally I'd like to be under 50%.
    #145 Save £12k in 2016 Challenge: £12,062.62/£12,000.00 Beginning Balance: £5,027.78 CHALLENGE MET
    #060 Save £12k in 2017 Challenge: £7,614.32/£12,000.00 Beginning Balance: £12,976.79 Still to save: £4,385.48
    This is the secret message.
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