Overpaying Conumdrum

y3andy

Hi

Just have a bit of a conundrum that I am mulling over and am looking for a but of advice from other overpayers about what they did/or would do in this siutation. It may go on a bit so bear with me.

Background
Me and my girlfriend have a mortgage outstanding of 103500 which will reduce to around 99000 after overpayments by the end of the year. I am 26 and she is 23.
When we come around to remortgage at the end of the year we are going to reduce the term to 18 years and having factored in the obvious extra we are going to have to pay due to shorter term and higher interest rates I have worked out we can pay between us an extra £4000 per year in overpayments without comprimising on other things. This will reduce the term to around 10 years.

The Conundrum

If we were to pay an extra £4000 on top of the above £4000 (so £8000 put aside for the mortgage) we would just about be able to do that, reducing the term to around 6-7 years.

The problem with this is that for the next 6-7 years we would have to give up on luxories such as main holidays, upgrading our cars and all sorts of other things.

The question I have is do you think doing this is worth doing? The advantage is that I could be mortgage free by the age of around 33 and my girlfriend would be 30 and would then be able to make up for all the things we have missed out on over this time and more. On the other hand do you think it is worth making this sacrifice and having to live a lot meaner over what will probably be the years we should be going out and having fun before we set up a family.

I'm just wondering whether any of you have had this type of decision, what you decided and whether looking back you think you made the right/wrong decision. :beer:

whitewing

I would love to be able to clear the mortgage in 6-7 years, especially before you start a family.

Since we have come onto this site, we spend much less, overpay the mortgage etc but I don't actually feel that there is anything particularly that we want to do that we can't. We just cut down on the stuff we're not bothered about. So, we do go out with friends, but maybe do more meals together at home than in say a restaurant. Biggest thing for us was not wasting money at the supermarket. (Couple of hundred pounds a month).

By being savvy you can do more overpayments than you thought possible without cutting down as much on the other things as you thought you'd have to.

zekepes

I agree - compromise.

I wish I had given holidays and socialising with my DH a bit of a higher priority in my twenties. Whilst we were in a very good finanical position by the time we were 30 we were also getting divorced. All work and no play...

I am now married again, and 35, and overpaying our mortgage but not the the extent where we don't go out and have treats.

We have a £107K mortgage over about 15 years at the moment and make a regular payment of £1500 (a touch over £500 overpayment) and then annual lumps sums. We chose not to get a mortgage with a lower term but chose one with no penalities for overpayments (some only let you pay 10% year etc) instead. We really like the security of knowing we don't have to meet the higher amount - we should be MFI3 (mainly due to lump sums) but I would hate the pressure of a 5 yr mortgage!

Kaz2904

My early 20's were a bit different than yours. I started university at 21, got married bought a flat and had a baby at 23, got my job at 24 had another baby at 25 and moved to my house just after I was 27.
The thing is that we've not had much of a social life during this time because we have small children. We started out on the property ladder with virtually no money so we have always been pretty frugal. Things did start to slip after DS arrived but we reigned it in because we wanted a house and garden and the thought of having a £90000 mortgage terrified us.

There are ways to have a good social life and lifestyle without having to spend a fortune but could you not reassess everything like gifts and wasted money. Join quidco etc.
Maybe split the difference and pay £6k extra per year?

sdooley

how about you agree to increase your overpayments every year by half your pay rise?

StuartGMC

Y3Andy
"You never know what's round the corner". For me it was 1992, 27yrs old and a major car accident 5 wks before our wedding - I walked away from a roll down an embankment etc due to black ice which should have been far worse for me (the car couldn't have been more badly damaged than it was). Then four months later, employer went bust, so moved to wife's rented house 100 miles from the people I had worked with....

...then the good things happened. I could live with my wife all the time, not just the weekends, got a new job (120 miles round trip a day - remember that was the last recession and jobs were scarce) and two years later we could actually buy a house. As two graduates the prices were beyond reach until then.

We've overpaid since the outset, but the situation was different back then with annual calculation of interest etc. Once DD came along, overpayments had to be reduced, but we have always taken an annual holiday and enjoyed ourselves within budget, plus certain treats.

You will find a complete spectrum here on MSE of those who pay back the mortgage in a very short time and compromise on everything else, others perhaps like us, don't overpay as much as we could but try to balance the demands in combination with a portfolio of financial planning and "life".

My recommendation is to not put yourselves under so much stress to pay back early that it significantly impacts on your quality of life for such a long period and also if jobs come under threat you are not in a position of rapidly finding yourself in arrears. Also, if you have to get a lower-paid job in a poorly performing economy, far better to have a lower required monthly payment which you simply over-pay now?

I would consider that you won't get those years back, and "what if the unthinkable happens" may make you consider that good memories of times together are better than a mortgage statement showing how little the life term assurance had to cover....

I assume you have pension arrangements in place and also already have your 6months income emergency fund of ready access cash?

Also, what will need replacing in that time such as the kitchen, bathroom, new windows or soffits & guttering etc; what if one car becomes unreliable so it's running costs are excessive and you need to replace it? How old is the TV and music system, replacement PC....

With the financial position you are both in, have you considered the alternative of an offset mortgage when you come to change. You will rapidly accrue a sizable amount so you benefit from interest on a lower capital amount whilst retaining access to the money if required. You can simply take out for 18yrs, but overpay and offset without penalties, and if you do the calculations you'll quickly find that the headline interest rate is not such a "penalty" once you are offsetting.

Good luck with your planning, do let us know how you get on.
Stuart

y3andy

Thanks for all your replies

The general concensus seems to be not go the whole hog and enjoy myself a bit while I am young (ish) This is probably the most sensible course of action even though it is addictive paying as much as possible.

Stuart - Offset mortgages is something that I will be looking into but I like the fact that with a fix you know exactly how much i'm going to be paying for a certain amount of time. I like to budget way in advance and would become fixated with interest rates if they varied (i'm a bit sad like that). Me and my girlfriend have both got pensions with work, a few grand each in savings behind us and no other debts so getting rid of the mortgage is the way to go.

I suppose I'd better actually discuss this with my girlfriend as I'm sort of making decision behind her back. (i'm sure she will agree to whatever I decide though :eek: )

StuartGMC

y3andy wrote: »

Stuart - Offset mortgages is something that I will be looking into but I like the fact that with a fix you know exactly how much i'm going to be paying for a certain amount of time. I like to budget way in advance and would become fixated with interest rates if they varied (i'm a bit sad like that).

First Direct do a fixed offset. That may be worth investigating? Remember, if you run your current account so you keep the cash there for most of the month then pay off credit card in full, offsets which include current account may be better than those which only include savings.

The nice thing about offset is seeing your effective interest rate getting less over a period of time, especially when banks are raising their rates :T

Alion

I'm in a similar situation to you - HB and I are 25 and we're trying to overpay whilst we can afford it. Our situation though is that we want to get a bigger house in about 5 years without increasing our basic monthly payment so that we can survive on a single salary to bring up kids.

We sat down and made a five year plan to pay off £75k from our £200k mortgage, with overpayments increasing as our salaries increase (we hope). we've tried hard not to overstretch ourselves and are still holidaying and socialising and doing loads of stuff, just trying to be sensible with it.

For example we wanted to go out so we had buy-one-get-one-free pizza at pizza express this week and then went to see a show having bought the tickets half price that lunchtime - a very extravagent date and not something we do often, but with a little preparation and flexibility we were able to do it much cheaper

getmore4less

One thing to consider is the total saving you could be making if mortgage free.

If these exceed the ISA allowance and/or you are likely to be 40% tax payers then using the ISA allowance must be factored in as part of the plan.

The TAX benifit of ISA are for life, savings on reducing debt are for the term of the debt

AS for spends, prioritise the luxuries, put something in the budget and think about how to gets value is much better than putting nothing in the budget and then getting despertate for a holiday and spashing out.