Paying off mortgage early

JodyBPM

We want to pay off our mortgage early, but have a rather haphazard approach to it, so I thought I'd post on here, and see if I could get any advice on the best way forward, and try and have a firmer plan about it all.

Background info:
We have an outstanding mortgage of 70k on a property worth approx £300k. £40k is repayment, and £30k is IO, with an endowment due to mature in approx 13yrs. The endowment is likely to have a shortfall of about 5K at maturity. The purpose of paying the mortgage off is to upsize - our current house is just about OK size wise, but won't be ok in the very long term for eg the third bdrm is 5.5'x7.5' - fine for our 2yr old in his toddler bed, but I can't imagine a 14 yr old boy managing in it iyswim. There is scope to do a loft conversion, but I'd basically like to get the mortgage paid off before we make a decision re moving or extending, what we do will obv depend on a variety of factors like the state of the market etc at that time.

We're a family of 4, DH works ft, I work 3days a wk and our children are 3.5 and 2.5yrs old. We don't have any childcare cost due to a fab family on both sides. Our combined income is around £45k pa, plus I get CB and Tax credits, which combined are just under 200pm.

The way we're currently paying off the mortgage is by saving £250 a month each month, and paying off a lump sum every 3 yrs. I'm also lucky in that my dad usually gifts me £3000 a year, which we also add to savings to pay off the mortgage. Were around half way through the 3yrs at the mo, and have around £10-£15k in savings

My main questions are re the endowment - should I save it as savings and , attempt to repay the full £70k, should I keep it, as it could be transferred if we upsize? I'm not terribly worried about the endowment shortfall, as I can't forsee a time where we wouldn't have savings to cover it. My morgage is current with a small local BS who are great, I have a 1% discount for three years on the variable rate, which therefore makes it around 5.5% (poss 5.29 actuall, but I'm not sure). Part of the terms of this discount is that I can't make capital repymts in the discount term, hence repaying lump sums every three years rather than monthly or annually. I can however reduce the term if I want to. I do wonder whether to do a fixed term with another lender at the end of this period, in order to get it paid off quicker - but again what about the £30k IO.

Basically, as you can probably tell from all the waffle, we just don't have a plan. I know that saving and paying off lump sums is a good start, but I keep thinking that I'm possibly missing a trick somewhere. I don't want to live like complete paupers to pay off the morgage super quick, as we have a family to bring up, but I would like to be in a position to move or extend in around 5yrs and would like the morgage paid off around then, or at least down to only the endowment bit.

Any advice?

cornerstone13

Hi - I won't attempt advice as there are lots of people on this forum who have far more knowledge than me, but here's what we did in a similar situation.

In 1999 we had a £100k IO mortgage with Halifax, due to finish in 2016 plus 3 endowments, maturing in 2005, 2012 and 2016 (first two came with us from previous houses, IYSWIM). We changed to a Standard Life Freestyle (think it's still available) and although I can't now remember what the monthly payment was at the beginning, we actually paid £1000 a month. This meant that we were overpaying every month by an increasing amount and budgetwise, we knew what the outgoings would be. Freestyle allows you to overpay regularly or with lump sums, take a payment holiday or drawdown your overpayments if necessary. (I don't work for them, I just think it's a brilliant idea)

The consequence is that, combined with the monthly overpayments and using the endowment that matured in 2005, we finished our mortgage in Feb this year - 8 years early. What a good feeling. And we still have the other two endowments which will become part of our retirement fund when they mature.

Hope this helps

globalds

You will have to consider transfer and arrangement fees.And with the credit crunch whether you will be offered a mortgage by some institutions.
I moved to HSBC a couple of years ago and have overpaid every month ever since.It is a one way street as mine is a standard mortgage so can't withdraw any overpayments or shorten the length of the mortgage.But the monthly rate comes down a bit every month .My target is to cover all the interest payment part of the mortgage every month ...This doesn't happen to often ...But gets easier every time I overpay.
One thing that may be worth mentioning here is any kind of mortgage insurance you have .
I have changed mortgage protection to cash lump sum ..same monthly payment ...Seemed a waste to overpay ,only for the insurance company to benefit should I "pop my clogs"
I went with Chambers insurance ...I'm pretty sure I found it on here (MSE)...you pay a one off broker fee instead of the usual monthly percentage .
I got me and the wife covered for the same price I had been paying for myself ,and not on decreasing terms.

Welshlassie

If you can't overpay, but are able to reduce the term, I'd work out waht you are able to OP each month comfortably and ask them how much it would reduce he mortgage by to change to the term. As you have a good lump of savings. That way you are paying of the capital much quicker and therefore saving interest and you will have a nice lump sum to knock off when the fixed rate comes to an end.

Have a look at the egg OP calculator, you can change the term on that or add the OP in and it will show you your monthly repayments, see how comfortable you free with them.

You could always also do a combination of the above and what you are doing at the moment.

Good luck.

JodyBPM

globalds wrote: »

You will have to consider transfer and arrangement fees.And with the credit crunch whether you will be offered a mortgage by some institutions.
.

Good point to take into account arrangement fees actually, I hadn't thought of that. I'm suprised by the comment about whether we'd be offered a mortgage though. We impeccable credit records, a very low LTV and only want borrowings of approx 1.5 x income - I would have thought we'd have no problems. Have things really got that bad????

Re mortgage insurance, that someone else brought up, we don't have any:eek: !! That is another reason to keep the endowment actually. Both DH and I are in safe final salary schemes, both of which pay out a lump sum of 3x salary on death in service. DHs 3 x amt would cover outstanding mortgage easily, but mine would currently be about £10k short - and as the endowment is in my name, that would cover the shortfall. I guess not having mortgage insurance does mean we're not covered in the case of illness or redundancy. Redundancy is likely again to be covered by our employers, we'd get good enough packages to tide us over. I'm not so sure about illness though. Is it very unwise for us not to have insurance?

Hmm. I do think I need to come up with a plan, as I'm sure we could pay off way more than we do at present, I just feel I need some kind of plan to motivate me.

Capricorn_One

Would it be worth changing it all to repayment rather than part and part. At least then, automatically you'd be paying more off each month?

Also, that £3000 would be better off in an ISA as you have a very good interest rate.

Keep going, only £70K on a £300K house must be a nice feeling.

JodyBPM

Capricorn_One wrote: »

Would it be worth changing it all to repayment rather than part and part. At least then, automatically you'd be paying more off each month?

Also, that £3000 would be better off in an ISA as you have a very good interest rate.

Keep going, only £70K on a £300K house must be a nice feeling.

I'm not sure whether I should change it all to rpmt or not. If I was paying off the mortgage purley to be mortgage free, then I think that would be the best option. But since once we have paid the mortgage off we're likely to take out another mortgage to either move or extend, I don't know if it would make sense or not. I suppose what I'm thinking is, that having £25k maturing in 13 yrs time isn't much good if we'll actually need the £25k is say 5yrs time towards a new house, which we'd then have to take another mortgage for. Would I not be better just letting this one run, and have a lump sum in savings? Got to say, I really wish I'd just started out with a rpmt mortgage on my first property, then things would be much simpler!

My savings are currently in an ISA, which does actually pay a higher rate than my discounted mortgage!

Yes, 70k mortgage on this house does feel good, but I have to be honest, its so far been more about luck than hard work, I was fortunate enough to have a lump sum from family when I left uni, and I bought a flat at just the right time. The highest my mortgage has ever been is 100k, when we upsized to this house. I've just been lucky with family support and rises in the housing market. Its only the last couple of years that I've recognised how lucky we are, and have tried to make an effort build on that and overpay the mortgage. I've got quite an affluent family, and recently I had a real bee in my bonnet about wanting to pay the mortgage off myself, rather than just floating by and relying on handouts and inheritance for the future.

dimbo61

check with your small local BS if they do offset mortgages !
I think they are great as they give you much more flexibility.
In 3 years the market will ( we all hope ! ) be very different so keep up the saving into CASH ISA,s and enjoy time with your kids.
GOOD LUCK

Lunar_Eclipse

JodyBPM wrote: »

We want to pay off our mortgage early,

From what I read, your (ideal) objective is to have paid off your mortgage within five years. So I would ask your mortgage provider how much your monthly repayments would need to be to reduce your term to five years. If this is an achievable amount, this would appear to be the most straightforward plan and the option I would take. If not, change the amount to a comfortable level and review your outgoings and come up with a multi-faceted plan based on your goals and what you are prepared to do/live with and without etc. Bear in mind that your children are relatively cheap at the moment without any concept of money and keeping up with the Jones' etc. Aka, perfect timing!

The insurance cover you have for the mortgage is fine in my non-professional opinion (we have similar). However, it might pay to investigate long term critical illness cover (not sure of the exact name) though in the event that one/both of you are unable to work for some reason.

But you are off to a great start and I am sure your mortgage will be gone in no time!