What to do?

skintchick

I'm sorry this isn't totally DFW (cos I only have one 0% debt now) but I still have a dilemma.

I had planned to overpay my mortgage using the spare money leftover from my lodger's rent each month.

But the though of not being able to get at it worries me.

I have £1,600 in savings, which doesn't seem very much if I am made redundant in January (distinct possibility) or even if I'm not. I have no other money.

Should I stick with the plan to overpay the mortgage, or would you save some more?

I have about £200 'spare' if I stick to my budget (!), so should I split it?

How much savings should I have?

I just don't know what to do - I've never had spare money before!!!

Jen_Jen_5

the theory is that you should have 3 - 6 months of your regular wage in savings.

its a gamble, pay less interest in the long run or run the risk of having no money if lose job?

i would split it until you feel comfortable with the savings you've got will cover you in an emmergency, alternavely look at an offset morgage like Virgin one. These allow you not to pay interest on the amount of money in your account.

eg morgage 30,000 6% interest
savings 2000
you only pay interest on 28,000 at 6% and you have instant access to your savings.

see the mortages board.

Mango

I'm not too sure about this, but is it 3 months salary that people advise on having in savings? Could you save the money till you find out about the job situation in Jan? If you keep your job (which I really hope you do), I think I'd split the money between savings and mortgage, or factor in some money for savings in your budget.

*sorry cross-posted with Jen-Jen

skintchick

I already have £50 a month going into savings, this is extra to that. But perhaps I don't have enough emergency money - three months' wages net is £3800, so I have a way to go yet!

lush_walrus

How about saving the money for a year in a high interest account so that you can build it up and have peace of mind. Then at the end of the year, pay off a lump sum. Im not sure about the mortgage you have, but some amount interest once a year, so are pointless to pay off extra month to month.

If you don;t know if this is the case on your mortgage or not, then get in touch and ask them.

halloweenqueen_2

Is there a chnace of swapping to another mortgage - still with your lender so hopefully no fees where the savings you have in a linked account save you money on the interest, that way its still accessible and if you don't need its still working to pay off your mortgage?

skintchick

To answer:

I can overpay by £500 a month so can't do a lump sum after a year as it would be too much, but I could save it until July 2007 when the fix ends, then pay off some as I change to another fix

Interest is added monthly

An offset is only any good if you have 40% or more of your mortgage amount in savings (according to those on the mortgages board)

I think maybe I need to save up about 4k, and then think about overpaying.

Thanks

johannamse

I would definitely save more. Lots more.

I always think in terms of loss of job/illness and say...

FOR LOANS/cc: Would you rather have a new kitchen when you are sick, but have to worry about monthly payments, or a not so nice kitchen and no debts?

IN YOUR CASE: Would you rather have a smaller mortgage (having shaved only a bit off of the interest), but no savings or a bigger mortgage and loads of savings?

(mmm...not sure I'll be up for articulate philosopher of the year this year.)

Being financially savvy is about being in control, and big savings behind you will give you great control over your life. Stick them all in instant access ISA or high APR savings ac.

Anyhow...have you actually worked out how much you will save over the next x years by paying £x per month onto mortgage. I bet it's not a HUGE amont.

Good Luck.

skintchick

It IS actually. If I overpay by £200 a month I will be mortage free in 10 years.

But I think I'd like more savings as a safety net first.

Although I would rather have less mortgage than more savings as a general rule.