Balancing overpayments, savings and home improvements...

Jesthar

Hi, all! First post in this section. Might be long, so please bear with me...

Basics first - I have a dinky little 1 bed semi-detached house with is 50% shared ownership with the local council, so rent is very low. My mortgage is for £90k 5 years fixed with Nationwide (about 18 months in), and I can overpay by up to £500 a month penalty free, plus borrow back overpayments at any time should I need to. Currently I'm overpaying by £150 a month, and have been for over a year now.

I also have a reasonable amount saved up for 'emergencies' - roughly 2k in an '8% if you don't withdraw' type account, over £4k in a TOISA, around 1.5k in National Savings, and I currently have about 3k in my current account too. I need to double check some of these figures as I haven't touched the TOISA and NS accounts in literally years (oops!), and then hit the savings forum too!

The other thing is there are some home improvements I want/need to do, and this is where I'm after advice. I had very good double glazing installed early this year, so that's one major job done, but I still have the following on the 'to do' list (I have a very good builder I trust, and dad's not too bad at DIY either, so no worries there):

1. Get the loft properly boarded. This is currently top of the 'want' list, as I don't have a huge amount of storage space. Currently I've chucked three packs of loft board up to dump boxes on, but I have to haul the ladder in from the shed every time I need to go up, which means I don't very often! As part of this I want to get the cold water tank moved, as it's just been dumped right in the middle of the floorspace and renders most of the loft space unuseable. :rolleyes:

2. Get a proper patio laid. The previous owners just chucked a bed of sand down with slabs on top, and it's ant infested (they got into the kitchen this year :eek: ) and won't last for very long. I'm probably going to HAVE to do this next summer, truth be told.

3. Replace my part of the garden fence. Part of it is shored up, but a few panels were replaced just before I moved in, so I'm hoping it's going to last a couple more years at least!

4. Decorate. Part of my lease specifies I have to decorate inside at least once every 5 years - fortunately this is going to just be a paint job, and I can do that myself! Not planning on this for at least another year, barring disasters, hopefully.

There are other bits and bobs, but those are the biggies (barring re-doing the bathroom, which is a wishlist but NOT a need! :rotfl: ).

My dilemma therefore, is this - what is the best way to save for these improvements whilst still overpaying on the mortgage? All I've been doing at the moment is letting the money build up in my current account until I have enough to do what I want, but this is NOT very MSE! I suspect I'd be better off overpaying more on my mortgage, then borrowing back when I want to do major things, but I've never done this and I'm not sure how easy or quick it would be - anyone got any experience here? The other option would be to get my act together and get a decent instant access savings account, I suppose.

Anyway, thanks for taking the time to read all this, and any suggestions are gratefully received!

~Jes

BARGAINHUNTER!

I have an IF offset mortgage, and within that I have a current account, savings account and an ISA. Whilst I don't earn interest on either my current account, savings account or my ISA, just having them sat there offsetting the mortgage means that I an effectively overpaying the mortgage each month, as you only pay interest on the balance. My monthly mortgage payment are set, so as the interest is less and less each month, more of the mortgage payment goes towards paying off the capital. I also overpay the mortgage as well!

EG - say you had a mortgage balance of £100,000, a current account with an average of £500 a month in, a savings account with £10k in and an ISA with £10k and they were all offset against the mortgage. Instead of you being charged interest on the £100,000, you get charged interest on £79,500 - (£100k - £20.5k) There are some online calculators around which you can play around with which will show you what would happen if you input different figures.

Jesthar

Hi bargainhunter,

Thanks for the reply. I do know about offset mortgages, but as I'm one person on my own I had fun getting a mortgage at all! Just as well I have a very good IFA

As it is, I'm only 18 months into a 5 year fixed rate deal (fixed at 5.38% - I think!), so I'm not really in the market for switching mortgages at the moment, hence my questions about how to best balance things.

~Jes

StuartGMC

Jesthar
The first thing is that you are right to save for these spends, as they all seem to be "scheduled". I would also assume we're only talking in real terms of a few hundreds not thousands of pounds? In this case, I'd suggest with your knowledge of your household budgeting per year these sums can just be dropped in your instant access a/c?

Do you need £3k in the current account (or is that a max after pay day)? As you aren't on an offset, then have accounts you can switch cash in/out of very quickly which will give better interest than the current a/c. Once you have the "extra" to cover these planned spends, guess what, you've then found you can manage this "cost" every month and so you can increase your OP or ISA above your present payments.

HTH

Jesthar

Hi Stuart,

Thanks for the reply. Yes, the spends are as theoretically 'scheduled' as I can make them, bearing in mind the unpredictability of the future! I'd hope the cost of any individal element wouldn't reach four figures, but I'll make sure I'm prepared...

The £3k in my current account is roughly mid-month, just before payday is usually around the £2.5k at the moment but increasing steadily (when I'm good! :rotfl:). So yes, I really need to find a more productive home for about £2k of it, but where I can get my mitts on it easily when I need to. That's why I was considering the extra overpayments, providing getting it back on demand is as easy as they make it sound, but I've never done that so I can't be sure...

Guess I need to have a good look at instant access savings accounts, then.

~Jes

dimbo61

Hi Jes
none of the things you want to have done are either that important or need to be done straight away.
Have a look on the buy & sell for flags for the patio
order/buy them 1 month and get someone in to lay them the next.
Get a plumber to move the tank and then board the loft, buy proper loft ladders.
new fence panels can be bought for £18/20 each and delivered.
Keep up the overpayments and put the jobs you want doing in a list ( weather dependant ! ) and then tackle them one at a time.
GOOD LUCK

Jesthar

Well, I think I'm going to turn this into a sort of diary thread to keep me (and hopefully a few others ) entertained on the way to mortgage freeeeeedom! I realise many people would also have included 'keep me sane' in that statement, but life is far more fun when sanity is optional, don't you think? Be warned - entries are likely to be sporadic!

So, basic details (some repetiton here!). I have a 90k initial mortgage with Nationwide which began in May 2007, 25 year term with a five year fixed period of 5.38%. I've been overpaying by £150 a month since four months in (missed a couple of months due to initial expenses, seeing how my monthly budget panned out, and some untimely procrastination ). I could afford to overpay more, but on a good month that amount leaves me with money to spare, which I save up until I can afford to have work done on the house - see my opening post for the jobs currently on my list! I've already had double glazing installed, which has worked wonders on the need for heating so far this winter!

So, what's been going on this month? Well, got off to an unexpectedly expensive start - switched on the central heating for the first time on the 1st November, and discovered the circulation pump was shot. Thankfully my builder got it sorted by Tuesday afternoon, but that's about £160 I didn't expect to be spending. :mad: His plumber also said he thought the heating system is about 20 years old (and the house is actually 19 years old, so I suspect he is right), and though it's in good nick it might only have a limited number of years left. So I guess that's another thing I need to bear in mind for the potential job list - though hopefully not for a few years yet!

There will be another home improvement bill coming my way soon, too, but for more pleasant reasons! A friend gave the name of a metalworker who does custom made curtain poles, which I need for my downstairs bay window. I asked him to quote for both the bay window and a smaller pole for over the back door, and together they will come to just over £120, which was a very nice surprise as I was expecting it to be much more! I have the promise of money for curtains as a birthday present, so that should be taken care of.

I've also got the ball rolling on boarding the loft, should have prices in soon. The idea of moving the water tank has been abandoned after my builder found out it would cost about £1k! :eek: So we're going to leave it for now and just board half the loft, then the rest can be done if/when the heating system needs replacing, as obviously the replacement system would be a condensing boiler and the need for the tanks would disappear. Not as much storge space coming as I hoped, then, but enough for my needs! Might get some shelves put on the walls too whilst we're at it.

Right, that's it for now! Tune in next time for yet another exciting installment of... um... uh... dang...

~Jes

MrMicawber_2

I like the sound of being able to draw back down any overpayments. It almost looks too good to be true. If you are paying 5.85% then the overpayments assuming they affect your mortgage immediately are giving you an equivalent rate of 7.31% for a 20% tax payer and 9.75% for a 40% tax payer. However I've just checked the Nationwide website and can't see anything about being able to do this. It does say you can borrow more which I suppose is the same effect (i.e. overpay £1,500 over a year then borrow an exra £1,500 at the end of the year but normally there are fees / charges for taking out extra borrowing.

dimbo61

Good luck on the MF journey
My sister has just had a new bosch boiler fitted by bosch approved fitters.
Good system with 2 year guarentee and then cheap £165 a year maintence contract afterwards !
bosch Boilers did well in WHICH mag reports.
PS i dont work for bosch and not a plumber so may not suit your home.

Jesthar

dimbo61 wrote: »

Good luck on the MF journey
My sister has just had a new bosch boiler fitted by bosch approved fitters.
Good system with 2 year guarentee and then cheap £165 a year maintence contract afterwards !
bosch Boilers did well in WHICH mag reports.
PS i dont work for bosch and not a plumber so may not suit your home.

Thanks, dimbo! I have a Which Online subscription myself, a little extravagant some might say, but very useful, isn't it? Thankfully it's justthe pump which went, the rest of the stsyem is behaving nicely, and will hopefully last a good few years yet!

MrMicawber, yes, overpayments do take effect immediately - wonderful, isn't it? I suppose I should really look at seeing if I can make one off payments from my internet banking whenever I have the cash reserves to do so, see if I can pay off a little extra here and there.

My builder came round tonight with the estimate for my loft boarding. Annoyingly, the thrifty people who built this place spaced the roof joists extra wide so they didn't need so many, so normal loft boards aren't going to be sturdy enough to guarantee safety under load. That means thicker boards, which of course cost more. :mad: We're also planning on getting enough to board the whole of the loft space, working around the water tank as much as possible, then storing the remaining boards at the back of the loft so that come the time the heating system is replaced there is no worry about not being able to get compatible boarding, as it doesn't add a a great deal to the overall cost but plenty of peace of mind as standards and products can change!

I've also gone for a wooden wide tread loft laddder - bit of a luxury, I suppose, but should be both sturdier and safer than a normal ladder, and as I live on my own I want those aspects. And whilst we're up there we're also going to improve the TV aerial and cabling so I can get decent freeview reception, and put some lighting in too. Should be around £700 inc VAT all told - Merry Christmas to me!

~Jes

Dithering_Dad

Hi Jesthar, welcome to MFW!

Just a couple of points about your plans...

I'd check the terms and conditions of your mortgage regarding the borrowing back of overpayments. Some mortgage lenders charge a fee and also lend the overpayment back to you at their current mortgage rates, not at your original fixed rate. If this is the case, then it might be worth increasing your emergency money and looking at insurance policies as it will be cheaper than having to buy back your overpayments if you hit a financial pot-hole.

If I were in your position with shared ownership, rather than looking to overpay my part of the mortgage, I'd be saving up in ISAs and other high interest accounts with the intention of increasing my share of the ownership, especially while house prices are falling.

If you spend the next (say) 8 years paying off your half of the house (via the mortgage), when the time comes to start buying out the local council, house prices will have recovered (and indeed we could be in another boom) and it will cost you much more to buy.

The ideal would be if you could buy out the council in blocks of say 5%, rather than having to buy them out completely. Well worth contacting your council and seeing if this is possible.

Good luck with whatever you plan to do, because anything is better than spending 25 years (or more) paying interest to the bank!