I'm Gonna be a MFB

vicstar_2

Hello everyone

Hope you don't mind me joining you - I have been reading through this thread and feel really inspired:j

Since all you good people are doing so well at paying off your mortgages the OH and I have decided to give it a try.

About us: we have a £255k mortgage with A&L at a fixed rate of 4.74% until the end of May 2009. We will then reduce to a tracker at 0.99% above base rate for the rest of the mortgage. We are allowed to pay off up to 10% of the mortgage penalty free in January and have just arranged to pay off £25,553 bringing the total down to £229,986.

When our fixed rate comes to an end we have some savings to make a £110k overpayment with (we might have managed to save up a bit more by then but we are going on a 3 week holiday in March which we are going to splash out on so realistically that will be all we can afford). So, come June our mortgage will be reduced to approx £120k

I have just been looking at the Fool mortgage calculator and realised that if we keep up our current level of repayments plus add a bit more to take us up to £2,000 per month we could pay the mortgage off in 5 years just before we reach 40 :j

Given that we have about 20 years left to run on our mortgage the required repayments would probably only be about £500 so would your advice be to overpay each month, reduce the mortgage term or save up and pay off lump sums periodically? (I have no idea which of these is best). One thing we are trying to factor in is that we are hoping to start a family in the near future so I might spend some/all (in my dreams!) of the next 5 years not working which would bring down the amount we could afford in repayments considerably.

I also have approx £10k saved in an ISA (as does my OH) but we are reluctant to put all our money into the mortgage in case we need it (I am sure the boiler is going to give up the ghost shortly and that will no doubt be costly to fix!) especially if I am not working and we may well rely on our savings to afford holidays etc.. (while I do want to be mortgage free I don't want to take things to the extreme that we spend the next 5 years miserable because we are trying to live on too tight a budget). However, as we are going to have such a great interest rate at least for the next year (hopefully) I feel that we should try and take advantage! Any views on this?

Anyway, enough of me, any views/advice for a newbie would be much appreciated!

Vic

setmefree2

http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

Martin Lewis Article - "Should I pay off my mortgage?"


You should read the above to help you make a decision.

Personally I think you should keep the ISA savings as they are in a tax wrapper that will give you interest free savings forever.

to MFW board and Good Luck

dimbo61

There are lots of things to take into account and you need to sit down with your other half and work out a plan for the next 5/10 years !
You have already paid off 10% this year so now have a mortgage of approx £230k and £110k in the bank earning WHAT in interest %?
As you have a £20k emergency fund you could pay this £110k off the mortgage in May 2009 and go on holiday in june with a much smaller mortgage of approx £120k.
BUT and this is the BIG BUT you also plan on having a family and have time off work ( how long ) or even give up work for several years ( kids goto school ! )
You mention you age 34/35 ? and having a family SOON
I dont know what you and OH earn and how you live day to day but LONDON is not a cheap place to live.
There will be lots of new deals in the next few months and I like and have a 5 year OFFSET fixed rate mortgage with my savings offsetting my mortgage and pay normal ( gross ) payments each month on the full mortgage as if the savings were not in the offset account ( hence paying off my mortgage early while still having my savings if I need them ! )
Lots of planning so if you want go and see a whole of market mortgage broker in march/april GOOD LUCK

clearmydebts

Best of luck. You sound very motivated.

gallygirl

Just to add my tuppence worth - also worth checking if A&L would let you have OP's back. That way if you did pay a lump sum off you could claw back if necessary. Alternatively, if you did pay off the lump sum you could reduce your monthly payments drastically if you wanted time off work when you have children.

I would look long and hard at interest rates on savings & mortgage come May though - for some us with much smaller amounts of savings we would sooner pay off mortgage or stick in offset even if we could get fractionally more in a savings account (unlikey now, I know!), however with that amount of savings it's worth making a purely financial decision rather than a psychological one.

Welcome & good luck :T

WGG1848

Very glad to see that you are revueing all your options, but give a thought to this.
Would you put money into an investment which is loosing money?
House prices are going down.
You can't spend a brick.

Dithering_Dad

WGG1848 wrote: »

Very glad to see that you are revueing all your options, but give a thought to this.
Would you put money into an investment which is loosing money?
House prices are going down.
You can't spend a brick.

Your argument is more against buying a house in the current climate than paying the mortgage off a house that is already owned.

We have to pay the mortgage off, regardless of whether the value of our houses rise and fall. If you do overpayments, over the long term we're actually putting less money into the property, i.e. we pay less interest on the mortgage loan. Thousands of pounds in some cases.

The money was put into the investment the moment we buy the house. That a lot of it is borrowed money is immaterial because we have to pay it back and as I've stated, the sooner you do, the cheaper the loan.

Overpaying the mortgage also protects you against the worry of negative equity and the worry of any shortfalls in endowments or other investment vehicles that were supposed to pay off a mortgage. Overpayments also reduce your debt levels and monthly outgoings at a time when people are struggling to service their debts and having their income reduced by a combination of loss of overtime, loss of pay rises, reduction in salaries or job losses.

Finally, where else would you advise people to invest? Cash savings are giving pretty poor returns and the stockmarket is a rollercoaster. As long as the OP ensures they have enough emergency savings and are contributing a sufficient amount to a pension plan, paying down debt is as good a way to spend their money as any other.

StuartGMC

WGG1848 wrote: »

Very glad to see that you are revueing all your options, but give a thought to this.
Would you put money into an investment which is loosing money?
House prices are going down.
You can't spend a brick.

The mortgage is a debt to be cleared; the value of the property was only important at the time of purchase in this context. Change in the market value has no bearing on the debt to be repaid nor interest charged on it, although it does impact on LTV when looking for alternative mortgages.

Offsetting with overpayment would be worth considering, but do remember the £50k limit each for banks which collapse. Personally, I would look to have the emergency funds separate from the ISAs. Remember, some offsets also allow you to include cash ISAs, so they don't grow whilst offsetting, but do remain in the tax-free wrapper once you have paid off the mortgage.

However, assuming the savings and lump sum payments reflect your current salaries rather than inheritance then a financial adviser would be a sensible move, as they can advise on the impact of various options you have if you do have children and stop work etc.

Have you got a very detailed spreadsheet on your present expenditure and required savings for items you know you need to replace (car, white goods, boiler etc)? With this detail it will be much easier to review yourselves and with expert advice. If you don't have a household budgeting sheet I can send you one if you PM me.

Good luck