How to reduce our mortgage

whathavewedone

Hi

We bought our house in 2007 with a 25% deposit. To avoid redemption penalties we took our previous fixed rate mortgage with us which came up for renewal in October 2008.

We put in 16k in October 08 order to retain our previous LTV as obviously the market had fallen over the course of the 14 months that we lived in the house.

Our mortgage is with the Halifax, interest only over a period of 25 years. It's a fixed rate mortgage at 5.79% until 31.12.11.

We intend to switch to a repayment mortgage when our fixed rate expires as I will be able to go back to work. At the moment our children are so young that the childcare costs make it completely pointless for me to work.

Our mortgage is £311,000 :eek: . We are going to start making overpayments of at least £250 a month from next month as we have both quit smoking and therefore we shouldn't even miss the money. This will only knock about 8k off the balance though which is a drop in the ocean. I think we could probably overpay by more than that but I'm not sure if OH can be persuaded and as I'm the one not currently working he controls the finances...

We have 30k in savings. I feel we should keep that money for a rainy day until our mortgage expires.

We also have about 3k in an ISA. Should we take the money out and put that in to our mortgage?

dimbo61

In a word NO
£30k is a very good emergency pot and you might want to up the overpayment to say £500 a month but with you having a break from work to have time with the kids ( and the costs of childcare !! ) I would leave the money in savings ( just try to get the best rate ! )
You can never get back the time spent with the kids when they are young so enjoy family life and consider how to tackle the mortgage once you are back at work GOOD LUCK

whathavewedone

Thanks very much for the advice. I think I need to sit down and work out whether we can cut down more to add to our overpayments.

There just seem to be so many unexpected expenses that crop up eg we need a buggy board. They are so expensive! I am going to look on ebay to see if I can find a cheap second hand one.

FeelingSkint_2

311K is a mammath amount to borrow.

At you current rate your paying over £1,500 pounds a month in interest.

I am assuming your very high earners to pay that on a monthly basis and afford to pay for the other monthly expenses.

I tend to agree that you should have a reserve pot incase things go T*ts up, and in climate anything is possible. I was walking through town yesterday and was actually very surprised how bad things are actually getting. Some of the retailers that have been there for years are dissoearing at a surprising rate.

Having said that, you need to do everything you can to pay the amount off as quickly as possible. Interest is dead money really. Just think what you could do with and extra £1500 a month!!!!

Make you think .......... don't it.

I pay £300ish and it makes me sick....I could have a 4 weeks abroad away with that.......lol

phizzimum

whathavewedone wrote: »

There just seem to be so many unexpected expenses that crop up eg we need a buggy board. They are so expensive! I am going to look on ebay to see if I can find a cheap second hand one.

kids are very expensive, I know. But don't feel bad about buying 2nd hand - after all, you know how quickly children outgrow things - so many 2nd hand items are hardly used. As you said check ebay but don't forget freecycle, ads in your local paper etc. You could post a wanted ad for the buggy board. There's bound to be someone who has one lying around and would be grateful to get rid of it.

Buying second hand also reduces your carbon footprint if you want to think of it that way!

JayZed

If I understand you correctly you have £30K in savings outside tax wrappers (i.e. not in an ISA), and also £3K in an ISA. Is that a cash ISA or stocks & shares?

What interest rate are you getting on your savings? And on your ISA (assuming it's a cash ISA)? And are the savings in your name or your husband's?

Also, by how much are you allowed to overpay your mortgage? And if you overpay, does that create a reserve that you can easily borrow back at a later date?

Depending on the answers to these questions, it may be worth paying off a chunk of your mortgage, and there may also be ways that you can maximise your returns on your savings.

Congratulations on giving up smoking!

whathavewedone

I have no qualms about buying stuff second hand, I've always been a bargain hunter! Have managed to get cheap buggy board today.

Yes we do have a big mortgage but we can afford it on one salary. Oh earns well, his business is doing fairly well at the moment - the company has never had an overdraft and the rent is very cheap - even the vans are owned and he hasn't had to make any redundancies yet so we don't have any immediate worries on that score. I'm a lawyer but not working at the moment because I want to stay at home with the children until they go to school. As we wouldn't be entitled to any help with childcare etc it wouldn't be financially worthwhile anyway. If oh's business did go t its up though I could go back to work and earn enough to pay the mortgage and he could stay at home with the children. Not looking likely at the moment though.

Anyway, as far as our savings go we have £30,300.00 in an account in my name and a cash ISA of £3000 in oh's name. So far as interest goes the amounts that they are making now are negligible so from that point of view it makes more sense to use them to pay down the mortgage...BUT

I like the safety net of savings. After all we could make a massive overpayment but still find ourselves in a situation where we had difficulty paying our mortgage for a few months and the banks could still repossess us.

This isn't an immediate worry but if interest rates are high when we come off our fixed rate that money could end up being a godsend.

dimbo61

Consider putting £3600 x 2 ( you and OH ) before april4th and same again after april5Th into ISA,s and also save into Barclays regular saver 6% before tax £250 a month to make most of savings you have.
Halifax also have regular saver.
You should get any interest from your savings tax free ( fill out the tax form ! ) GOOD LUCK

ailuro2

ask your lender what overpayments are allowed without penalty (most are 10% a year when it's a fixed rate deal) and whether it goes into an overpayment fund or has to be paid off the mortgage outstanding and can't be taken back.

We can take our overpayments back without penalty on our Co-op mortgage.

Also, look around for deals on mortgages - dependant on the penalty you would have to pay it might be cheaper to swop to a cheaper mortgage rate and pay the exit fees, especially on a mortgage of £311K.

Also, with your qualifications you could probably do a bit of work from home to assist your income, once the kids are in bed. Just a thought, there's an 'up your income' board here on MSE - might be worth having a look through there.;)

FeelingSkint_2

I think you have things in hand.

If you don't mind me asking, what line of business is your Husband in???

hundredk

ailuro2 wrote: »

Also, look around for deals on mortgages - dependant on the penalty you would have to pay it might be cheaper to swop to a cheaper mortgage rate and pay the exit fees, especially on a mortgage of £311K.

If you can afford the payments, I don't think I would consider changing mortgage in this situation. With house prices in freefall, I suspect you may now have less than 25% equity (since you added £16k to get to this figure in in Oct 08). This being the case you may find that you not only have exit fees but also have to add more cash to retain 75% LTV in order to get lower rate interest rates. I would have thought that on a £400k ish property, the difference between 75% LTV last Oct and now would be a large chunk of your £30k.