How to reduce our mortgage

firesidemaid

with a rate of 5.79% and with savings rates very low, it would make sense to pay off as much of a sum as possible.

if you paid off 20k you would save almost £100 a month in interest, which you would then overpay by each month by keeping your payments the same.

you could set yourself a mini challenge to get below the 300k mark.

ailuro2

http://new.egg.com/visitor/0,2388,3_54988--View_1028,00.html

have a play with this calculator - you'll see that adding £250 a month might not seem like a lot, but it could save you £92,756.13, not taking into account you changing to repayments. Then persuade DH once you're used to the £250 a month, to up it to £300 then more as you have it.

A difference of 1% in your interest rate would save you a massive £260 a month, which is why I feel it is an avenue worth investigating, but of course that's just my opinion.;)

JayZed

The key thing is to find out how easy it would be to borrow back any mortgage overpayments. As noted upthread, quite a few mortgages put your overpayments into an "overpayment pot" from which you can easily borrow back your overpayments at any time (without it being classed as new borrowing).

If your mortgage has that feature (and allows you to overpay large amounts without penalty) then it's worth putting most of your savings into it: you'll make big savings on the interest and you'll still have your rainy day fund.

whathavewedone

Oh is managing director of a small company that's been going since the 1970s. They supply food and drink to various companies (not restaurants or bars) in and around the London area. Some business has fallen off lately but he has replaced that business with other stuff - eg he is starting to supply schools and universities. He has also got some business from firms that have gone under due to banks calling in their overdrafts. Not nice I know but hey ho.

He is not as keen on the overpaying idea as I am so may need some persuading.

I will have a look to see if there is anything I can do from home. I'm also a trained secretary so I could do some typing maybe. If I'm earning extra money then I dont see how oh can object to me using it to reduce our mortgage.

I would love to take our mortgage sub 300k. The October valuation was £415k. According to Mouseprice our house is now worth £402k - their valuation in October was £411k so very close to the surveyor's valuation. Who knows how much further it will fall though . Do not want to be in NE.

Have thought about changing our mortgage but I don't think any savings would be worth losing 10k and we would also have to put another chunk of savings in to maintain ltv - bye bye rainy day fund.

Oh is good at budgeting and living within his means but isn't very interested in saving really other than the money he puts into his pension. He takes the view that if we got stuffed by interest rates we'd deal with it at the time.

weezie_2

Unless you can guarantee full speedy access to any overpayments as JayZed suggests, I'd be wary of dipping into your rainy-day fund.

You say that you're planning on a £250 overpayment, but that you think you could stretch to more. Why not find a savings account with acceptable access terms & pay 'additional overpayments' into that? If you find you really need the cash, you can raid these savings. If not, then you can periodically use this money to pay off lump sums from your mortgage. So long as you can train yourself to think of the account as holding mortgage money (rather than just extra cash you're entitled spend) you'll probably find it quickly accumulates - the money in it will proportionaly increase much more rapidly than it would otherwise appear to nibble away at a massive debt - & that'll give an emotional boost. No doubt you'll progressively find you can actually save more & more than you'd originally thought - particularly if you keep your eye on it increasing.

I'd guess something like a regular saver might give you some sort of interest providing you can vary the amount you pay in each month if necessary. (I've got a Halifax & FD one that does this - there'll be an up to date list of the best current ones elsewhere on the site.) You're unlikely to make as much interest on this 'additional overpayment' as the interest being charged on the mortgage, but it gives you a reasonable half-way house between maximising the savings & keeping the safety net of accessible funds.

whathavewedone

Hi

Thank you all for your advice. It seems everyone has a different opinion so I guess there is no "right answer".

We have made a decision that we are jointly happy with.

We are going to pay £150 a month from our current account plus a 2k lump sum from savings this year, 3k next year and 3k the year after that.

That way we won't be depleting our emergency fund by 8k all in one go and we won't have to pay charges (I think but need to check with the Halifax).

This will still leave us with an emergency fund of around 25k by the time our mortgage comes up for renewal.

I need to speak to the Halifax and ask them about a million questions - the main one being that by overpaying we are definitely going to make an impact on the actual debt and not just the interest (as our mortgage is interest only). Also our mortgage allows overpayments of 10% per year on a rolling 12 months - I think this means that we need to time our overpayments carefully for it to have an impact on the interest payable.

Bit of a novice with all this sort of stuff as you can probably tell!