Mortgage-Free Wannabe Welcome and Explanation

smeeandhe

This has been our aim for years. If things hadn't worked out as they did then we would have been mortgage free for years by now! We were in a small 3 bed semi in town and had been watching a couple of cottages in the sticks get bought and sold for a few years but never within our grasp. They needed complete renovations and each time they were bought, they were sold again without the work being done or people moving in. Eventually in Jan 2008 we went to see one of them again, four days overdue with our first baby and decided we'd go for it. We put our house up for sale, negotiated a fab mortgage with our bank for the new place, which involved borrowing against the equity on our old house to pay for the renovations. We moved in to the new place in the August, just managing to sell our old house before the property market completely crashed! We also decided to have another baby so that our kids would be close in age and I got pregnant that same month!! So we now have two young daughters, I am no longer working and can't go back to work because my office closed this year, and so we are living off my husbands wages alone. He earns a decent enough salary but also has OTE of around £12K-£15K a year provided he meets his sales targets (he sells VERY expensive measurement equipment). Needless to say he hasn't sold much this year due to companies going bust and the recession causing much belt tightening so we are living fairly frugally at the moment.

We would still like to pay off our mortgage early if possible but times are hard! We have about 4 savings accounts, none of which have masses of money in (no more than £5K or so) all with abysmal savings rates so I'm wondering whether we should just chuck the lot on to our mortgage? We are not currently paying anything off the mortgage as we are interest only and I get quite nervous about that fact. We actually have two mortgages - one is £173K and the other is £30K (which is one we will have paid off in full within 3 years as it was a separate deal we took out this year in order to buy 2.5 acres next to the house.

Our current mortgage deal is 0.39% above base rate -for the life of the mortgage - with the added bonus of being able to pay in lump sums as big or small as we want, as and when we feel like it. Obviously this is quite a large debt hanging around our necks, especially as I am not working (although I am currently studying for another degree in order to progress on to teacher training) and won't be for the next few years because of looking after the children. We do still have some work to do on the house - like landscaping the garden and getting an extension or loft conversion - it might be a large house but it still only has 3 bedrooms!

What should we do? I'd love to send the kids to private school for their secondary education but this is never going to happen whilst we have this mortgage. Do you think it's possible to pay back all that money before 2019? I'd love your thoughts!

black_taxi_2

could put all savings into one account--keep it as EMERGENCY FUND----thats a safety net for you

then end of each month if you have spare cash--do over payments mortgage

i feel if you put all your savings towards mortgage--you might be living on a financial knife edge

black_taxi_2

or build up savings--then keep a base for EF----then rake top off towards mortgage

alice88_2

hi martin, I like this "Paying off your mortgage is the best risk-free way to use your cash". I m so happy found this forum, I will recommend this to my mom,

cathh70

I have followed this forum for a while, and got some useful ideas and inspiration, thanks to many forumites! Hopefully someone can put my mind at rest that I am about to do the right thing.

After 12 years of being on fixed rates, and benefitting from savings at higher than the fix, we have now come to the position of having low savings rates hit us for the first time.

In summary
Repayment Mortgage £80000 at start, 13 years remaining with NRAM
Balance at 31st August £47975, after overpaying a lump sum of £5000 in August. No other overpayments have been made.
Current terms 4.99% for 10 years, due to end 1st Oct 2015.
Current monthly repayment £468
LTV 25%
Early repayment charges 3.5k, after 1st Oct 2010 2.8k
Unlimited overpayments allowed.

We always planned to pay the mortgage off at the end of the fix. We are able to pay off the balance in full this month, all the funds are in a fixed rate Cash ISA that is due to end tomorrow, however as much as we would like to be Mortgage free, we don't want to get stung by the charges. The plan is to pay as much as we can, leaving a small balance, only a couple of hundred pounds. According to NR, we can pay £47700, reducing our monthly payment to £0.80.

We will have some savings left in the ISA. Does it make sense to withdraw funds from an ISA?

kashi56

i satisfied your answer

skins81

I have asked my mortgage company about over-payment options:

- I can make montly overpayments to my mortgage but the minimum amount is £100. (My limit at the minute is about £60)

- Alternatively they can just add the £60 on to my existing monthly payment and it will reduce the mortgage term by about 7 years.

So my question is: Is making overpayments the same as reducing the term of the mortgage or is there benefits of making the actual overpayments ( In which case I may be able to push it and make the £100)?

Thanks in advance!

twinklesmum_2

A few words from oldies who are nearly at the end of their mortgage - you are all so lucky to have this site - when we bought our first houses (in the eighties), the general advice was 'take out as big a mortgage as you can - it has tax benefits', and the market economy was booming, so there was huge encouragement to spend spend spend and take out overdrafts and loans. It has taken us a long time to turn our finances around, but we have and our mortgage, which is now under £9,000, should be paid off this year. For what it's worth, I would say:

1. always keep a buffer for emergencies (we recently had both cars break down on the same day - cost £1500!

2. don't fritter money away - 'stuff' is easy to buy and difficult to sell

3. everyone has different priorities - if you live for your holidays, take them - you can't buy memories

4. if you have a set-back, don't give up - we were planning to pay off last year, but then our daughter decided to get married - we bit the bullet, had a great time, then got back on track

5. keep a close eye on everything you pay for - only this month our insurance renewal (property and contents) arrived from Direct Line and had jumped from £337 to £430 for no real reason - I queried it and got a refund of £100+ (the guy muttered something about discounts being applied wrongly....)

good luck!

curlygirl1971

skins81 wrote: »

I have asked my mortgage company about over-payment options:

- I can make montly overpayments to my mortgage but the minimum amount is £100. (My limit at the minute is about £60)

- Alternatively they can just add the £60 on to my existing monthly payment and it will reduce the mortgage term by about 7 years.

So my question is: Is making overpayments the same as reducing the term of the mortgage or is there benefits of making the actual overpayments ( In which case I may be able to push it and make the £100)?

Thanks in advance!

Skins - you probably need to double check with your mortgage provider. I'm on a repayment mortgage with daily interest, so this is how it works for me......

Next months standard payment will be £241.08 made up of:-
£135.99 Capital repayment
£105.09 Interest
(These are estimates based on my mortgage spreadsheet).

If I were to add £60 to my payment every month then my payment would be
£301.08 made up of:-
£195.99 Capital repayment
£105.09 interest

Assuming the interest rate applied to my mortgage remains the same and assuming I still want to add £60 then my payment the month after remains the same :-£301.08 made up of:-
£196.56
£104.52 interest, because there is less Interest to pay on the remaining capital.

Keeping my Standard Mortgage Payment the same (rather than reducing it) means that I am shortening the repayment period.

HTH - I 'think' I know the gist of it but I'm not very good at explaining it.

Are you using a Mortgage Calculator to see how your mortgage works? I use one by a MSE'er called Locoblade (he has a thread) and it's really good. It is not accurate to the pound though but its a very good guideline.

dexter-boy

I'm in my first-time home and don't intend to stay here for too long (another 5 years max.).

Would it be more beneficial for me to overpay my mortgage to the maximum allowed without incurring fees, or to save my money so that I have a bigger cash deposit when I want to buy a bigger house in a few years time?

I did lots of research into buying a house when I was a first time buyer but I'm really not sure how it works when you;re on the property ladder and want to move up it.

Any advice greatly received.

Thanks,

Dex