Brand new mortgage - and now the MF challenge begins

kunekune

This looks like it's the first post in my MFW diary. My apologies in advance for saying so much, am a bit of a waffler on, and think by writing ...

A bit of background on us.

After nearly 3 years of renting, following international relocation, we have taken the plunge, and became home owners again a week ago. We move in tomorrow. I spent the last twenty years mostly paying no more than had to, MEWed a couple of times, had lots of money on credit cards etc. The relocation and the need to save a deposit (we arrived with no debt but not a lot of money) focussed the mind. We still have no debt other than the mortgage and have started saving rather than spending it all (just as well, given our ages, you might say - our pension pot isn't up to much).

So, my goal is to be MF in 7. It's not difficult on present figures but there are some big uncertainties that might stuff up. Here are the details:

House purchased for £172,000.
Repayment mortage is £129,600 over 18 years
Type of mortgage is tracker, staff rate at a bank - 0.5%
No restrictions on overpayments, no early repayment penalties
Monthly payments currently £625
Balance in savings accounts after purchase approximately £6000
Our after tax income: £2500 (me), £1800 (OH - this has childcare deducted at source), £260 (DLA for son), £130 (child benefit), I also earn around £4000 a year for 'consultancy' which is our holiday fund

We need to replace the car (nothing fancy, another reliable workhorse needed, budget up to £3000), don't want the emergency savings to drop below £3000, I'll have a £1000 tax bill in the autumn, and we will have rent as well as mortgage for 2 more months. However, we have been paying £675 rent and saving around £1000 a month, without any difficulty at all, so the figure of £1000 - £1500 a month is the initial target for overpaying. So that looks as though we'd be MF in 7 even without stretching ourselves ...

But that's not going to happen. The first complication is that it is unlikely OH will have an income long term. Redundancy is a real threat, and if that doesn't happen, medical retirement within the next 5 years (young-onset Parkinsons, diagnosed in September). That would reduce our income by about £1500, if we take out work-related expenses and add in additional benefits (he would get carers allowance as we have a child on DLA, and/or maybe qualify for DLA himself ... ). I will come to the top of my scale at work soon, and promotions are hard to come by, so my salary is a bit static. I can't take on more work, I already do a 45-50 hour week in the main job plus the contract work, and OH isn't able to do all the housework/cooking. I'm a rather knackered mum already (albeit a well-paid one, I'll admit it - not boasting, just saying I know I'm lucky).

The second complication is that we'll not have this fantastic mortgage deal for ever. Once OH leaves/is redundant we have to move to an ordinary mortgage, which will cost more, and of course if interest rates start going up we'll switch to fixed rate quite swiftly anyway. Finally, I also want to start overpaying into my pension, which is a final salary scheme with the ability to purchase extra years. I started it with 22 years of working life left, being optimistic, so that's quite important and with low interest rates/house prices not going up, it's a good investment of some of the spare income. OH may get a discretionary payment on his money purchase pension (again, only started 3 years ago) if he takes medical retirement, but given the situation in banking at the moment, they may not exercise their power to do so. So he could end up with no pension (though we'll be entitled to the state pension as our time overseas still conts).

Given all this, I think 9-10 years is more realistic. But we are only going to plan our lives 3 months at time while OH's job security and health are so uncertain. We can pay the mortgage and everything fine on my income, we made sure of that when taking out the mortgage (it was based on OH's income, not mine). But how much we can overpay then I don't know.

So first 3 month plan:

extra expenses expected: £1500 for annual holiday, £1000 to top up savings and replace car, £500 for small appliances and some outdoor furniture, holiday club for 3 weeks in summer £600
extra income coming in: £1200 for one job invoiced already, £1000 for other nearly completed, £675 for one I haven't started yet

Overpayment on first month of mortgage: £600
Overpayment in July: £1000
Overpayment in August: £400 (because of holiday club)

Those are gentle goals, and that's how I want it while we recover from the most stressful year of my life yet (ie, am not asking for people to ask how we manage to spend so much ...).

silvercar

I just wanted to say good luck in your new home.

My philosophy on mortgages is really abt in your case, with the risk that OH's health could deteriate. Paying your mortgage is like balancing your food intake, MEWing and not keeping up with repayments is like overeating and binge eating living a poverty lifestyle in order to be mortgage free is like anorexia. The trick is to balance your lifestyle and mortgage repayments to give yourself a decent lifestyle now at the same time as keeping an eye on the future.

setmefree2

Firstly, let me say that I'm sorry to hear about your OH's diagnosis of Parkinson's and then I'd like to you to the MF community. I wish you tons of good luck with your MF journey. Make sure you keep adequate emergency savings to hand and keep posting....

All the Best

SMF2

Little_Mama

setmefree2 wrote: »

Firstly, let me say that I'm sorry to hear about your OH's diagnosis of Parkinson's and then I'd like to you to the MF community. I wish you tons of good luck with your MF journey. Make sure you keep adequate emergency savings to hand and keep posting....

All the Best

SMF2

I'll second that, couldn't have put it better myself.

Best wishes
LM

kunekune

Hi: first update. Our first payment has gone out, and it included £625 of actual repayment (low interest rate, shortish term), and yesterday we made our first overpayment, of £2000. So the mortgage is already less than it was when it started less than a month ago. It's a bigger overpayment than planned because we're probably not going to replace the car for a couple of months after all, and if we are, we'll take some out of the savings account. We'll still have £3000 in there (max car budget is £2000), and the mortgage terms mean we can get overpayments back anyway if we have to. So it's a good start.

On the financial security front, OH has an impending interview about his own working future (did I mention he was in one of those large banks with lots of redundancies ocming?). It looks as though he might be ok - his project is one of the few to survive the 'takeover' and there are quite a few positions in the new team, but we'll have to wait and see. I refuse to get myself in a panic about it, we're not in any danger of insolvency, and I'm mainly trying to see it in positive terms. It would be fantastic to have a house husband and a clean-er house! And not to have to keep missing days from work with sick kids. We just wouldn't have so much disposable income to pour at the mortgage.

setmefree2

well done on that OP:T:T:T:T:T and with the job stuff

kunekune

We've now been paid ... There is quite a bit extra still in the current account but the next month might be expensive because we have to pay for holiday club and it's my son's birthday. I normally start the month with a £4000 balance (I don't have a credit card so I try never to get anywhere near overdrawn), but this month I'm going to leave £5000, and we can transfer some out again later if it looks like I've been too cautious.

So that's another £500 paid off.

setmefree2

kunekune wrote: »

So that's another £500 paid off.

well done on that :T:T

dimbo61

If you do have to move mortgage consider a long term fixed offset mortgage with say first direct/YBS as you can put your savings into the offset and pay a lump sum off the mortgage IF your savings get to near £16,000 ( benefits !)
Good Luck with all the family

StuartGMC

Dimbo61 makes an excellent point regarding risk associated with "too much" savings. I'd recommend looking at anticipated expenditure for next 5years and then pro-rata to gauge what should be saved. For example, will you need any specific equipment for OH in 5yrs or so for which need you to save?

Sincere best wishes to you all.

kunekune

I think the offset idea is good when we refinance - I'd expect to still have some surplus. Although there is an argument for it already, given the surplus money we often have, I want to get our LTV down to 60% if possible before refinancing.

At the moment, the strategy is to keep the money 'sloshing around' down, and put it in the mortgage rather than the savings account, unless the savings account dips below £5000. I will admit that the benefits situation did play a part in this strategy (I didn't explain that to OH). However, this would really only be a problem if I lost my job, as I earn far too much for OH to get anything means tested anyway, ditto with any grants for work on the house (though it was of course chosen with mobility in mind). Unis rarely make permanent staff redundant, and it would take 3 years to close my degree programme down, so I'd get rather a lot of warning (I teach on all the courses that the uni can't cancel so long as it runs the degree). Also, provided OH sticks in his current job for a little bit there is a chance they'll provide extra money in the pension pot if he has to take medical retirement - which would be useful.

We wouldn't actually be much worse off on one income provided OH got DLA, since he'd also (ironically) get carers allowance for our son and we wouldn't have the high childcare costs we have at the moment. And I have other earning opportunities on top of salary that I can take up - though it isn't very tax efficient, roll on pooled tax allowances.

It's a messy one though, and I'm keeping my head in the sand on pensions a little (mine is final salary but on only 20 years service maximum, OH's is purchase money, ditto, and we will be eligible for full state pension despite not having full NI contributions because of the reciprocal arrangement with NZ). Secure and suitable housing is the main target for this current 5 year plan. If only because I can't get my head around multiple schemes, especially ones that don't seem to actually pay out in the end anyway.

Sorry, it got long again.