Mortgage free in '6 and a bit' ???

jsaver

Hello all you MFWs!

I've read this bit of the forum for over a year and admired you all. Time to actually log in and join methinks!!

Mrs JSaver and I are very happy in our small terrace, with a small garden out the back. About 2 years ago at the height of the property boom we were faced with the choice of more than doubling our mortgage (to about 200K :eek:) to get the 'next size up' i.e. extra bedroom, extra room downstairs, slightly bigger garden, OR extending out the back, and making our already tiny garden even tinier!

Well we went for the extension paid for mainly out of savings plus an unsecured loan, and ended up here....

Mortgage outstanding - £75766, 17 years to go - £567 per month with the Nationwide - just under 2 years left of a 5 year fix.
Overpayments over the last 3 years total £7500.
Projecting MF in May 2016 if we continue with current £500 pm OPs.
Could possibly accelerate if we reduced the term of the mortgage, while continuing to OP at £500 pm, but then would be stretching things financially.

But what the hell - our modest ISA savings are'nt really pulling up trees as far as interest rates are concerned. Maybe these need to get raided?? After all, NW will give you your O/Ps back in emergancy!

In 2016 I will be in my 'Mid 40s' - Ahem:rotfl:

Anyway, any advice would gratefully received to the above points. I'll put details in my signature at some point!

Thanks,

JSaver

Catanddogs

I will be watching with interest....good luck.

MrC-117

Hello, and welcome to the forums.

What's the mortgage fixed at, and is it one where you can only overpay a certain amount each month? Is that why you're thinking of lowering the term?

Make sure if you raid the ISAs that you have enough savings for short term emergencies, although as you say you can get the overpayments back in an emergency.

I'm assuming you've cleared the personal loan.

jsaver

Well the loan was for £10K with NR, taken out a couple of years ago, at a rate of 6.9% From what I read on the loan, you are allowed to make overpayments, but this doesn't affect the total that you have to repay. The only way that repaying does anything good for you appears to be if you repay the whole remaining amount off at once, in which case a calculation is made. If we were to do this we would have very little if anything left in savings, and only the mortgage overpayments left to fall back on, though this is a pretty good sum....Hmmmmm.... what to do......

You are right, the mortgage only lets you overppay £500 per month. However, if you tell them you want to take, for example, 5 years off the term, then they recalculate your monthly payments upwards THEN let you continue to pay £500 more on top of that.

jsaver

Oh, forgot to say the interest rate on the mortgage is 4.78%. Was pretty chuffed with this a year or so ago:o How things change!

StuartGMC

JSaver
Welcome and best wishes on the journey.

You state £500 is close to your maximum, where are you on your pensions, savings for known items (holiday, replacement car etc) as well as anything still needed on the house (windows, bathroom etc)?

If you reduce the term you have to be able to make the new higher repayment; with the present economic climate is that a good move? Once you are out of the fixed and negotiating your next deal, if you have a lump sum saved you can use this at the same time in terms of being on SVR then changing to new scheme (plus you will need to cover any fees too).

Your rate sounds reasonable against those presently being offered for 5yrs so don't be too negative about the decision. What's your tolerance for increased rates, 6,7,9%? Consider that in your choice. It sounds to me you are only going to be in for two more mortgage decisions (consider offset maybe this time or for the "final" step - no ERC, fully flexible OP etc).

jsaver

OK here's the details as of 010709.

Mortgage outstanding - £75766 - nearly 2 years of a 5 year fix remain @ 4.78%
Currently overpaying by maximum £500 pm, so total of £1,076 pm,
NR Loan outstanding £11266 - 8 and a bit years left @ £114 pm
Total savings (mostly ISAs at pretty crumby rates) - £14,962
Total overpayment pot with the Nationwide £7,475

Could complete the NR loan, but need to pay off the whole lot in one go otherwise the total interest paid remains the same. Now clearly we have enough money in savings to do this, but would have a lot less in case of emergency like losing my job (I am the main breadwinner).

We save the following amounts into separate accounts for certain things: vets bills - £12, holidays £100, presents £100, car expenses such as insurance, servicing, tax etc £150, house insurance £40. We have British Gas comprehensive cover for appliances etc going wrong.

I pay 5% of my gross salary into company pension - they pay 10%.

The house is in good shape, and we don't plan anything significant in the next 5 years.

So the main conundrum is whether to get rid of the NR loan @ 6.9%, or just carry on and have the large savings buffer.......

StuartGMC

How about checking on what you'd save in interest on the loan if you paid it off in 2.25yrs time?
If you take £300 from your £500pm OP and set aside in saving (regular saver account to get interest) then I think from a quick calc of the loan and the £114 pm in 2yrs 3months you could pay it off in full.

Meantime your OP on the mortgage would be £200 so you are still benefiting

Alternatively, put all the OP against it and you'd clear in 18months or so, as this is the higher interest rate.

Run a few "what-if" scenarios on the interest rates etc it may give you an optimum.
Good luck

jsaver

Have decided to get rid of the Northern Rock loan, after taking StuartGMC's advice. I looked at the cost of paying it off in full at various points over the next 8 and a bit years, and the cost of paying £114.55 per month till 2017. Turns out that the difference next month is £2700 (£11.2K vs 8.5K). Bit of a no-brainer, so we will pay the 6.9% loan off PDQ, using the ISA savings that are earning next to !!!!!! all. After all, we can always get the overpayment buffer back from the Nationwide in case of emergency.

It will be nice to only have one organisation we owe money to......

StuartGMC

Do remember you can only pay in to the Cash ISA at £3600 this year and £5100 (I think?) in future years and interest rates will likely rise on ISAs from 2010 on. Rebuild your savings alongside the OP would be my advice, but good to see you have calculated a good saving by clearing the debt. Best wishes with the journey ahead.

setmefree2

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