My Mortgage Quest: Go from 85% -> 60% LTV by October 2013

DJ_Mike

Welcome to my mortgage-free diary! I started this back at the end of July when was fully immersed in the process of buying my first ever house! Now it serves to track my progress as a mortgage holder hoping to pay off his debt as soon as humanly possible! After all, who wants to be in debt to the bank when you could be keeping that money for yourself?

Having completed on 25th September 2009, my goal is to get down below [STRIKE]60%[/STRIKE] 50% LTV on my house by the time the mortgage comes out of its initial term, so I can get a far better deal in remortgaging! Originally I thought this was 50 months from the start of my loan, but it turns out it's actually until simply October 2013. Let's see how I get on!

CURRENT NEWS:

- New furniture! Bought a lovely new wardrobe for the bedroom and a set of table, chairs and parasol for the garden to enjoy the summer! Just need the BBQ now!

- Overpayments on schedule! Managing to make overpayments to precisely reduce the mortgage by 2 months at a time!

- Mass cashback! Never realised how much you can really save with sites like TopCashBack - made back almost £200 in cashback on purchases now! My AmEx card adds another £120 to that (tho I won't see that rebate until next year).

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Original post:

I'm a brand spanking new buyer about to take out his very first mortgage... Scary stuff!

I wanted to start a diary, mainly as a note to myself, but I figured if I did it here, I'd be in amongst like-minded people who all have equal and determined goals, and that's much more positive than trying to explain to friends and relatives who are tired of hearing me play on like a broken record about how I'm trying to reduce my debt!

I've secured a mortgage from Abbey for £187,495, 85% LTV of the house, £220,000, (plus I added on the £495 fee Abbey charge), at a fixed rate of 5.84% lasting for 50 months (4 years, 2 months).

Soon I will have the scary task of paying this mortgage off! Only, I'd really rather minimise the interest I have to pay over the life of the mortgage (for as long as I have it), and 5.84% is rather high. Unfortunately, that really was the best I could get when borrowing such a high LTV. If I stick to the regular payments, over the initial 50 months, I will only pay back £10,863.80 of the capital - bringing me down to a mere 80.3% LTV (assuming the house HASN'T gone up in value)... Ouch!

Once my intial period with Abbey expires, I really, really want to get a far better mortgage deal. The only way I forsee being able to do this is if I'm only borrowing 60% LTV when I remortgage.

So my goal is simple: Overpay the mortgage to bring it down to 60% LTV by the time I come to remortgage after 50 months!

Seems like a scarily tall order tho! :eek:

I'll at least give myself the benefit of the doubt that the house will go up a little bit in value - so I've set the increase on the property value as 6% over 4 years (a little shy of 1.5% a year) - maybe that's too generous, maybe I'm being stingy. It's hard to tell in this climate! Nevertheless, that takes the value of the house to £233,200.

This means that my capital that I'm borrowing has to be £139,920 by this time... But without overpayment it'll be £176,631.20! So the reality is, working it out on my spreadsheet, that if I want to be at my target 60% LTV in 50 months time, I need to overpay my mortgage by at least... £650 a month!

And so I come to my challenge: To reduce my mortgage from £187,495 to £139,920, and thus reach my target of 60% LTV by the time I come to remortgage in 4 years, 2 months time.

My quest won't start until I complete on the house, but hopefully that won't be longer than 6 to 8 weeks from now.

So right now I'm focusing on building up some additional funds that I can use to overpay a big chunk at the start!

Thanks for reading my excessive ramblings (if you made it this far)... Hopefully this will be the start of something special!

DJ_Mike

Just worked out my interest over the first 50 months if I don't overpay... £44,381.86!

If I overpay by £650 a month, that comes down to £40,186.98 - saving me £4,194.88! Whoo! :j

Hopefully I'll be moving by October at the latest... assuming that's the case, my overpayment target for 2009 is... £2000!

For 2010 that'll go up to £8000! Eeep!

LilacPixie

welcome to the board DJ Mike. 60% LTV seems to be the magic number at the moment. Obviously we don't know what will be happening in 50 months time but it seems a good target.

How are you planning on doing it?? Do you have enough surplus income to divert towards the mortgage?? Wellyou be getting a second job??

I, at the moment, have a small mortgage of around 52k looking to overpay as much as possible to save as much interest as possible because we need to upsize. Like you i would be happy with an LTV of 60%but in reality 80% might me closer the mark

DJ_Mike

Hi LilacPixie! I'm hoping I have the surplus from income to put towards it... But my problem is I have a tendancy to spend on nice things a little too often! :-/ And to get £8000 a year I really will have to pull the belt right in!

I'm thankful that I do have a nice job which usually pays a bonus come April, so that'll contribute towards it... But I don't count on the bonus so really my target is only inclusive of my income.

I agree 60% LTV is more of a magic figure rather than a definite target... However I can't think that mortgage lenders would put their best offers at any LESS than 60% in 4 years time, so it seems reasonable to shoot for 60% and expect it to pay dividends later!

wantabetterlife

Hi DJ Mike, cant wait to start following your diary, make sure and keep us updated on your progress and best of luck on overpaying the extra £650 a month.:D

setmefree2

and Good Luck

misselvis

I think your idea is wonderful and would love to aspire towards that goal myself. You are right its all about overpaying to reduce the LTV when I get the chance to remortgage. am looking forward to reading your progress.:rotfl:

DJ_Mike

Well, I've come what feels like a significant step closer to moving home... I had some papers from my solicitor yesterday when I got home, detailing all the fittings and fixtures that are to be left by the seller, plus all the various insurance certificates. Can't be too much longer now, can it?

LilacPixie

Dunno Mike I have only even bought in Scotland it was 7 weeks from offer being accepted to me signing papers and 4 days later I had the keys.

determined1_2

Welcome and good luck!

Mine took about 6 weeks and there was only us and the seller in the chain as we were FTBs and they were moving to spain (i think to try and leave there unsecured debt behind as we get tens of thousands in letters come through the post).

I guess the length of the chain will have an impact but I only have limited experience.

Maybe it will be even quicker as the market is so quiet?

Takes what it takes I guess.

DJ_Mike

Interesting little tidbit I learned/worked out during my number crunching... I'm sure it's been mentioned many times before, but it's wonderfully enlightening to see it for yourself!

If you want to find out just how much you're going to save with that single overpayment, just take the amount you're thinking about giving over, then do the following little calculation...

Take your yearly mortgage rate, divide it by 12 --> so mine is 5.84% / 12 = 0.48666...%

Divide that number by 100, then add 1 --> so mine comes to 1.0048666...

If you didn't need a calculator before, you will NOW

Take the number of months left in the term of your mortgage
OR the initial deal period (in months) of your mortgage
OR the number of months until you're really hoping you've paid off your mortgage
- how long isn't terribly important, just that the longer you expect to spend paying off your mortgage will help illustrate how much you're going to save!

For my example, I'm gonna use a remaining deal period with Abbey of 49 months.

Apply that number of months as a power to your figure above, e.g:

1.048666... ^ 49 = 1.26856...

Now the interesting bit! Multiply that number onto the amount you intend to repay - let's use £100 as a nice square example:

1.26856... * 100 = £126.86 (to the nearest penny)

What's interesting about that number? If you subtract off your original overpayment (£100), you're left with the cost of not making that overpayment! Or, rather, how much interest that £100 will accumulate over the next X months!

BUT

How early you overpay is crucial! The earlier you can overpay, the more you'll save! My example there shows that I save £26.86 for every £100 that I overpay in month 1. However, if I did the same overpayment in month 30, with only 20 months left to go on the mortgage deal, the figure would be:

(1.048666... ^ 20) * 100 = £110.20

In other words, making the same overpayment of £100 in month 30 only yields a saving of £10.20!

The intuitive among you will spot there are obvious flaws with those calculations - and that all this represents is the effect of compounding interest over a long period (the same as with any savings account).

I should also forewarn you that the above calculation assumes a constant interest rate (in my case 5.84%) - if you're on a variable rate then it won't give you as accurate a figure!

But the point I'm making is that you can see just how positive an effect an early repayment can have on your mortgage. The earlier you repay, the cheaper it gets!