Mortgage free in 30 months by the age 30!

edited 29 August 2009 at 3:55PM in Mortgage-Free Wannabe
13 replies 1.8K views
Nice_guyNice_guy Forumite
124 Posts
edited 29 August 2009 at 3:55PM in Mortgage-Free Wannabe
Hi Ladies & Gents,

Finally found the time to write my intentions on becoming mortgage free. I am currently 27 years old live with my partner who is the same age and our plan is to be mortgage free by the age of 30.

A bit of background for you……

My partner and I bought our first and current property in mid 2007 at 25 years old. I had just started in business a year before, the OH had been a teacher for a few years. Because of my new business status I knew that finding a mortgage would be difficult, to make matters worse we had quite a lot of pressure to finalise on our property as it was a repossession – so we had to move quickly!

I decided our best chance of getting a mortgage would be with Natwest, as I thought my track record with them would be pretty good & my business account is with them too. A call to my business manager to explain the situation resulted in a call from our local Natwest mortgage advisor and our mortgage was agreed over the phone and the papers were ready to sign two days later!

We purchased our property for £156,000 in the height of the boom, (but the property still required complete renovation) and took out a fixed rate mortgage at 5.59% for £117,500 on a capital & repayment basis.

Fast forward two years, we have now remortgaged after our fixed rate finished with Natwest. After a lot of research and head scratching I decided to go for another fixed rate mortgage but as an offset with FD, to help us achieve our goal. We have fixed for another 2 years at 2.99%.

Our outstanding mortgage after we finished with Natwest was just under £113,000 – so in two years and 3 months of paying mortgage payments to Natwest we had cleared a measly £3,500 of the total borrowed. It was at that point I really wanted to get our mortgage out the way with ASAP.

So the challenge is set…… clear the outstanding mortgage before I am 30 years old. Our first mortgage payment with FD was in July, which means there is exactly 30 months from our first payment to my 30th birthday! Now that must be fate!

In today’s market our property is worth £185,000 (First Direct valuation) and we have a mortgage of just under £113,000.

By my basic maths we will need to be making capital repayments in the region of £2250 (rounded up) for 30 months to clear our mortgage, as we have approximately £46,000 in savings ((30*2250)+46,500) = 113,500.

The monthly interest payments will be in addition to the capital payments and dependant on how much I can offset, currently our interest payment for the month of August will be £160.

So thats about it, my plan is bound to have a few flaws so any tips and advice would be greatly appreciated! Wish us luck!
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Replies

  • Nice_guyNice_guy Forumite
    124 Posts
    The figures as of 28/08/09:-

    Outstanding mortgage: £112,973
    Total offset against mortgage: £66,524
    (of which £58,567 is our money and £7957 is on 0% purchase CC for 12 months)

    Interest charged on: £46,449

    Total yearly interest: £1389
    Total monthly interest: £116

    Daily interest: £3.81
  • SmileyG_2SmileyG_2 Forumite
    359 Posts
    Hi nice guy

    Offset mortgages are good but......

    On a mortgage rate of 2.99%, you should consider if you can get a better return in savings, there a number of fixed rates out there that exceed your mortgage rate, even after tax.

    SmileyG
    Target acheived: _party_ Mortgage offset in June 2012!_party_
    Mortgage = -£98
    Endowment = £0
    Investments = £40,247
    [STRIKE]Deficit[/STRIKE] / Surplus = £40,149(at 22/09/2017)
    "Don't spend then save, save then spend!"
  • Nice_guyNice_guy Forumite
    124 Posts
    Hi SmileyG,

    Thanks for the reply and advice. I do appreciate that putting our savings into a savings vehicle is a good idea providing that the rate that is being paid is more than our mortgage rate of 2.99%.

    The bonus with the offset mortgage is that I can get access to our savings at any time in case I wanted to invest it further into the business, new venture, or rainy day.

    Can you provide me with any investments out there that would be paying more than the 2.99 of our mortgage after tax is taken into account for a higher rate tax payer? The OH is a basic rate payer so I suppose the savings could be put into her name (although not sure on the legality of this)
  • getmore4lessgetmore4less Forumite
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    Nice_guy wrote: »
    The figures as of 28/08/09:-

    Outstanding mortgage: £112,973
    Total offset against mortgage: £66,524
    (of which £58,567 is our money and £7957 is on 0% purchase CC for 12 months)

    Interest charged on: £46,449

    Total yearly interest: £1389
    Total monthly interest: £116

    Daily interest: £3.81

    Target MFD is Dec 2011, 28 payments.

    £46449 @ 2.99% £1720pm needs to be added to the pot.

    There is the £7957 to pay as well so based on £54406, £2015pm


    Given once the mortgage is paid off you are going to have a massive surplus I would be maxing out my ISAs.

    Assuming you are not married, you can give away surplus income to the other half to invest there are a few regular savers and ISAs options that would better the mortgage rate.
  • JonbvnJonbvn Forumite
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    Nice_guy wrote: »
    Can you provide me with any investments out there that would be paying more than the 2.99 of our mortgage after tax is taken into account for a higher rate tax payer? The OH is a basic rate payer so I suppose the savings could be put into her name (although not sure on the legality of this)

    With the exceptions of ISA's, I would recommend you put all your savings in your wife's name to minimise tax. This is perfectly legal.

    There are numerous cash ISA's which offer 3%+. Some of the fixed rates are at 4%+.

    After ISA's you should look at regular savers and fixed rate accounts, which for a basic rate tax-payer will pay net more than your mortgage.
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:
  • edited 31 August 2009 at 9:22AM
    thepearcethepearce Forumite
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    edited 31 August 2009 at 9:22AM
    If you want some money available at any time you could consider Lloyds TSB's "Classic with Vantage" - a current account which pays 4% on balances of 5 - 7k (only this 2k band).

    My missus (basic rate taxpayer) has a few of those.
  • setmefree2setmefree2 Forumite
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  • Nice_guyNice_guy Forumite
    124 Posts
    Target MFD is Dec 2011, 28 payments.

    £46449 @ 2.99% £1720pm needs to be added to the pot.

    There is the £7957 to pay as well so based on £54406, £2015pm


    Given once the mortgage is paid off you are going to have a massive surplus I would be maxing out my ISAs.

    Assuming you are not married, you can give away surplus income to the other half to invest there are a few regular savers and ISAs options that would better the mortgage rate.

    Thanks for the post getmore4less. That's right, my last payment should be for the month of Dec 2011. The first payment was made in July 2009. I am 30 at the start of Jan 2012, so that should be 30 payments by the age of 30 - happy days!

    The rest of your figures seem very similar to mine but still different, I think I have worked it out correctly, this is calculation I used at the start of our FD mortgage (July 09):-

    Total mortgage: £112,973
    Total savings: £46,000
    Outstanding mortgage: £66,973
    Outstanding mortgage divided by 30 months = £2232.43

    I have rounded it off to making a monthly payment of £2250 for 30 months. This is just the capital payment that needs to be made, a monthly interest payment will be made separately. Although I have got a fixed rate for 24 months (22 months now) @ 2.99% my interest payment will be dependant on how much I can offset. The interest payment for the month of August was £158.10.

    I have been treating my CC and the OH's CC as debit cards. We both have Tesco CC's which have the 12 months interest free on new purchases. As first direct allow you to have as many accounts as you like offsetting against the mortgage account, I have setup an account for each of us to represent our CC spending. Each time we spend on the CC I withdraw the money from our main accounts in the evening to the CC accounts. This way we can always see how much money we actually have to our name and also meaning we have the balance of the CC ready to pay when it comes to the deadline date. It's a bit of work to do but I definitely recommend it as it allows you to keep on top of all your finances.

    Am I right in assuming that higher rate tax on savings is at 40%, therefore I would have to achieve a interest rate of 5% gross to equal my 2.99% mortgage rate?

    And also basic rate tax is at 22% on savings? therefore meaning a savings rate of 3.8 gross would equal our mortgage rate?

    Even if I could achieve a 6% savings rate I think I would leave the money in the offset as it's nice to have all the cash in one place and helps me stay focused with the task in hand.
  • Nice_guyNice_guy Forumite
    124 Posts
    Jonbvn wrote: »
    With the exceptions of ISA's, I would recommend you put all your savings in your wife's name to minimise tax. This is perfectly legal.

    There are numerous cash ISA's which offer 3%+. Some of the fixed rates are at 4%+.

    After ISA's you should look at regular savers and fixed rate accounts, which for a basic rate tax-payer will pay net more than your mortgage.

    It would be nice to keep some flexibility in our savings, while the savings are offsetting I can gain access to them at any time - I need to a put a price on this flexibility. Is the basic rate of tax on savings at 22%?
  • edited 31 August 2009 at 8:51PM
    Nice_guyNice_guy Forumite
    124 Posts
    edited 31 August 2009 at 8:51PM
    thepearce wrote: »
    If you want some money available at any time you could consider Lloyds TSB's "Classic with Vantage" - a current account which pays 4% on balances of 5 - 7k (only this 2k band).

    My missus (basic rate taxpayer) has a few of those.

    Many thanks for the tip thepearce! After a bit of searching I see the basic rate of tax is at 20% on savings. Therefore at 4% the net payable would be 3.2%.

    For example if I put 50k into the above accounts (assuming I could get away with opening this many) I should net £1600 p.a. If I left this 50K offsetting it would have saved me £1495. Meaning I would be £105 in profit.

    For some reason I seem to think it would be better for me to leave the cash offsetting as the gain is not 'that' much. By keeping all the finances in one place I think will help in achieving our goal. This is purely a Psychological reason. But do I need to change my way of thinking as £105 is still £105 more than what I would have had!?!?

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