Should I be a MFW - advice needed!

museumworker

Hello all, I'm a keen subscriber (read lurker;)) to many of the MFW diaries. I'm currently wondering whether I should join in the MF2010 challenge. I've talked to my partner and we're both really keen to pay our mortgage off as soon as possible :beer:. However, we also are saving to have work done to convert our loft, so that the house will be large enough for us to have a slightly larger family.

Our mortgage as of last year when we transferred it was £198,000 for 27 years, fixed until Feb 2012 at 5.09%. From house sales/inheritance and left over from the house purchase we have approx £21k in savings :j, plus £4.5k in premium bonds. We have had a quote, it will cost approx £30k to convert the loft :eek:. We were hoping to save £300 a month towards the loft, however we have had so much to get for the house that we have only managed this for the first time last month.

The big question - should we focus on saving for the loft, or on paying money off our mortgage? Or both?!

I have been doing some of the challenges, make £10 a day mostly, and have found it really useful to focus my mind and bring in some extra money. In the last 4 months since I've joined the forums I've made an extra £700 in cash, and will save £400 this year having changed insurance and utilities providers. So I feel a way of setting targets would be really motivational, but not sure that the mortgage one is the right one for me right now.

Any advice/suggestions most welcome!

Jonbvn

Premium bonds are rubbish! Better to put the money into an ISA.

It is difficult/impossible to find any savings account paying more than your mortgage. Given this, it is probably better to pay-off your mortgage than save. Note that you should retain the 21k as emergency funds.

dimbo61

The other question is how much is your house worth now and after the loft conversion ? LTV in 2012!!
Premium bonds do have a very poor return and you would be better off earning some interest in an ISA and try to pay for the loft work in stages.
Good Luck

Malski

museumworker wrote: »

I have been doing some of the challenges, make £10 a day mostly

Just wondering which thread this is in?

Daft_Pegasus

Malski wrote: »

Just wondering which thread this is in?

It's in the Debt Free Wannabe forum
http://forums.moneysavingexpert.com/showthread.html?t=2043235

Thrugelmir

Pay down your mortgage first.

If and when you decide to extend your house you can always remortgage to fund the building work.

Personally I would retain some premium bonds but use the majority to pay down the mortgage immediately.

If your mortgage term is 27 years, paying debt off will save a lot of interest and considerably reduce the mortgage term.

SmlSave

Hi, I'd do both.

but its up to you entirely I OP by tiny amounts compared to others but I feel that being a MFW is a state of mind and in the end its not a race!

museumworker

Jonbvn wrote: »

Premium bonds are rubbish! Better to put the money into an ISA.

Thanks for your comments - I know that Premium bonds are considered not very :money:, but I must admit I am very attached to them as no matter how broke I have been, I have always managed to keep hold of them, which cannot be said for cash savings. I also have won about £250 this year, so not terrible interest wise. I consider them part of my emergency 'OMG I cannot pay the mortgage this month fund', so may keep hold of them.

Jonbvn wrote: »

It is difficult/impossible to find any savings account paying more than your mortgage. Given this, it is probably better to pay-off your mortgage than save. Note that you should retain the 21k as emergency funds.

That much emergency fund? I was thinking more along the lines of £8k, to save after we've paid for the loft....

museumworker

dimbo61 wrote: »

The other question is how much is your house worth now and after the loft conversion ? LTV in 2012!!
Premium bonds do have a very poor return and you would be better off earning some interest in an ISA and try to pay for the loft work in stages.
Good Luck

Thanks Dimbo - the house we purchased for £237k last year (we could not reduce the mortgage amount because there was a fixed penalty charge of 8k, instead we transferred the mortgage from my partner's last property.

It is probably worth about the same now, maybe a grand or two more because it is newly decorated.

With the loft, it would be worth about £280-290K, but don't know if we could get that done by 2012. I don't really want to take out a loan to do the loft, and I don't think we can save the extra £9k next year... although maybe that is part of the challenge:eek:??

I should point out some of our savings are already in ISAs, so we may have used our limit up already ... must check that actually!!:rolleyes:

museumworker

Thrugelmir wrote: »

Pay down your mortgage first.

If and when you decide to extend your house you can always remortgage to fund the building work.

Personally I would retain some premium bonds but use the majority to pay down the mortgage immediately.

If your mortgage term is 27 years, paying debt off will save a lot of interest and considerably reduce the mortgage term.

This may seem like a silly question (I have only had a mortgage for 1 yr) - but how would the remortgaging work? We have early exit charges until 2012, and I would think arrangement and valuation fees would apply to remortgaging which could easy mount up to close to £1k. Given this, and the fact that I would then be paying interest on the borrowed amount, wouldn't it be better to pay for the loft up front with cash? The loft has to be done, as soon as we can afford it.

Also, might be an aside but should mention that we are limited to a 10% overpayment per year.

Yes please to saving lots of interest and reducing the term though - just need to work out whether mortgage repayments need to take a back seat or given more of a priority.

Thanks everyone for posting, please keep the comments coming!

museumworker

SmlSave wrote: »

Hi, I'd do both.

but its up to you entirely I OP by tiny amounts compared to others but I feel that being a MFW is a state of mind and in the end its not a race!

Thanks also SmlSave - well done on the 5k a year challenge, I can't believe you have so much left! Could you point me towards the thread (and give me any pointers?), it might be worth us considering for next year.