New mortgage, new wannabe

pixie359

Hi all, thought I'd start one of these.

I am just about to take out my first mortgage - £57,024 (the odd numbers are for fees etc.). I'm on a seven year fixed at 5.99% (I'm the only one working, contract ends soon, so while I should be fine, I'm really very happy to have all that security) with a 30 year term, which allows overpayments by 25% of the outstanding balance per year.

Due to larger than originally expected inheritance, I'm probably going to be able to pay about £14k off almost straight away. I'm not sure yet whether I will be able to reduce the term rather than the repayments, which I will if I can. Either way, I should also be able to pay another £10k at the beginning of next year, hopefully reducing term again.

If I can shorten the term, I'll have overpaid on the original amount by £15,300ish in the first year, and £26kish at the end of the second. If I can't it means that minimum repayments will be about £120 per month under my original budget, in the first, and more in the second, so I'll start sticking money away, to pay off at the beginning of next year.

This is reasonable, and still leaves me enough to have a reasonable lifestyle.

Therefore, based on my current situation, never getting an above inflation pay-rise in my life, my dad sticking around, and my girlfriend not being able to get a job when she finishes uni, I'll still be totally debt free before I'm thirty-five, earlier if I can bring the term rather than payments down. Seeing it expressed like that makes me very happy indeed.

What I'm hoping for is acceptance on a national graduate scheme, which would mean a bit of a financial boost from next September, and a bigger pay rise at the end of those two years. Having worked those figures through, there's a chance that, again all other things being equal, I'll have the mortgage paid off before I'm thirty-two.

When I think about the additional income from my girlfriend starting work in two years, and so paying me back for the money I'm lending her over the next two or three years, and starting to pay in more than the bills, there's room to reduce even further. However, there's a good chance of marriage and kids at some point, which would obviously slow the whole process massively.

I may not be a regular poster on here, but I'll try to get in the habit of monthly updates and exception reports.

Any more hints and tips would be welcome, and good luck to all.

pawlala

Personally all my previous OPs have been to reduce the monthly payments rather that to reduce the term, thus any interest savings have been ploughed back into the next OP, reducing the mortgage even further. I figured I will save more on interest this way rather than reduce the term and pay the same every month.

Whatever you do, good luck!

pixie359

pawlala wrote: »

Personally all my previous OPs have been to reduce the monthly payments rather that to reduce the term, thus any interest savings have been ploughed back into the next OP, reducing the mortgage even further. I figured I will save more on interest this way rather than reduce the term and pay the same every month.

Whatever you do, good luck!

I thought that, other things being equal, this wouldn't really make a difference? Let's see if the following (completely made up numbers) make sense:

Normal payment £350, term 30 years, interest 5%
Overpayment £10,000
1) Reduce payment to £300, overpay by £50. Total payment £350, 20 years, 5%
2) Reduce term to 20 years, pay same anmount. Total payment £350, 20 years, 5%

The reason I want to reduce term is that I won't be able to overpay by more than that £14ishk without getting charged, so I want to keep the standard repayments artificially high, so I don't get into saving rather than paying the mortgage.

Does that make sense, or have I completely misunderstood?

Thanks

cake21

pixie359 wrote: »

I thought that, other things being equal, this wouldn't really make a difference? Let's see if the following (completely made up numbers) make sense:

Normal payment £350, term 30 years, interest 5%
Overpayment £10,000
1) Reduce payment to £300, overpay by £50. Total payment £350, 20 years, 5%
2) Reduce term to 20 years, pay same anmount. Total payment £350, 20 years, 5%

The reason I want to reduce term is that I won't be able to overpay by more than that £14ishk without getting charged, so I want to keep the standard repayments artificially high, so I don't get into saving rather than paying the mortgage.

Does that make sense, or have I completely misunderstood?

Thanks

Welcome and good luck! :beer:

That does make sense, it's horses for courses really. I personally would rather keep the term the same and put the additional OPs I would like to make and can't, into a savings account. (Even if I couldn't quite achieve 5.99% on the savings) That way I can continue with the habit, not get used to the additional money, but at the same time I'm not committing myself to a shorter term - who knows what will happen?

I've got 22.5 years left to run and hoping to pay it off in 8

dimbo61

HI and good luck on the plans just hope they all work out!
You should have a 3/6 months of income ( emergency fund) in cash ISA,s
Your mortgage is £57K and you are going to pay the Max 25% off in the first few weeks! which is about the £14k you mention.
Year 2 is going to be more difficult as you balance will only be £41/42K
so the max overpayment will be the £10k you mention.
I would check with your lender about reducing the term or monthly payment before taking out the mortgage as you have signed up to a 7 year deal and you wont be allowd to clear the mortgage before the 7 years are up with out ERC !

black_taxi_2

[EMAIL="57k@5.99%"]57k@5.99%[/EMAIL] over 7 years is £833 a month

black_taxi_2

to clear mortgage

pixie359

dimbo61 wrote: »

HI and good luck on the plans just hope they all work out!
You should have a 3/6 months of income ( emergency fund) in cash ISA,s
Your mortgage is £57K and you are going to pay the Max 25% off in the first few weeks! which is about the £14k you mention.
Year 2 is going to be more difficult as you balance will only be £41/42K
so the max overpayment will be the £10k you mention.
I would check with your lender about reducing the term or monthly payment before taking out the mortgage as you have signed up to a 7 year deal and you wont be allowd to clear the mortgage before the 7 years are up with out ERC !

Hi Dimbo,
I am keeping £10k back in savings, which could probably last a year, even without any extras (benefits etc.), and have cover for the most likely reasons for not being able to find work again quickly (critical illness and accident).
I bought the house based on what I thought the inheritance was going to be, and have been surprised twice now by significant increases to the expected sum, which explains the large amount I can overpay immediately.
I could be wrong, but I think the ECR drops significantly each year, so it's quite a small amount by years six and seven. On the off-chance I can get paid off within the sixth or seventh year, I'll check whether it's worth it, or if I should wait till the end of the year. I'm guessing that it will be better to pay the interest rather than an ECR, especially when I will be able to partly offset the difference by sticking some in savings.

Black taxi - I had never thought of it like that - I can't afford that as a regular outgoing at the moment, but it's good to see. One day maybe...

Thanks for the welcomes and good wishes.

getmore4less

pawlala wrote: »

Personally all my previous OPs have been to reduce the monthly payments rather that to reduce the term, thus any interest savings have been ploughed back into the next OP, reducing the mortgage even further. I figured I will save more on interest this way rather than reduce the term and pay the same every month.

Whatever you do, good luck!

It should make no difference as long as the total paid each month is the same.

pixie359

I've justy updated my sig to reflect a mistake I made - target date is end of 2016, not 2015. Remember this is a target, to aim for, rather than something I am confident I can acheive. Whether I can do it largely depends on work going as well as hoped, and not getting married/having a child which seems fairly likely.

Put a cheque into the bank yesterday which will be the first £14k ish to pay off when it's cleared, the maximum I'm allowed for this year.

Louba

Good luck! My approach has been to cut the term rather than the payments so that I never see the extra money and have no chance of spending it! It works for me but may not be the best approach. We're just about to take out a new mortgage too and are trying to balance what we can pay on the monthly payments now against things that we might have to pay for in the next few years .......similar stuff like getting married, having a baby, changing cars having to give up work.......