Jaywhoopee's MF diary

jaywhoopee

I thought it'd be nice to have a log of our progress so here goes.

My wife and I bought our first house in 2004 for £170k with a 25 year £152k, 4.99% fixed rate (for 5 years) mortgage. We chose to save instead of overpay on the mortgage to get a bit of a financial safety net, but when the fix came to an end, the rate dropped to 2.5% and we continued to make the same monthly payment, an effective overpayment of around £300 per month. This was the real start of our mortgage free journey, albeit only lasting about 6 months! We whittled the balance down to about £132k over the time we had it.

In late 2009 we moved to what will hopefully be our house for life, in the process we borrowed another £53k, obviously not the best step on the path towards mortgage free nirvana, but a welcome improvement in space and location. We ended up using £5k from savings to ensure we met the 25% deposit requirement of the mortgage and the rest of our savings went on the fees, taxes etc

The new mortgage is a capped tracker, currently at 2.99% (the cap for 5 years is 5.99%). This compared fairly favourably with the 5.75% fixed rate alternative at the time and was a fairly risk free way of gambling on the BoE base rate staying low for a while.

It was important psychologically not to get another 25 year mortgage, despite the additional borrowing, so a 20 year term was selected to avoid a feeling of going backwards.

I also decided that since the rate could increase at any time, the best course of action was to set a monthly payment slightly in excess of what it would be at 5.99%. This means a current overpayment of £313.57 per month and no nasty surprises if/when the rates increase. We have the option of borrowing back the overpayments at any time, so this somewhat mitigates the fact that our life savings were used up.

Anyway, we've now got 2 overpayments under our belts and have started an overpayment money box, so as long as rates stay relatively low we hope to meet our £3600 target for the year and knock 5 years off the 20 year term over the course of the mortgage.

Madcatgirl

Well done on the overpayments!

dimbo61

Sounds like a good plan with the overpayment each month which means even if the BOE rate did rise your mortgage payment wont go above what you are already paying.
Try and build up an emergency fund in cash ISA,s just for that rainy day !
3/6 months of income should do and good luck

jaywhoopee

dimbo61 wrote: »

Try and build up an emergency fund in cash ISA,s just for that rainy day! 3/6 months of income should do and good luck

Yep I really don't like not having the cushion of savings any more, but we're not totally exposed as I have a few sharesaves schemes at work which I could liquidate if necessary.

The new house needs a lot of things doing to it, so I'm spending the money I'd usually put away at the moment. Once we've got the little annoying things sorted out it's a matter of saving long and hard for an extension, new boiler, rewire etc.

setmefree2

and Good Luck with your MF journey

jaywhoopee

Not much news, other than one of my work sharesave schemes matured, so I sold them (at a 33% profit), transfering the resulting £2400 into a cash ISA. The share price has gone up 10p since then :mad: but never mind - a bird in the hand and all that.

I've now used up the rest of this years ISA allowance (although it was emptied last year to pay stamp duty etc, so it's not a lot) and have an emergency fund.
At least it's value is independant of the stock market value of the company that employs me (we're doing well, but talk about eggs and baskets! )

Other than that I've made my third overpayment of the year, meaning I'm fractionally over a quarter of the way towards my target.
If BoE base rate stays low the target is easily attainable, so I think I'll aim for a nice round 5k total overpayment if base rate stays below 1% for the rest of the year.

Now on to the poll question (to follow). I have an emergency fund of £2400 (around 2 months mortgage payments), have £940 in overpayments on my Co-Op capped tracker mortgage (currently 2.99%) and probably another £2700 in sharesave schemes that could be withdrawn in an emergency and my employment is pretty secure, with good sick pay etc.

I'm hoping to be able to pay £425 every month into an ISA from April onwards, but I'm wondering whether this is the right choice

jaywhoopee

Thanks to everyone who responded to my poll. As my ISA rate is slightly higher than my mortgage interest rate I will continue to overpay at the current amount and try to use my full ISA allowance until the position changes.

I've taken to rounding down my outstanding balance with a one off overpayment each month, aiming to make the figure a nice round multiple of £50. I don't think it'll make a massive difference to the term, but it's quite powerful psychologically

It's nice to have cleared over 5k of the balance since October, but we still owe 50k more than we did on the old place and I'll be a lot happier when the figure is back down in the 130s again.

jaywhoopee

According to the fool.co.uk calculator we've already knocked a year off the mortgage and we've only had it 7 months, so I'm pretty happy with that.

We're over half way to our 2010 OP target (currently ahead by £157) and I'm getting excited because next month the outstanding balance will dip below £180k for the first time.
This will be an important milestone, but not as important as getting back to 130k territory, which is what we owed before the move.

If we manage to keep up this level of overpayment we could be mortgage free in 13 years instead of 19 (but this assumes we're still able to overpay £300/month if our monthly payment hits the cap, which is unlikely - and if rates are high once the 5 capped period is over it's very unlikely!)

Also last week we also managed to get our combined average gas & electricity spend below £1/day. When we first moved in (and before we got the hang of the boiler) we were spending £6/day!

jaywhoopee

Outstanding balance now below £180k :j

jaywhoopee

Having seen milestones mentioned in some other threads I've been thinking about some short and medium term ones myself.

The first is only £100 away and will be "10k capital repaid". I'll try to overpay again later in the month, otherwise this will be passed on 1st Oct 2010.
Obviously I'll be glad to pass the MF 2010 challenge target of £4000 in Dec 2010, all being well (we're 76% of the way there)
The next few are just round 10k marks:
170k (some time in 2011)
160k (some time in 2012)
Then the next couple are more "psychologically significant":
152k (amount originally borrowed to buy previous house - we'll hopefully reach this in early 2013)
132k (amount owed on previous house when we traded up - we'll hopefully reach this in late 2014, 5 years after moving)

The last milestone is perhaps understandably important, as it marks the end of the extra £55k borrowed to trade up and a transition to a level of debt we have been "comfortable" with before.

I'm consciously trying to avoid thinking about LTV at the moment as I fear it may discourage me - my view is that the money is owed whether the house is worth £2.50 or £250k, so I may as well pay it off ASAP!

wynnvegas

That's great progress JW. We're too chicken to move from the current 3-bed semi to our forever house as I'm perhaps stupidly against taking out another mortgage. Our notion is to save the difference between our house now and the next (and last - certainly in the UK) one. I too like the idea of the milestone marks although it's a bit too late for us to start building them now for us!

Cheers,

Billy