First venture into MFW...

Saver-Rob

In September 2009 my girlfriend and I bought our first property at a bargain price of £160,000 from a family member We are both 23 years old. After alot of saving we managed to put up a deposit for £50,000 and thus borrowed £110,000.

My basic wage is £23,500 though for the past 2 years I have actually earned around £37,000 with overtime. My girlfriend is a full time student though works part time which pays for all of her things (car maintinence etc) and food for us both.

We have around £28,000 saved up between us but obviously she is building up a debt for her student loans (currently the interest rate is 0% so this is effectively costing us nothing but earning us interest in the bank).

We currently pay around £600 a month on our mortgage and have a fixed 5 year rate of 5% which seems high at the moment but gives us peace of mind for 5 years.

I would love to be mortgage free but getting the balance between living, improving and extending the house and paying off the mortgage is difficult.

I am not really sure of what to do. My gut instinct is to overpay slightly (say around £250 a month) and see what happens then. Does anybody know of a good calculator where I could work out some figures to see how money and time this could potentially save me?

Thanks for all advice etc!

dimbo61

Well done on saving a £50K deposit and 5% fixed for 5 years is not a bad deal ( mine is 4.74% fix for 5) This gives you long term security while you g/f is not working.
Build up an emergency fund of 3/6 months of income first and then overpay.
Does the property really need an extension and will it add value ?
Dont forget to enjoy life abit !!

Saver-Rob

Hi,

Thanks for your reply. We have around £28,000 saved which is more than the 3/6 months income that you recommended. We have a 3 bed semi with a garage and utility room on the side. Its a big house for just us but I am trying to think long term (kids etc). Several properties identical to ours have been extended in the road and I am sure it does add value as it would turn it in to a 4 bed semi with garage, bathroom and seperate shower room along with a utility room. But we dont actually NEED this at the moment.

Your last part is true. Its hard to get the balance though!

davetrousers

Go to the homepage of this very website and search for the mortgage overpayment calculator!

You need to check the Ts and Cs of your (fixed rate) mortgage regarding overpayments.

Saver-Rob

Wow..

If I overpay by £250/month:

"Making this overpayment would save you 11 years and 9 months & £47,305.46"

If I remember rightly I was informed we could overpay by £499/month penalty free though would have to seek this out for certain.

That gives alot of motivation though.

wynnvegas

Hi Rob,

I'd recommend doing an SOA for you and your girlfriend as they have templated in the debt-free forum. Despite not having any debt other than our mortgage, we took the model to get a hold on what we spent and to see whether becoming mortgage--free at 30 was possible. Obviously, if you're managing to build up a savings pot whilst she is not working full-time then you potentially have a big positive to come post-graduation and when in full-time employment.

When we worked out what we earned and what we spent each month, we were able to clearly see the overspending on groceries and internet shopping - it's really eye-opening to see how all these wee meaningless fivers can add up over the course of a month or two. I do fully appreciate the "life is for living" argument but we realised in September of last year with £44,000 of the mortgage left that we could clear it before the end of 2010 (and a solid 8.5 months before my 30th birthday) if we gave up going out for meals and hitting the pub for anything less than a special occasion, we'd hit the target date without too much trouble. We have our summer holiday planned and paid for which is pretty much our sole treat this year but everything else has been pared back to ensure we hit the 01/12/10 mortgage freedom target date. Might not be for all but I know from that date onward any frivolous spending we wish to do is completely risk and guilt-free and that more than makes up for a few months of what hasn't even been relative hardship.

I would say that the common advice of having a 3-6 month savings pot is generically trotted out and, whilst it makes a lot of sense in the majority of cases, if you are very secure in your employment then having this money sitting whilst you continue to pay off your mortgage at the basic rate makes no sense to me. We have less than a couple of thousand in the savings pot but we're both in very secure employment so the risk is minimal.

If you look at what the maximum overpayment per month would do to your mortgage in the first 5 years and decide whether or not that is feasible, I would expect that the motivation to hit that number every month would drive your success. All the best to you both and well done for getting into it right off the bat. Working out that we've saved more than £68,000 in interest by battering the mortgage is pretty fulfilling in itself!

Cheers,

Billy

Courgette

Hi Rob, welcome!

Firstly, a big congratulations on saving up such a massive deposit and being so sensible already :T:T:money:

I don't have much to add to what's above really other than to say that your gf will not need to start paying off her student loan until she is earning £15k and even then it's not much. I earn £23k and I pay £52pm. While having all that money saved up to pay it off with is great, your mortgage is a much more expensive debt than a SL therefore I would recommend that you have a good think about whether you really need all that stashed away. I know with you being tied into a fixed rate currently a massive OP might not make sense (others on here will be better able to advise you on that) but just something for you to think about

Good luck

dimbo61

With the info you have given I would set up a DD to overpay the mortgage by £499 a month( check with lender that you would pay no ERC,s )and use the money you have in savings. £499X 52 months = £26,000 overpayments!
You have been saving hard and top up your savings as and when you can afford to do so.

Saver-Rob

Thanks for all your replies. I think we will have to have a good look at our finances and discuss what we would feel comfortable and able to overpay each month.

I will update when we have made some decisions! Thanks again.

craftingmad

Hi Rob,

Welcome to MF and the very best of luck. If you have already managed to save the amounts you have (i.e. for the deposit for the house and your savings) I am sure you will acheive MF status quickly!!

I totaly agree with what wynnvegas says. We have no debt apart from mortgage but decided to do an SOA just to see where our money goes and it was shocking!!!! - see my crafty resolutions diary!!!) so this month we have decided to cut back and it is not effecting our life balance as we are only cutting out things that we really don't need.

This site is fanatstic for finding free or cheap days/nights out and home bargains which don't cost a fortune so at the moment we are finding it pretty easy to strike a balance - I hope you can do it too.

Good luck - I'll be following with interest.

pammyj74

I use this egg calculator and have it saved in my favourites. It helps compare and quite a good motivator to see how much it could change your term.

Your savings ability is fantastic for your age, well done