Nat's Mortgage Free Odyssey...

nellis10

Iona_Penny wrote:

I think this is an admirable aim, and as we have just paid endowment proceeds off our mortgage we are now overpaying by £150 per month which will knock over 2 years from remaining 10 year term :j at CURRENT interest rates;
I think the two things in your story that seem at odd however are the fact you want to overpay and add to your family!! Are you going to be able to do this without losing income? Are you going to need the money you will overpay at least in the short term to cover maternity leave etc? Sorry, just curious as although there is a surplus if you stick to your budget it is still fairly small.

Yes hubby and I were talking about that last night. Maternity pay will be poor for me, but as I don't see us being in that position for at least 1 yr we will be 1yrs savings better off. We have about £2K in savings at the moment...actually it's in my current account and I should move it over to savings to stop me spending it!!! I had cashed in my meagre endowment to pay off my debts and have some left over to start the ball rolling with savings...

It's funny...DH and I used to argue about money all the time...one straw in the whole separation malarkey. He was cautious and I was carefree!! Now he's fed up with me talking about all the savings we are making and all my pieces of paper with budgets/savings/projections....:rotfl: But the main thing is we are both in agreement and both trusting each other now, so things are definitely on the up!

nellis10

Small update, we have made an appointment with the Mortgage Person at the Nationwide to discuss the best way of making overpayments....Reduce the Term or Reduce the Capital are our options. If we reduce the capital we reduce the mortgage payments, if we reduce the term when we come to remortgage in under 2 years we have the same amount of capital but a shorter term but higher interest rates...or something weird like that.

We will also be adding to our ISA...nothing went in this year and I have £2K to add to the pot. I suspect we should be concentrating on maximising our tax free savings as well as overpaying the mortgage.

I still don't know if it's better to reduce the term or the capital!! We have about £100K outstanding as of Saturday (with interest being added daily) paying £867/month at 5.02% for 12yrs and 9 months remaining.

Anyone got any advice?

nellis10

Small Update,

I overpayed the mortgage for the first time yesterday by £50!! YAY!! :j

Small steps, big rewards!!!

I've another £50 nearly in the Mortgage Pig, so by the end of the month, another £50 to be paid off it!!

And hubby is going to be cutting down on the cigarettes from next month, so he's promised to put the savings into the mortgage pig...I've estimated that's another £50 a month!!! :T

At this rate £100/month off the mortgage will save us about 2yrs on a 12yr9month mortgage!

Joe_Bloggs

@nellis10
The official term left on the mortgage sets the longest time for a final end date when all the money should be paid back to the lender.This date is set down in the mortgage contract and determines regular payments.
By overpaying you create a new potential end date that is sooner than the original final end date. You don't have to do anything else or change anything. The new end date is just a financial projection.

There is no deadline in building up a mortgage reserve. There is a deadline of using your tax free ISA allocation before it is lost for the year and replaced by one for next year. To some extent they compete for the same funds. This is why it is a good idea not to reduce the official term of the mortgage. This would just tie up more cash in the mortgage. Increased regular payments due to a shorter term would not be consdered as part of the mortgage reserve. You get the maximum flexibility if you can choose what to do and when to do it with your surplus funds.

What rate is your ISA at. Some providers do rely on consumer inertia. You can transfer ISAs around to get better rates. My latest mini-cash ISA is a National Savings Direct ISA @5.3%, tracking Bank of England base rate. You can't transfer in and it costs £1000 to open one. It took four months to save up for it.
J_B.

nellis10

Thanks Joe. Basically (if I have this right!) if I overpay the mortgage and use it to pay off the capital and not get them to reduce the monthly interest amount, I would in effect be paying off the mortgage early by reducing the amount of outstanding capital, without officially reducing the term of the mortgage, which could increase my interest payments as I would be paying the same amount over a smaller period of time?

I think!!

We are going to sort out our ISAs this weekend, we have 2 in A&L I think. Also we have £2K in a cashbuilder book paying 1.40% interest....can't beleive DH let that one in!! I shall be moving it to the NW Esaver ASAP paying 4.8%.

I also have £2K of my own money to put into an ISA which I hope to add up to £3k by April.

Joe_Bloggs

@nellis10
On a repayment mortgage there is always a mixture of interest and capital paid in a regular payment. The interest paid is caused by the capital borrowed. Each month you pay off interest and also pay off some capital. This capital repayment reduces the interest charged for next month. The total repayment will remain the same so more capital is paid off each month and less interest is charged each month.

When you overpay this reduces capital borowed upon which interest is charged. This inturn reduces the interest per month. With your regular payments remaining the same, they will now consist of even less interest each month and even more capital each month. Eventualy there is no capital left

I would in effect be paying off the mortgage early by reducing the amount of outstanding capital, without officially reducing the term of the mortgage, which could increase my interest payments as I would be paying the same amount over a smaller period of time?

Almost. By officially reducing the term your interest payments will be lower but your capital payments are higher. The regular repayments will be higher to reflect the shoter period of time to pay off the capital. This shorter term repayment scheme can be mirrored in a longer term scheme in which overpayments are made. The latter scheme has more flexibility as you build up a mortgage reserve and you don't have to make extra capital overpayments if you have a more pressing need for the cash elsewhere.

J_B.

nellis10

Brilliant! Thanks for taking the time to explain this to me Joe! :T

nellis10

Another update.

We upped our mortgage officially from £867 to £965 which means our 13yr term is now only 11yrs!!! :j

Also I shall be saving my £2 and 20p in Peppa the Pink Mortage Pig. Even an extra £35/month from the pig will save me 6 months off my mortgage!! And £75/month will save me a year...so I now have a challenge to turn my £35 into £75. :T

This month's challenge is to sell as many books and unused stuff as I can on ebay.

If anyone is still reading this...thank you! :rotfl:

pink_fairy_7

I'm still reading nat:D

Well done. Every little helps. We only had £53.96 in our piggie this month, less than last month but it all helps.

pink fairy x

comping_cat

Im still reading too!!!!!

You are doing really well, keep going and good luck!!!!