New MFW - advice please?

MascaraMinx

Hello,

I am about to embark on a Big Scary Mortgage with my husband and would like advice about the best way to get this as low as possible in the shortest time possible.

The mortgage will be £257k fixed for 3 years at 6.19%. This is a 103% mortgage over a 30 year term. Sounds bad, but we are using all the equity in our current house to pay our (substantial) current debts off, so have no deposit or money to pay fees with (hence the additional 3%).

We have an joint annual income of £65k (plus bonuses) and the mortgage repayment (capital and interest) will be £1565 pm. We will then have no oustanding debts, so once all bills and expenses are paid each month, we will have about £2k to play with. Our mortgage is with Northern Rock and they allow overpayments. We would like to set aside a small amount each month for savings so we can afford holidays and furnishings for the house etc.

The idea is to overpay as much as poss to get this mortgage down a bit - What would your tips/ advice be?

Welshlassie

Congrats on getting your debts paid off and the new house.

First step would be to ensure you have minimised all your must pays, things like gas, electric, water, phones, TV etc. Have a read through Martins guides to ensure you are paying the cheapest possible for your circumstances, the extra saved can then be used towards your overpayments/savings.

Have a read of the Mortgage Pig thread a great and novel way of finding extra cash you would otherwise fritter away.

Also have a look at some of the mortgage calculators and play around with some figures, just by paying and extra £50 per month overpayment can make a huge difference.

Remember not to over stretch yourselves by trying to overpay too much so that you have no standard of living. You have a huge mortgage that isn't going to be paid off in a couple of years (unless you come into a serious amount of money) so there is no point in killing yourselves to try and get rid really quickly. Enjoy your new house and if you can't overpay quite as much one month, don't worry.

MascaraMinx

Thanks welshlassie, this site really is the best thing isn't it? I just used a mortgage calculator which showed that if we pay off an extra £150 pm (which is affordable for us) we can shave 8 years off our mortgage term and massively reduce the interest we will pay.:D

I have used this site to select utility providers and life assurance. I am loving the idea of a mortgage pig (the money I used to spend on glossy magazines and takeaways will end up in here).

I shall also be entering the grocery challenge and the ebay challenge shortly!:T

gallygirl

That is a serious mortgage!!!! :eek: I agree you need to live a little bit - however, methinks maybe you lived too much before which is why you had the debts in the 1st place? I think it's best therefore that you pay off the mortgage rather than put in savings - once you've used your ISA allowance.

Am confused though - initially you said you would have 2k to play with, now you're talking about opaying only £150? I'd be going for much, much more than this, and also putting all bonuses that way.

MascaraMinx

I know and you're right about the living too much!

I've just checked the budget and had over-estimated. We'll have about £1750 between us per month after the basic repayment is made. So with living costs each plus some put aside for savings, we should be able to make substantial overpayments, which is the reason for my post. Although it looks really scary right now - and I'm sure none of you envy the financial commitment we are about to take - it should look a lot healthier in a couple of years.

So what should we do - how much should we overpay?? I have looked at a mortgage calculator and can see how much interest & reduction in term we could get even from a small overpayment. Do you have any strong views on how far we should stretch ourselves?

Miss_Penny_Pincher_2

Hi MascaraMinx

We have given ourselves the aim of paying our mortgage off in 7 years - obviously our mortgage is much lower than yours but our income is around half yours too.

I worked out a budget in excel (a bit similar to Martin's) to calculate roughly how much we need to live on and how much we had to play with which showed it was possible to pay off the mortgage in 7 years. I have worked out that comfortably we can live on £8,000 a year after bills and mortgage as we don't have a car, we walk to work and don't have expensive hobbies. This still allows us to overpay around £14,000 a year which will enable us to meet our goal!

Setting a goal like this and knowing how much need to set aside for the mortgage has really helped us. Although Mr Pincher doesn't really believe it will happen that soon as he hasn't looked at the figures but I know it can

gallygirl

Mascara Minx, only you know how much you can realistically pay, but 1st port of call is Northern Rock. You've said they allow overpayments - is there a limit on this (although 10% is the norm, can't see that being a problem!!!!), also is interest calculated daily - if so worth doing on a monthly basis if not save & pay off annually. Don't suppose you have an offset mortgage in which case bung every penny in there - you can always take out what you need. Assuming is not offset, if I was in your position I would calculate how much I thought I possibly could on a monthly basis - then increase mortgage payment by say 80% of this amount and put the remaining 20% in savings, and reassess on a quarterly basis. Re savings, look at the forum on this & Martin's best buys. You can get 10% as a regualr saver if you also oepn a current (think is with A & L?) - you don't need to actually USE current account.

MascaraMinx

Thanks Ali and Penny Pincher. We don't have an offset mortgage but we have just opened the A&L Premier Direct account.

So the way I read it there's two ways we can approach this: we can either set a time period we would like the mortgage paid off by (say 15 years), then calculate what our monthly overpayments should be to achieve this and aim for that. Or we can calculate how much we need to get by each month, and whatever is left we split 80% - 20% between overpayments and savings.

Thanks guys, I'm off to play with some numbers. My heads a lot clearer now though and Big Scary Mortgage now seems like Large But Achievable Mortgage!

Miss_Penny_Pincher_2

How did the number crunching go?

You inspired me to relook at my figures and I have calculated that it may be possible to pay our mortgage off in 5 years rather than 7 but then there is the question of quality of life during that time... and also would be committed to pay a higher fixed sum than we do now which scares me in case I should lose my job...

begbeer

Thought I might make you feel better, we have an even scarier mortgage of £300,000. interest only over 19 years!. But there is a reason, we remortgaged our own house to buy my mothers (her's was rented and the owner wanted to sell and at 78 she didn't want to move.) So far we have paid off £25,000 but the mortgage company we are with (north yorkshire) charge us £50 everytime we over pay so have to save up and make largest overpayments to offset this. Worked out with a 4.99% mortgage (until July 08) we have to earn 6.25% before tax so have opened a a & l, a barclays and a lloyds and will also be putting it in cash isa's We are hoping to get it down so mothers rent covers the mortgage, but have at least £150,000 to go. Fingers crossed and business staying boyant should do it in 7/8 years . (would prefer a lottery win or premium bond to make it quicker though!

MascaraMinx

Hiya - I have yet to discuss it with OH but I think we will pay an additional £200 to start with - this will save us £100k interest and shave 8 years off the term according to the mortgage calculator!!!!! The reason for the low overpayment is that for the first year we will probably need our additional disposeable income for buying furniture/ making improvements to the place. After the first year we can revisit the figures and hopefully double (or even triple??) that repayment. We hope to have the mortgage paid off within 15 years total but one step at a time eh?!