New to MFW

deadcatbounce

Hi,

we are less than 1 year into a 25 year mortgage. Is this too early to be a MFW?

Our situation is as follows: we started a mortgage last December (£122,824 @ 4.49%). We are fortunate enough to be coming into some money, and having no outstanding debts other than the mortgage, want to clear the balance ASAP.

We will set aside £10k for a rainy day fund, and a further £10k to cover the next two years commuting costs. We will also pay 10% of the mortgage, which is the maximum permissable without incurring a 3% charge on overpayments.

We will have approx £26k left to play with. I guess what I need is some kind of consensus that my short-term plan makes sense:

We want to renegotiate the mortgage, so as to reduce the term, which can be done without cost, so Halifax inform me. Our fixed term period expires in December 2011, so starting in October 2010, this leaves 14 mortgage payments.

After the 10% overpayment, our monthly repayment is £611. We would seek to pay £2,500 every month until December.

From owing approx £120k now, this would take us down to (if I'm right) approx £77k. At this stage we would remortgage, hopefully paying less that 4.49% (!) with a time horizon of 15 -20 years.

We will keep all money in an interest bearing account. I will also return to matched betting after a 2 year holiday (in Mrs Bounces' name, at our new address) to make a better return than the interest any bank a/c can generate. This extra cash can also be used to reduce the mortgage further when we remortgage.

Does this make sense? Am I missing something fundamental? Does anyone have a bad experience of trying to negotiate a longer mortgage after making hefty payments for a time (there's no way we could maintain £2,500 pcm indefinately :eek:)

Any advice would be appreciated. Apologies for lengthy post...

Radionotme

Congrats on the windfall, that's a nice situation to be in, and very disciplined of you to push so much into the mortgage rather than splashing out.

I haven't taken interest reductions into account so I'm probably way off, but you're paying off £12k now, and £26.5k over the next 14 months. That would take you from £120k to £81.5k. Although you've probably factored in interest reductions so more of your £611 is paying off capital, so that sounds roughly right.

I can't see remortgaging being a huge issue though, as with so much more equity in the house you'll be a pretty safe bet for any lender. Just make sure you remember to do it before the money runs out

One final note - I wouldn't be too confident about paying less than 4.49% in 14 months, if some interest rate predictions pan out then it will likely be more.

One question - is the interest rate variable, and if so have you factored that into account?

deadcatbounce

Hi Radio, thanks for your reply,

I had taken interest rate reductions into account. The rate is fixed until Dec 2011, when it reverts to variable rate (at which point we're going to shop around).

I understand your point re future interest rates. There seem to be any number of experts predicting no change/ some change/ financial armageddon in the short to mid term, so I suppose I'm just "taking a view" that there wont be much more than 0.5- 1% rise.

If rates do go up 1.5 - 2%, then at least we'll be in a position to extend the mortgage term to more than 20 years (I am unfortunately quite some way off retirement).

Thanks for your help. :beer: