Dreaming of being mortgage free 18 September 2010 at 4:56PM in Mortgage-free wannabe 6 replies 1K views

Lauramaria

Hi everyone thought it was about time I signed up here and posted. Been reading everyone's diaries for a while and I too am dreaming of being mortgage free

Here is my story

I have about 19 years three months left of my mortgage with £97700 owing. My current monthly payment is £510 (due to rise to £580 in December when my tracker deal expires, and I go onto Halifax variable rate of 3.5%). I have been making some overpayments and was lucky to get backpay from work. Initially my mortgage was £117000, and I have managed to reduce it to £97700 in 22 months, mainly because of the backpay. I am 28 now and would love to have it paid long before I reach 40. I am single (well have a bf, but we have separate houses) so I know in the future my circumstances may change. Even if they do I reckon Id keep my apartment and rent it out.

Come December should I be considering another tracker mortgage or a lifetime tracker instead of moving onto the variable? If the interest rates did increase I would have some money to put down so that I could move onto a fixed. But I would not be willing to pay to come off a deal.

I also have money in an ISA (£11500), premium bonds (£1500), stocks and shares ISA (£140), Zopa (£400), Halifax 2.8% savings (£300), Santander 5% account (£2000)

Any other tips on how I can reduce my mortgage quicker?

whiskywhisky

Have you now considered taking all the money from your savings (ISA, accounts etc) and making a lump sum payment of the outstanding balance? Must admit that is what I would seriously consider doing as we all know there is only one way the interest rate will go.

Lauramaria

Unfortunately I am the type of person who likes seeing money in the bank. I already took some of my tax free savings to pay off a car at the start of the year. Not sure I could touch anymore. I would like to keep some money for emergencies. I guess I will need to either stop maxing out my ISA each year and put the money towards my mortgage.

jamesd

What you could consider is whether an offset mortgage would be suitable. Money in an offset savings account reduces mortgage interest payments so it acts similarly to a cash ISA paying interest at your mortgage interest rate. The catch is that offset mortgage interest rates tend to be a little higher than non-offset rates so it's possible for the result to be a higher interest payment unless the amount of money in the offset account is high enough.

Say you had a mortgage at 3% an cash ISA paying 2.5%. You'd save 0.5% by moving the money from the cash ISA into the mortgage because that's the difference between the two interest rates.

But if a non-offset mortgage was available for 2.9% you'd be paying 0.1% more on the rest of the money. So £10,000 in an offset account would leave you no better off in this if your mortgage balance was £60,000 or over, because the extra interest on £50,000 would just match the saving on the £10,000 offset.

So offset can be good, you just need to check the effect of the different interest rates or different deals to check that you'll be offsetting enough for it to pay.

Do you have any plans to max out your ISA each year? You seem to be missing about half of it, the remainder that can go into the S&S ISA after the amount you want to use for cash is used. Investments aren't as predictable as cash and the value gos up and down but over the long term they can be expected to do better than savings accounts or mortgage overpayments at accumulating money to let you clear the mortgage sooner.

It doesn't currently seem that a fixed rate mortgage will be a good idea but what you can usefully do is check the current best fixed rate deal that you'd get and ensure that you budget for the monthly payment you'd have with that deal. The difference between what you're paying on a variable rate deal and that one can be put into a savings account and used later, if the rates go above the fixed rate during the term of the fixed rate deal. If you have money left over then you made money by not going fixed rate. It doesn't need a different account, you can track it on paper and use an existing account instead.

Secret_Saving_Squirrel

Hello Lauramaria,

Sounds like a good plan to pay off while you don't have many other commitments. I'd think seriously about using savings to overpay the mortgage - it's abetter return in the long run, and when it is paid off you can put lots in the bank much quicker!

Squirrel:j

dimbo61

Well done on clearing over £20K in less than 2 years some going
Yes you do need a good emergency pot of 6 months income ( even more so as you are single)
You may ! in the future rent out the apartment so the more you can overpay now the better LTV ( at least 75% or lower) and return on the rental income being at least 125% of the mortgage.
Will Halifax allow you rent out the place ( consent to let ?)
You are in no rush to get a new deal as 3.5% is not bad but there are some good long term (5 year) fixes at 3.95/3.99% for you to consider GOOD LUCK

Lauramaria

Thanks for all the advice everyone!! I have been considering an offset mortgage but as my mortgage rate is low I think i may stay with my variable deal for the time being. If interest rates start to rise I will likely use some of my savings to pay down my mortgage loan and then look for a good fixed deal.

With regards to maxing out on stocks and shares Isa, what funds would you recommend? Currently I have some money in Investco and Schroders funds. I prefer the funds that are geared towards income and growth.