Wanting to join you MFW's: What do we need before beginning?

BaconandEggs

Hi all,

We are wanting to start overpaying our mortgage.

Is there anything you would advise doing before beginning?

For example, I think it is sensible to have an emergency fund.
How much do most people allow for this?

Is there anything else you put money aside for before overpaying your mortgage?

katsu

Hi Bacon,

Our emergency fund is a bit small - depending on your circumstances you are advised to have up to 3 months income set aside. You can decide to have less if your jobs are very secure, if you could get back any overpayments you make on your mortgage or you have a rich relative always willing to lend you some cash More seriously, 3 months living expenses is an alternative to 3 months of income, and more quickly achievable.

Lots of people split their savings - part to OPs and part to emergencies.

As you say we, this is what we do:

1 - Open an ISA each.
2 - Use one as a "bills ISA" and save 1/12 of what you need for annual bills like car tax, contents insurance, average car maintenance etc.
3 - Use the other as an emergency fund isa and put your emergency fund monies in it, so they are out of sight, but safe.
4 - I have a separate a/c where I save my money to OP, but you may want to put it in the bills ISA and just use a spreadsheet to know when to take it out and OP (if, like me, you have minimum amounts you can OP at a time).

BaconandEggs

Hi,

Thanks for the response Katsu.

3 months sounds sensible.

I have heard other people budget a set figure of 2 or 3k.

Our mortgage is with Northern Rock (one of the new ones). It is fully flexible, and while I believe it is possible to underpay once overpayments have been made, I don't think it will be that simple to underpay if needed. This is something I will look into in deciding what amount to set aside for an emergency fund.

Your idea of paying a set amount towards savings/overpaying is great. I put aside my tax to pay (self-employed) in a similar way).

katsu

We went for around 4k on the grounds it paid the mortgage for 4 months and contributed towards some bills, but are adding to the emergency fund slowly.

BaconandEggs

Seems sensible.

I've just been doing some sums and have set myself the target of 3K while the Mrs is aiming for 2K - giving a combined total that should see us through at least 3 months if required.