Suze's quest to be mortgage-free by 40

gelato_cat

Hi all :hello:

I feel a bit fraudulent posting on the MFW board as the size of our debt is pretty small, but even so, neither of us want it hanging round our necks for the full 25 years. Also, when I was saving for a house deposit, I was active on the savings boards, but now I no longer need to focus on savings rates etc I miss the discussions and info-sharing.

I'm in my early 30s and want to be mortgage-free by 40. Hubby is a few years older and wants the same thing! (Fortunately!)

A bit of background... bf (as he was then) and I were together for a few years, living separately, and decided to buy a house and move in together. We both had substantial savings and he had a flat to sell.

So we bought a house costing £440k and put down a sizeable deposit which meant we needed to take out a £260k mortgage.

The mortgage is one of First Direct's offset ones, tracking at 1.89% above base rate for the 25 years. I know it's not the best (it is only good because base is so low at the moment), but due to one thing and another, we'd just missed out on the 0.49 and 0.99% trackers they were previously offering! We wanted this particular product because it's really flexible. It's an offset and it's interest-only but allows unlimited overpayments. It also allows you to withdraw what you like up to the maximum loan amount (not that we intend to!). And you can pay it down to zero and close it without penalty.

The estimate FD sent us before we applied for the mortgage said that if we made the minimum payments, over the course of the 25 years we'd pay back a total of £480497. That's more than we paid for the entire house so it's a sobering thought.

Fast forward a couple of years and we're now married and have ploughed a lot more spare cash into the mortgage and now have £64.5k outstanding. There weren't any magic tricks involved, it was more a case of hubby feeling more comfortable with bringing more to the party, as it were. In those days we did pay more interest than we should have, as he didn't want to put all of his money in, but nothing we can do about that now! Luckily it was only a year or so.

In the background we are both still saving. We both put 50% of our net salary into the joint current account (FD). The other half we do what we want with. I hardly spend much at all so most of it goes into my FD savings which are offset against the mortgage. Both of us are with FD for our main current accounts too.

As our outstanding loan amount is only £64.5k we have managed to put enough away in savings to offset against the entire amount. So this means all the payments we are making now will only reduce the capital Also, the longer we can keep 100% of the balance offset, the longer we will be protected against any rises in the BoE base rate. You may ask why we don't just pay it off now, well, we feel better about having readies in case of emergencies rather than having to borrow from the mortgage account if anything happens. Although we'd pay the money back into the mortgage asap, we don't want to view the mortgage as a source of funds. We want money to go into it only, not in and out.

Going forward, what we are doing is paying £1.5k a month into the mortgage, so we can still see the balance reducing, but also have the outstanding offset.

Hubby wasn't too aware of the concept of 0% credit cards before we got together but I explained it to him and we got one before we bought the house to put some of the expenditure on (survey fees, DIY stuff etc). We don't stooze - rather, we put all our purchases on a credit card which charges 0% and then put money aside to pay it off in an FD account to offset against the mortgage. Meanwhile, we are still earning and saving every month which further bolsters the offset pot, then when the 0% term ends we take a big chunk of money out, pay off the card and then apply for a new one.

At the same time, we then take any "surplus" and sink that into the mortgage. For example, the first card we had, I think we had it for 12 months and spent about £6k on it, but had built up £15k in the current/savings accounts over those 12 months, so we paid £6k to the credit card and sunk the other £9k into the mortgage. This makes us feel really good, esp since when we first got the mortgage, we were only making the minimum payments (knowing that we would sink a big lump sum in later). Seeing the mortgage go from £26xxxx to £25xxxx made us feel like we'd achieved something! (There have been times where I have been tempted to put a penny or a pound into the mortgage to see it go down to the next "level")!

This has worked especially well over the past few months as, while we had a very small, inexpensive wedding, we had expensive rings and a honeymoon that cost about the same as a brand new car :eek: so, in effect, this allows us to pay for them in instalments, while keeping the mortgage interest at zero. And it's allowing us to do the things we want while still being sensible about paying down the loan.

I've been keeping a rough running total of the offsets and what needs to be set aside for the CC etc, and have even managed to divert some of my excess into an ISA for the first time since 2009. I'm not maxing them out on 6th April every year like I used to, just drip feeding, but it's good to be able to get back into that. (The ISAs are not offsettable BTW, and FD don't offer the best rates on these anyway.) The ISA limits are way higher than when I cashed mine in to buy the house too!

As it stands, if we keep making the £1.5k/month payments we should be mortgage-free in about four-and-a-half years, which is quite exciting. However, what I know I need to do now is sit down and put together a proper set of calculations showing our income, expenditure and then work out if we can afford to pay more than £1.5k a month without affecting the CC stash and/or the offset, as I'm pretty sure we can, and then we'd be able to get rid of the mortgage faster.

Sorry this is a bit of a long, unstructured ramble but, as you can see, we've been doing things a bit randomly so far so I look forward to getting this ship a bit tighter and sharing ideas with everyone.

cheers!

Suze

PS I know my sig is ancient - I will change it to reflect my MFW status

the_alchemist

Good luck with it. You're starting to make off-setting sound more tempting!

gelato_cat

Thanks! Yes, it is definitely good to know we are paying no interest, we feel very much in control of the loan. Also, now everything is offset, we can put any extra cash into ISAs or other accounts which pay more interest. It works for us, anyway!

I saw what you said about you and your hubby's mortgage/money opinions differing slightly. Sometimes I think that's half the battle so it's good that your hubby sees the benefit and is increasing the overpayment. Although my hubby has similar views to me, he is less savvy. Before we were 100% offset he didn't seem to get that overpaying and offsetting was having the same effect. After a while of trying to explain it to him I just let him carry on with the overpaying because at least it was reducing the capital!

Strangely enough, now we are 100% offset he is very relaxed and sees no need to just use the offset balance to make an overpayment and clear down the mortgage :think:

Suze

the_alchemist wrote: »

Good luck with it. You're starting to make off-setting sound more tempting!

staffie1

Well done, Suzey - you're in a great position. A question that popped into my head as I was reading your post..Do you still need an endowment policy as you have an interest-only mortgage? Or have you cashed it in?

gelato_cat

Thanks We never took out an endowment policy, but we did take out life insurance, which we still have. We were thinking about reducing the sum assured but need to get some quotes - if the monthly saving is negligible we might as well leave it as it is.

Once the mortgage is paid, we will probably cancel the policy.

Suze

staffie1 wrote: »

Well done, Suzey - you're in a great position. A question that popped into my head as I was reading your post..Do you still need an endowment policy as you have an interest-only mortgage? Or have you cashed it in?

pammyj74

Wow I am really jealous that you have a house that is probably worth nearly half a million pounds and could all be paid off!! Add to that that you are not paying interest now is amazing also and will definitely help you make it gone quicker.
I never thought of offset like that before. It makes sense to keep the offset like that then in case you need the money for something else.
Well done on how far you have come already. You dont say you have any children but it puts you in a great position if you ever did for work wise etc.
Amazing, so how long have you had the mortgage? It seems only a few years and you have paid it off already so to speak.

I am poss looking to move and never even thought of getting a 0% to pay for fees etc. I have small savings but this would help if I got one of these to put my mind at ease until the equity came through.

dimbo61

well done so far but I think you need to look at your long term plans re savings?
If you can pay £1500 each month off the mortgage now you should also be looking at both cash and stocks and shares ISA,s so when you have cleared the mortgage you will have built up savings in ISA,s

gelato_cat

Thanks for your reply. Yes, we made sure we bought in a good area. For at least a year after we moved in, I was still addicted to Rightmove... I think I was so shocked at the massive purchase we'd made that I kept trying to convince myself it was a good investment. Prices in the area haven't gone down yet, if anything they have gone up. Mind you, this is all academic because we intend to stay here for a very long time. No kids and none planned

We've had the mortgage since summer 2009, so not long.

I personally find credit cards to be an excellent cash flow tool. My hubby didn't see the merits until I pointed out that we can pay for everything once every nine months rather than as we incur the expenditure and make our money work harder for us. It can be risky if you don't put the money aside to pay it back, or if you lose your source of income, but I guess that's the same with any form of credit.

Our honeymoon cost several thousands of pounds. We had the money to pay for it when we booked it. If we had put it on a normal credit card and paid it off when the bill came (or put it on a debit card, thereby paying straightaway), that would have been several thousand £ of mortgage interest we would have had to pay.

But instead we put it on a 0% card that doesn't need paying until the end of this year. In the meantime we continue to work and earn money to "replace" what we need to pay to the CC in a few months and the mortgage balance remains entirely offset.

I am sure there must be other advantages to offset mortgages that I haven't discovered!

One of our mates had the same mortgage as us and never actually kept any money in any other accounts. When he got paid, he put everything straight into the mortgage and then just withdrew whatever he needed to pay the bills or buy stuff. We haven't got the balls to go that far!

Suze

pammyj74 wrote: »

Wow I am really jealous that you have a house that is probably worth nearly half a million pounds and could all be paid off!! Add to that that you are not paying interest now is amazing also and will definitely help you make it gone quicker.
I never thought of offset like that before. It makes sense to keep the offset like that then in case you need the money for something else.
Well done on how far you have come already. You dont say you have any children but it puts you in a great position if you ever did for work wise etc.
Amazing, so how long have you had the mortgage? It seems only a few years and you have paid it off already so to speak.

I am poss looking to move and never even thought of getting a 0% to pay for fees etc. I have small savings but this would help if I got one of these to put my mind at ease until the equity came through.

gelato_cat

Thanks for the suggestion... I have recently re-entered the ISA market, having cashed mine in to put down the deposit on the house. I maxed out last year's ISA at the end of March but haven't started a new one for this year yet as I'm not sure whether to just add to last year's or open a different one. Plus this year (and for the next few years) I will be drip-feeding as and when I have spare cash.

I've only ever had cash ISAs as I'm never sure where to start with stocks and shares. Any ideas?

Suze

dimbo61 wrote: »

well done so far but I think you need to look at your long term plans re savings?
If you can pay £1500 each month off the mortgage now you should also be looking at both cash and stocks and shares ISA,s so when you have cleared the mortgage you will have built up savings in ISA,s

pammyj74

so in under 2 years you have paid off £260k? as in paid the mortgage and put into savings to offset the rest? Or is that not how it works.

eta: you need to change your sig hun. :j

gelato_cat

Not quite

We bought the house for £440k, put down £180k deposit so we borrowed £260k in the form of aforementioned FD offset mortgage.

Been paying back as much as we can, and after we got married the hubby sunk more of his savings in.

The outstanding mortgage balance is £64.5k. We have approx £65k in our FD current and savings accounts which is offset against the mortgage, so we don't pay any interest on the mortgage or earn any interest on the savings.

We pay off the £64.5k at a rate of £1.5k a month which means the mortgage should be at zero within five years. We are looking at how much we could increase the monthly payments so we can get rid of the mortgage even quicker.

I was in the process of changing my sig when I saw your reply :A

Suze

pammyj74 wrote: »

so in under 2 years you have paid off £260k? as in paid the mortgage and put into savings to offset the rest? Or is that not how it works.

eta: you need to change your sig hun. :j