Rainday fund vs Mortgage?

Phelpsie001

Afternoon all!!

I was just wondering ... what would you class as an adequate rainyday pot?

I am trying to save up £5,000. I have approx £3,000 now and pay little O/Ps on my mortgage each month (£30 etc).

I am on a horrible rate with large repayments of approx £760 a month so it makes saving or O/Ps hard.

What sort of war chest do people keep? Do you aim to increase this each year, or keep it at say £5,000 and just use any extra money to overpay?

Thanks chaps and chapettes.:)

de1amo

i would just say--do what you can!! we all have different costs of living and resposibilities in the form of kids etc

They do say 5 weeks income as a buffer but i would feel 'vulnerable' with that amount.

Phelpsie001

I'm thinking £5,000 as that would cover most home repairs? I have insurance, but they dont cover general degrading or acts of God.

I am tempted to just use £1,000 to pay off some mortgage and then save about £400 a month until I'm at my £5,000 goal?

seafarers_wife

Im going to be aiming for 3 months living expenses initially then building up to 6 months, 9 months and then 12 months all in a seperate pot so shoudl the worst happen i know we are covered for a good period of time. we budget seperately each month for car, tv, insurance etc so that those are all paid annually in a lump sum.

in addition to that though i will be overpaying the mortgage from next year once we have had chance to build the savings account up again to a resonably comfortable buffer as its taken a huge hit in buying a house.

de1amo

İ am sure there is some actual percentage you should put aside for renewals- landlords are allowed 10pc on rents for renewals of things in the house.- for total house maintainence on my block of appartments we pay about 10pc of rental value each month--so maybe aim to save 20pc of the rentable value of the property for renewals--i know your not renting but these percentages are worked out on property values/rental.

Phelpsie001

That is useful, thankyou

Just paid off another 325!! So I have almost paid off 400 this month!! And I should be able to pay off a couple of hundred more next month!! I need to keep at least 3k savings for my own sanity I think!!

wynnvegas

Hi Phelpsie,

Depends on your personal circumstances and your attitude to risk. For most of my mortgage free journey, we had less than £1,000 in the bank as we put every spare penny into the mortgage. I lost my job in that period as well (and thankfully got a better one three days later) but that was right for us. Best of luck to you.

Cheers,

Billy

originalmiscellany

Well, we have an offset, so we overpay everything into it, which allows us to dip into it as and when we need it. Touch wood, we've not needed it yet... One of the big advantages of an offset.

debtdesperado

I would suggest minimum 3 months of living expenses, but then increase that if, for example, you have lots of young dependents, or you have only one income in the household, or you think your job might be at risk, or you have a very senior or very specialist job (which mean that it might take longer to get an equivalent).

Also think about the age of the big expensive essential posessions that you have, and whether you are insured for them breaking completely/requiring large repairs - the only ones I can think of are things like a family car, or a boiler. That level of essential! If you are insured for your boiler or if it is brand new, for example, then your emergency fund won't need to cover this, so you might be comfortable with it being less.

Check with your mortgage provider as well what their policy is on mortgage holidays and breaks - if they do permit them, if you lost your job if they will let you take a break for a while from making mortgage payments, which will mean that your emergency fund will last longer.

My mortgage provider doesn't allow breaks unless you have overpaid to the equivalent value (ie, if mortgage is £1000 a month, and I have overpaid £3000, then I can take a 3 month break).

If you want to keep a bigger emergency fund, then you could ask about offsetting part/all of your overpayments against the mortgage. This is what I plan to do with my emergency fund once it gets to a certain size. The 'savings' then enable you to overpay even more off the capital of your mortgage, so it goes down faster (not by much, but every little helps).

The thing to remember is that it doesn't really matter how much you have overpaid if suddenly for a good few months you can't pay your mortgage - that is when your home is at risk.

Phelpsie001

Thank you all

I think that it probably costs me around £1400 a month to live ... so times 3 would be £4200. I think that I will make it £5,000 because I live alone and so if it were to lose my job, would be quite worried about it all.

debtdesperado

oh yes, one other thing - you could always take out mortgage/income protection insurance...

There is a guide to it on the main MSE site. A friend of mine took it out and lost his job, was out of work for nearly a year but was fine because he was still receiving his income from the insurance.

I am going to take it out as soon as I have passed my probation, and will keep it up until my emergency fund is big enough :-)