MF within 10 years or less

qwerty001

Hi all,

I thought I would put down my plan to be Mortgage Free in 10 years or less (preferably less)

1. loan period 29 years started 2011
2. original loan £67000, repayment mortgage
3. aim to overpay as much as possible
4. use OPs to reduce monthly mortgage rather than reduce term (to make it easier to save up or if interest rates rise a lot)
5. dispensing with the safety net of 3 months wages which I was going to keep but too tempting to overpay to bring down monthly payments
6. once monthly payments are reduced to a suitable level (perhaps when the ERC charges end after the first 3 years) I will then overpay to reduce the term
7 maximum OP is 10% of balance in any year during the first 3 years, no limits afterwards

I appreciate no.5 was not a good idea, but just could'nt help myself, I suppose I will have to try and build it back up as I have made the maximum OP for this year clearing out all my savings, so will have a year to try and save up (hopefully I wont have any unexpected big pay outs to make or lose my job between now and then)

My ultimate aim is to see if I can do it within 6 years, but current financial situation is not likely to allow that to happen, within 10 years is possible but still likely to be difficult

cheers

Dave101t

why bother with a mortgage at all?

qwerty001

Dave101t wrote: »

why bother with a mortgage at all?

Good question

Lois_E

Hi qwerty

Welcome to MFW. Don't know who Dave101t is (although from his sig he looks to be good at saving), and not sure what his point is. I assume you need somewhere to live, so would have to pay rent if not paying a mortgage.

If you've got down from £67k to £59k in the last 5 months you're doing brilliantly - well done. You'll find lots of encouragement here to help you to keep going. Do tell us more about yourself - who is there in your household? what job do you do? are you into extra earners like survey sites?

qwerty001

Thanks Lois_E,

Yes, I went from a dingy 1 bed rented dive to a slightly better 3 bed house, renting a similar property would have nearly doubled my rent whereas getting a mortgage would be cheaper than renting, needing the extra room for partner and child.

Even if unable to pay the mortgage and have to sell or lose house, we would still be living in better quality accomodation up until that time and then go back to renting (worst case scenario type of thing).

I have thought of the extra earners, and may well do so in the near future but they seem a little difficult to get into.

Spending my Emergency Fund was not a good idea and I am partially regretting it, but it has allowed me to reduce my monthly mortgage making it slightly easier to save the EF back up.

So is it a good idea to reduce Monthly Payments (by making overpayments) then at a later date reduce the Term? Hoping it would provide an element of financial security if I could no longer afford OP's and interest rates go up, etc

CathT

qwerty001 wrote: »

So is it a good idea to reduce Monthly Payments (by making overpayments) then at a later date reduce the Term? Hoping it would provide an element of financial security if I could no longer afford OP's and interest rates go up, etc

Good luck on your journey.

When I made my first overpayment (OP) I asked them to keep my payments the same so it would automatically reduce the term. I think this then protects you to some extent from interest rate rises as you are paying a slightly higher amount in your monthly repayment than is required.

gallygirl

You should check with your mortgage co to see if you can get back your OP's if you need to - some let you (I'm with Egg and money goes back into my bank within a few days). That may stop you worrying about your EF.

With regards to shortening term or reducing payments, again check your mortgage. If you reduce the term then your monthly payment will stay the same and the extra amount (i.e. what you're paying over and above what the minimum payment on your old term was) shouldn't count as an overpayment - it's just your normal payment. That means you can still pay 10% extra each year. If you reduce your monthly payment you can still only pay 10%, so can contribute less in total that way. That doesn't make sense......

Reducing term:
Payment £550 x 12 = £6,600
10% of 59k = £5,900
Total payment = £12,500

Lower payment:
New payment £500 x 12 = £6,000
10% of 59k = £5,900
Total payment = £11,900

Hope that is clearer :rotfl:

qwerty001

CathT wrote: »

Good luck on your journey.

When I made my first overpayment (OP) I asked them to keep my payments the same so it would automatically reduce the term. I think this then protects you to some extent from interest rate rises as you are paying a slightly higher amount in your monthly repayment than is required.

Hi CathT,

I don't think it quite works like that.

if you reduce the term, you then keep your current standard payments the same, and so if interest rates rise your standard payments will also rise

Lois_E

qwerty001 wrote: »

Hi CathT,

I don't think it quite works like that.

if you reduce the term, you then keep your current standard payments the same, and so if interest rates rise your standard payments will also rise

Unless your mortgage provider would let you put the term back to its original end date if you get into difficulties later if IRs rise. I guess that would vary between lenders.

Your security against IR rises is best if you use OPs to reduce the monthly payment, but then keep actually paying the original amount as an OP (IF you have the flexibility to do this without penalties). But that depends on having the self discipline to keep paying the old amount even when they won't make you.

Penalties aside, how much you pay and when matters a lot more than how they account for it.

qwerty001

gallygirl wrote: »

You should check with your mortgage co to see if you can get back your OP's if you need to - some let you (I'm with Egg and money goes back into my bank within a few days). That may stop you worrying about your EF.

With regards to shortening term or reducing payments, again check your mortgage. If you reduce the term then your monthly payment will stay the same and the extra amount (i.e. what you're paying over and above what the minimum payment on your old term was) shouldn't count as an overpayment - it's just your normal payment. That means you can still pay 10% extra each year. If you reduce your monthly payment you can still only pay 10%, so can contribute less in total that way. That doesn't make sense......

Reducing term:
Payment £550 x 12 = £6,600
10% of 59k = £5,900
Total payment = £12,500

Lower payment:
New payment £500 x 12 = £6,000
10% of 59k = £5,900
Total payment = £11,900

Hope that is clearer :rotfl:

Hi gallygirl,

I believe I can reduce future payments by any amount that I have overpaid by (provided I continue to make some monthly payments I think - not sure, Halifax). It would not allow me to get my EF back in one go, but it would make it easier to save it back up provided I did not need all of it immediately.

Ultimately reducing the term is better if you are confident in being able to keep an Emergency Fund intact and confident that your income stream will remain unbroken (I'm not confident at how long I can keep my job before having to find another job at probably a lower wage, hopefully a few years away yet but you never know).

But reducing the monthly payments allows more take home pay to go towards saving the EF back up more quickly and if interest rates go up they would make the payments go up by less than if the payments had stayed the same.

qwerty001

Lois_E wrote: »

Unless your mortgage provider would let you put the term back to its original end date if you get into difficulties later if IRs rise. I guess that would vary between lenders.

Your security against IR rises is best if you use OPs to reduce the monthly payment, but then keep actually paying the original amount as an OP (IF you have the flexibility to do this without penalties). But that depends on having the self discipline to keep paying the old amount even when they won't make you.

Penalties aside, how much you pay and when matters a lot more than how they account for it.

Hi Lois_E,

I would prefer to keep the payment the same, but I have overpaid the max that I could for this year, and I need to save up for the EF and pay off the small amount outstanding on CC's

Paying off as much as you can comfortably afford without putting yourself at risk (provided this is at or above the minimum) is probably the way to go