Radical plan to be MF in 6 years

goobergirl

I have finally decided to start my own diary after being a lurker and subscriber to the MFW 2011 thread.

Brief resume of my circumstances; I have just turned 38 in June, am married with 3 kids, aged 11, 10 & 5. OH and I both work full time and we count ourselves very lucky to have secure jobs and good salaries.

We have no debt now, other than the mortgage, after recently paying off a hefty car loan. We also have no child care costs as youngest is off to school after the summer so that has given us quite a bit extra to put towards OP the mortgage, which was always our plan after the car was paid for.

After my lightbulb moment at the beginning of June I sat down and went through all our monthly expenditure etc with a fine tooth comb and trimmed everything back as much as I could, within comfort.

The worst expenditure was our mortgage interest payment which was with the Halifax and costing us £1196.57 a month in interest alone! OUCH!!! We were stuck on a horrendous 7.49% fixed rate which was taken out when we moved house (due to work transfer) in December 2008 just as the credit crunch really hit.

We had a hefty ERC which just reduced in February to a figure which made it perfect sense to re-mortgage, even with a lower ERC. So we have just re-mortgaged to Northern Rock, completed today and have just wiped out £679.32 interest every month!

Even with a £3500 ERC until February 2014 I have still saved just under £9000 in interest had I stayed with Halifax. It is great to know that £9000 will go towards reducing my actual mortgage and not to the bank.

We are limited to OP 10% each year for the first two years then can OP by any amount thereafter.

Our plan is to budget carefully, live frugally but still make room for some treats etc along the way and really make every effort to reduce our mortgage as quickly as possible and clear it completely by August 2017.

Our first challenge / target is to OP by £2000.00 each month which will meet our 10% limit. We will also attempt to save £1200.00 each month by way of fully funding our ISA's etc. This is with a view to having lump sums built up to OP after the 1st two years are up.

It's very ambitious, I know but by continuing to both work full time and really sticking to our budgeting carefully I think we can do it.

We do have to replenish our emergency fund over the next couple of months as we used that to cover the ERC and extra needed to meet the 75% LTV.

I also plan to carry on ebay, car boots, using cash back sites etc to save / make a little extra here and there.

:beer:

Gary123456790

Hi,

Well done for the remortgage - you've saved yourself a lot there and it will take years off the mortgage.

One possible tip - Alliance and Leicester restrict us to £499 overpayment per month and extra in January, to a max of 10% per year, although........... you can chance the term of the mortgage at any time for a fee of £25.

My wife got some inheritance money last year and I got A&L to change the term to 2 years - this made the monthly repayment a laughable £7,800 but after several months all the money was in, and £25 later the monthly payment was back to normal, with the monthly interest now being reduced.

It saved a LOT more than the £50 in fees to get it in as quickly as possible, as you save every month from then on - its a bit like overpaying but has to be planned. Maybe you could change your term permanently to a shorter term?

You can always change it back later if it becomes a problem, but of course make sure you can afford the increased payments.

Gary.

goobergirl

Gary

thanks for that tip, I will investigate that:beer:

SAMMYE_2

Gary123456790 wrote: »

Hi,

Well done for the remortgage - you've saved yourself a lot there and it will take years off the mortgage.

One possible tip - Alliance and Leicester restrict us to £499 overpayment per month and extra in January, to a max of 10% per year, although........... you can chance the term of the mortgage at any time for a fee of £25.

My wife got some inheritance money last year and I got A&L to change the term to 2 years - this made the monthly repayment a laughable £7,800 but after several months all the money was in, and £25 later the monthly payment was back to normal, with the monthly interest now being reduced.

It saved a LOT more than the £50 in fees to get it in as quickly as possible, as you save every month from then on - its a bit like overpaying but has to be planned. Maybe you could change your term permanently to a shorter term?

You can always change it back later if it becomes a problem, but of course make sure you can afford the increased payments.

Gary.

Hmmm that seems like a useful tip havent heard that one before!

Wouldnt it have been better to wait though until it was time to remortgage and pay it off then!? As surely you were paying a huge amount of that in interest?

I think I am being extremely dim can someone explain it to me in idiots terms?

Gary123456790

Hi,

It may not work for everyone (it obviously depends on your mortgage terms) but here are the real figures as it was for us (I have kept to round figures for clarity):

Mortgage Outstanding: circa £140k
Inheritance received: 30k
Interest rate: 4.49%

This makes the monthly interest £523.83.

After the term was changed, 30k put in and term put back, the mortgage outstanding was ~£110k, this makes the monthly interest £411.58, i.e. £112.25 less per month!

The faster I could get the 30k off the balance, the less the monthy interest would be. Net result is for £50 in fees, we are saving £112.25 per month.

We still pay as much as we can each month into the mortgage, so in reality that £112 is still being paid each month, but it is coming off the Capital, not going in Interest, saving more interest as it is effectively an extra overpayment.

You do have to check that term changes dont count as overpayments. We are with alliance and leicester (now Santander) and they dont consider term changes as being overpayments - its a way of overpaying without paying any fees for overpaying too much! Just make sure you can always afford the payment - I had to very carefully plan in advance (and ask A&L around 6 weeks in advance) to change the term back, as otherwise the big monthly DD would bounce as the inheritance would have run out, and this would have caused a bad credit mark.

I always remember that with mortgages for each £1 borrowed, you pay back £2. So then when you think 'I can overpay £10', it is actually saving you £20. This really makes you think because when you spend £10 you know that if you put it into the mortgage you would save another £10 in interest, so in reality the £10 item is costing you £20 on your mortgage.

Gary.