Trying to be Mortgage free in 5yrs(ish)

Mc_Marty

Thank you for your posts.

My ERC is 4%, so on £60k it would be £2400 to get out early of this mortgage.

I'm thinking that as im 16mths away from the fixed deal ending, that it might be difficult to re-coup £2400 from a better mortgage in that time period. Especially as the banks have been particularly sneaky in offering lower rates but substantially increasing the admin fees to sign up to them.

Using a mortgage spreadsheet found on the MSE forums, I calculate that if i were able to get the same HSBC mortgage for 1.99, my mortgage balance of £62,800 (inc the ERC) would stand at £40,973 by April 2014 ... which also does not take into consideration the admin fee for the new mortgage.

If i were to stay as i am on 5.84% but with out incurring the ERC or new mortgage admin fee, my balance would stand at £41,023 by April 2014.

So if my sums are correct it would not work for me. I would have needed to have done this about a year ago.

I suppose in my case, measuring the benefit of switching or not also depends on whether in April 2014 there are low rates such as 1.99% still about. I hope so.

Mc_Marty

I've just re-read my previous post and i think the consideration i made to the admin fee is a mute point as i would likely re-mortgage in April 2014 when the fixed deal ends and would therefore incur an admin fee anyway on whatever lender i moved to.

So for me, i think the reason for re-mortgaging now or later is not about saving money on interest charges in the interim period (as my calculations show very little savings) but instead the decision should be based on whether i think mortgage interest rates will go up or down between now and and April 2014. Hmm, never thought about it that way. Not sure what best choice is. It's the million dollar question i geuss, how will rates change in the short term?

originalmiscellany

Well I guess interest rates really aren't going to go any lower and I don't think they're going to go much higher, but you need to factor that into your thoughts. I know that's teaching Grandma to suck eggs as it were but that's my thoughts...

Mc_Marty

Hi All,

An update:

Mortgage balance will stand at £54k after this months payment. We have also replaced the emergency fund which we used at the beginning of the year to 10% overpay.

Had some good and bad luck so far this year. Bad luck was that the 2nd had car i bought last year broke down a month after the warranty ran out and it cost a £1000 to fix (and that was mate rates) :-o . The good luck is that we got payrises.

The plan is to use the extra income to increase the monthly mortgage payment (i.e. we've reduced the term again), so we will now be paying £1850 pm ... meaning a capital reduction of about £1600 pm.

The next milestone is to get to Jan 2014 with a balance of £42.5k.

Then in April 2014 our 5yr fixed term will finish and we can remortgage and get rid of this 5.84% interest rate. The hope is that we can get a 2% rate and then the need to be so disciplined with repaying won't be needed as the banks will no longer be ripping us off.

Using the mortgage spreadsheet written by MSE's locoblade, if i had never found MSE or become an MFW, the mortgage at it's original trajectory would today stand at £106k with a monthly interest charge of £516. Instead, thanks to overpaying it's £54k and £263 monthly interest. So a saving of £253 pm.

Good luck to everyone.
Mc_Marty.

RosieTiger

While your focussing on getting your mortgage rate down for the next loan you are definitelybputtingbyourself in a far better position when it comes time for renewal.
I would be cautious though of going the shorter term route each time as this effectively increases the pressure on you by paying a higher figure each month. That's great while you can do it, but also leaves you under pressure in terms of your earnings.

I suspect that's one of the reasons why many people fall down on the journey because it is a lot of pressure to take on and can begin to make it feel a very hard slog.

I saw my earlier post on how I wish I had been more aware at your age and absolutely stand by it. It is also true that we are only here once so make sure you don't sacrifice everything on the way.

The things you have been forced to spend on are absolutely fine - I would just say that whether you complete this in 5 or 6 is immaterial.

We set out with a plan to do it in 5 years, which seemed almost an unachievable stretch. Shortly in, I started pushing that we could do it in 3 years. We could have actually achieved this revised target, but more important things came up. This included help for family, larger treats etc which at the time almost felt like a backwards step, but in reality they were all the correct decisions.

So we effectively did it in 4 years, still something that would have seemed unbelievable at the start.

You are in a fantastic position, just make sure you take a step back and enjoy it!

Mc_Marty

Thanks RosieTiger, i hear what your saying and they're wise words. I am a little guilty of playing the numbers game and trying to work to a mf date. I'm also a bit of an all or nothing person, something which i'm working on to get a better balance. For example we have today booked our summer holiday, so that's something we're look forward to.

Regarding the reduced term and increased monthly payment, it is a given that we will be re-mortgaging when the fixed rate is up, so that means we have only committed to the higher monthly payments until next April and not until the end of the loan (that was a deciding factor with committing the extra money). Agreed, committing this amount of money until the end of the loan would have been a big commitment.

I also agree about it being a bit of a slog, there are times when i think maybe we've committed too hard but there are also times when i'm glad we've done it. I think the doors this will open for us in the short to meduim term future 'should' outweigh the current sacrafice. Well let's hope so, as this is definitely not a long term lifestyle choice. Thinking about it, i suppose we have gone done the shorter sprint path rather than the long marathon.

Fingers crossed our calculated gamble pays off. I geuss we live and learn. Thank you for your post (and great to hear how well you've done with your mortgage)

Mc_Marty

Update:

Finally we have broken through the 50k mark and now have a mortagage that starts with a 4, which is a bit of a psychological win.

It means so far our calculated risk of significantly reducing the term (in order to 'overpay' fee free) is working. So far we have made approx 56k of overpayments since the LBM. So we are over half way which in theory means if this were a mission we would have already passed the point of no return, forward is the only option.

7 months left is the count down until the 5yr fixed deal is up and we can get off the 5.84% and the contracted-in high monthly payments. For us the BoE pledge to keep rates low until unemployment falls below 7% is good news as it means we will get to April next year with low rates still on the market.

When April comes we will probably take a tracker mortgage with the lowest admin fees possible that allows unlimited overpayments (maybe the interest rate being around the 2.5% mark). We will set the mortgage term back to say 20 years, giving us a monthly payment of £200 and then overpay in bulk when possible.

Good luck to everyone.
Mc_Marty

Mc_Marty

Happy New Year to everyone!

Here's our update:

We have only 3 months to go until the 5yr fixed mortgage finishes. It has taken ages to get to this point, really wished i hadn't fixed for such a long time. Live and learn i guess.

Our savings have taken a bit of a hit recently but on good things.

We had new double glazing installed last month, which was well overdue. 7 A rated windows, 4 cladding frames and 1 door installed for £2800 which was the cheapest i could find it from a reputable company. Didn't want to pay much more as this is not our forever house and we would like the cost to be eventually recouperated in the selling price.

Also today we have made the 10% overpayment for 2014, £4,264. This brings the balance down to £38,380.30.

The next milestone is the start of April when we should have re-mortgaged and be on a much lower rate. The balance is projected to be £33,255 by then. This is my first time of re-mortgaging so i geuss i will need to start the process next month for it to be in place for the start of April.

Fingers crossed everything continues to go smoothly. Best of luck to everyone else with their MF plans.

BTW ... for anyone reading who needs motivating/convincing of the merits of overpaying. Had we never had our LBM back in Dec 2010 and had we continued to pay the 'regular' 25 years worth of monthly payments, our mortgage would today stand at £104,079.04p and we would be paying the bank £506.52p a month in pure interest payments. Instead becasue of the overpayments we today actually only pay the bank £186.78p a month in interest... that's the equivalent of a £319.74 tax free bonus every month ... a massive thank you to Martin Lewis for creating this site!

Sandstone

Well done sir!

Mc_Marty

Hi All,

An update:

Finally we have finished the 5.84% fixed deal. It came to an end on 4th April 2014.

We are now on HSBC's 1.99% variable rate (£99 admin fee) and we have put the term back to 25 years meaning a new monthly payment of £143.

The mortgage balance currently stands at £33,694.50, so at the current interest rate we are now only paying approx. £55 interest a month, compared to the £164 we were paying on the last month of the fixed deal. So that's a nice saving.

So, we are relieved that we have finally arrived at this point. Reading over my original posts 2.5 years ago, we have beaten our original goal of 50k and have met the most recent goals of getting to £33k.

As it happens, the timing has worked out very well. I have recently asked my girlfriend to marry me and we are now saving for a wedding in September 2015. So going from a mortgage payment of £1900 to £143 is ideal as I think we have quite a bit of saving to do. This good timing was not planned but just a bit of good luck that we will definitely take.

So, mortgage overpaying is about to take a back seat for a while. Although it has become a bit of a mantra now, so where possible I will try to keep knocking it down.

So for now the new goal is to save X amount for the wedding. The X being an un-known figure at the moment (bit scary)

As always good luck to everyone else on their MF journeys.