Onwards to freedom!

mrsp1987

Every now and then I do a mortgage price comparison. I just can't help myself. I too have a 5% ERC which at the amount is about £4700. I get tempted by the pretty shiny interest rate of 0.99% or 1.29% and that I'll be paying £100 less a month, but I have to remind myself that it's not financially worth it with the ERC, set up fees and other legal fees. Then there's the fact that since the new strict mortgage application laws came into force we might not actually qualify for a new mortgage!

SuperSecretSquirrel

You're doing all the right things if you ask me Mrs P - running the numbers and making an informed decision based on the facts

One day, when the ERCs have tapered off or ended, the calculations for remortgage (or total payoff) will be in our favour

NorthernMonkey1

If you have an ERC of 5%, and savings rate of 3%, then the cost of repaying is 5%, vs the cost of not overpaying which is (5.29-3) x (2020-2016) = 9.16%

Obviously this is mega simplifed, but it might be worth double checking your calcs over a 4 year period

SuperSecretSquirrel

I think your cost of repaying early might need to factor in lost savings interest?

To model the complexity of 10% no fee op allowance overpaid early each year, the ERC tapering off over time, and the reducing mortgage balance over time, I'll need a spreadsheet.

I did knock one up a few months back, and paying off over time came up trumps. I'll update it when I have time, modelling settling in full each year, and I'll post the results here.

SuperSecretSquirrel

Thanks to the nudge from NorthernMonkey1 I spent a little time this morning rebuilding the mortgage versus savings spreadsheet.

It seems there are no scenarios where paying the ERC actually saves us money (at least while assuming a constant 3% gross on the savings over the next four years, which may be a tad optimistic), but what is interesting is how very little there is in it...

I calculated that if we repaid in full Jan 2018, we'd be just £8.20 worse off overall! :eek: I did model a number of other scenarios, but Jan 2018 is the one that came out on top.

I didn't think there was going to be a whole lot in it, but an £8.20 difference is closer than I would have ever imagined. Even a very small drop in savings interest would swing things in favour of settling in full and stumping up the ERC. Even without that, the temptation to wipe it out in Jan 2018 would be immense

I have a fixed cash ISA maturing in a little over 6 months time, the balance after interest is added should be around 23k. Now that the annual ISA allowance is so high, I don't think it would be a problem for me to withdraw from the cash ISA, and then should cash rates improve in the future move new cash in. I'm not confident that I'll find enough current accounts to stash all the ISA money at 3% or more, so in that case using 14-15k of it to pay the mortgage off in full Jan 2018 would be the sensible thing to do.

This will have a huge impact on our "monthly nut", and our FI percentage will take a giant leap forward. My favourite chart at the moment is the one that plots our annual expense estimate against our equivalent income at 4% of savings - I'd like it a whole lot more if the lines were closer together, and dropping the monthly mortgage payment would certainly achieve that

Here's a link to my spreadsheet. I'm pretty much 100% confident that the mortgage sections (cols B-F and K-O) are accurate as they've been lifted from my tried and tested spreadsheet that I've been running since day one of the mortgage. I'm not AS confident regards the savings account sections (cols G-J and P-S) as I just knocked those bits up this morning, but having compared against some online calculators, they're looking good. Cell N373 sees the ERC added to the balance, calculated as balance x 90% (to account for the 10% annual fee free OP allowance) x 4% (the ERC percentage at that time), I believe this matches the terms of my mortgage. I don't think I've made any glaring mistakes, but if anyone spots one, you are very welcome to point it out to me!

Thanks for the prompt to take a closer look NorthernMonkey1 :beer: Provided I've not made a silly mistake somewhere in the spreadsheet, I think I'll most likely be wiping the mortgage off our balance sheet two and a half years earlier than planned!

NorthernMonkey1

I look forward to going through your spreadsheet with a cup of coffee later on

Karmacat

Oh my! Congratulations on working it through!

What really piqued my interest was your mention on SF's thread about your kindle books and a blog? I can't work out if you're already doing any of it? Hopefully I'm not too cheeky to ask! I'm at a baby level on both, but I really like chatting with other bloggers on here, we're usually in such different niches.

SuperSecretSquirrel

Hi KC, thanks for popping by! :wave:

The kindle and blog stuff is just an idea really. I do have a very small personal blog that is totally unrelated to PF, but it doesn't really earn anything (and that was never the intention). If I do go for the PF blog it will be written anonymously, so I could link MSErs to it, and I would hope to earn a little money from it. My current blog has to be kept secret, sadly, as I don't want to be outed as a secret moneysaver, and it reveals my Clark Kent side

I have read that anonymous PF blogs perform really badly, but it seems a choice between that and full disclosure. I'd want to post monthly net worth updates etc, so that puts me firmly in anonymous territory. OH would hit the roof if I made our accounts public knowledge, and I prefer to keep this stuff under my hat anyway. I kept mortgage neutral plans secret from coworkers, friends, and even family beyond OH, so openly talking about FIRE is an absolute no no

If you're not so secretive, I'd love to hear more about what you're up to

Karmacat

Thanks for that! I understand about financial anonymity - although I post some figures, I never post the whole lot, there are people dotted about mse who know who I actually am, a lot over the years, and it just feels too much. If anonymous ones do really badly, maybe you can be extra careful about listing your sources for figures you use (not your own finances, the economy and whatnot?)

My own - I have a personal one I haven't touched in a couple of years, like you that was never intended to be monetised, but it tipped over into being a chore, so I left it. Could still go back if I win the big one on the premium bonds!

The others, my cat one is called allcatsarebeautiful - I won't put the official link, but thats what it is, with .co.uk on the end. The latest post is about Buttercup in The Hunger Games :j

The other one, from which I have actually earned a metaphorical tuppence ha'penny, and is linked with the kindle book I published in March last year - it's about preparedness which still seems a bit mad to me, but I've had a lot of compliments about how not-mad it is, how practical, so I'm keeping going I'll pm you the name if you want.

SuperSecretSquirrel

Hi KC, PM away! I find prepping quite interesting, but am not a prepper myself (though the idea of being "prepper lite" does have some appeal). We tend to have some useful things around the house that would help in an emergency - some tins of food, matches, camping gear, important documents on usb stick, fuel in the cars, etc, but nothing that would get us through a zombie outbreak
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I've done some money juggling over the past couple of weeks... Cash transferred out of s123 and into some shiny new 3% current accounts. Downgraded s123, reduced monthly fee from £5 to £1 while still receiving the same cashback on bills (in your face spanish bank!). Increased S&S monthly pay in from £350 to £650 (starts three weeks from now - this isn't all coming from monthly cashflow, I'm slowly moving some of my cash savings into S&S), £550 will be going to VLS80, and £100 to other funds.

OH and I have discussed the option of stumping up the ERC in January 2018 to become officially mortgage free earlier than planned. She is all for it, but wants me to look into whether or not there's any benefit to paying it down to say a few hundred pounds and just paying a pound a month or so until the term ends instead. If anyone has any idea, please let me know

We're currently looking at OH taking most of 2017 off work as maternity leave (which does mean zero income from her for a little while as her employer offers nothing over and above statutory), most likely starting early February and then back to work early January 2018. I think having scraped our way through another maternity leave, going back up to two incomes at the same time as we drop the large monthly mortgage payment will make a huge difference to cashflow

Now that we're in November, I guess I might start thinking about planning Christmas stuff. OH has already picked up a few little bits, but I've been holding off until now...
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And without further ado, it's the first of the month, which can only mean one thing... *theme tune plays in the background* It's net worth update time! *round of applause from studio audience* :rotfl:

[SIZE=2][FONT=Courier New]               CURRENTVALUE       +/-MTH
House Value:   [COLOR=Blue]+£125,000.00[/COLOR]        £0.00
Cash:           [COLOR=Blue]+£47,889.92[/COLOR]     +£520.65
Pensions:       [COLOR=Blue]+£59,354.55[/COLOR]   +£2,924.80
Car Value:       [COLOR=Blue]+£9,200.00[/COLOR]     -£150.00
S&S:            [COLOR=Blue]+£11,837.72[/COLOR]     +£677.13
Mortgage:       [COLOR=DarkRed]-£27,088.56[/COLOR]     +£706.24
Due to HMRC:       [COLOR=DarkRed]-£522.45[/COLOR]      -£43.84
Student Loan:    [COLOR=DarkRed]-£2,272.67[/COLOR]      +£71.08
[B]Total:         +£223,398.51   +£4,706.06[/B][/FONT][/SIZE]

74.50% of the way to 300k net worth (2020 challenge), 21.70% mortgage ltv, £32,116.63 beyond mortgage neutral in liquid assets, 12.40% financially independent.

Thanks pensions! Thanks stock market! What on earth is going on out there??? :huh: :shocked: :undecided :dance: