Ambitious plan

Mentox

Just like everybody in this tread I want to be mortgage free. My original plan was to pay of the mortgage in 12 years but after a long talk with my partner we decided to cut it in half!

At the moment we pay £830 and £500 overpayment a month. Without the overpayment it would take 25 years to pay of the mortgage. With the overpayment it is 12 years.

We have a mortgage term of 3 years fixed rate at 3.99. I figured out that Nationwide allows us to change the mortgage period again a admin fee of £20.

Instead of putting the money in a savings account with 2.25% interest I want to increase the monthly payment by reducing the mortgage period. My idea is to go from 830 to 2000 (and 500 overpayment during good months).

My outstanding mortgage is 147,000

The current route (830+500 overpay) will cost me: 183,000 (12 years)
The revised route (2000+~500 overpay) will cost me: 163,600 (7 years)

Those numbers are not 100% correct but they give a rough idea. So it will save me ~£20.000 :eek: That cant be right can it?

Mortgagefreeby50

Yep! Just make sure you aren't going to paint yourself into a corner by committing to the higher payments. But I suppose you could always change your term back if you needed to.

Mentox

Mortgagefreeby50 wrote: »

Yep! Just make sure you aren't going to paint yourself into a corner by committing to the higher payments. But I suppose you could always change your term back if you needed to.

Thanks, yes I can change it very easily. I need to request a form, fill in the new period, post it, pay £20 admin fee and that's it.

Without the mortgage I have roughly £2900 left after the bills and groceries. I put 200 aside for non fixed bills. So that leaves 2750 and with 2000 overpayment I have 750 left. The overpayment will only be done when there haven't been any unexpected outgoings. Besides that I also have 5k on the savings account as buffer.

Originally I was thinking about making it fixed for 2500 instead of 2000 but that would have put the risk to high (only £150 left a month).

jimmybrid

Sounds like you have a good plan there Mentox, and yes it is astounding when you work it out how much interest you save by overpaying and reducing your term.
Normally I would assume there is a limit to how much you can overpay on your mortgage without incurring penalties, but you are already making fairly hefty overpayments, so maybe that's not the case? If there isn't a limit to your overpayments then why not just increase your payments again? This will mean you will have the flexibility to overpay less (or more) if something unforeseen happens.

Annisele

Mortgagefreeby50 wrote: »

Just make sure you aren't going to paint yourself into a corner by committing to the higher payments. But I suppose you could always change your term back if you needed to.

Remember that if you do want to change the term back, the lender will only let you if that meets its lending criteria at the time.

My personal opinion is that term is unlikely to be a problem in future (assuming yours doesn't end anywhere near your retirement age), but that's not guaranteed.

I think the ideal mortgage is one that's interest only on an infinite term with unlimited overpayments allowed. I know those mortgages only exist in cloud-cuckoo land, but (assuming no penalties) I think it's generally better to overpay than to get a contractual decrease to the term.

alwaystryyourbest

Mentox wrote: »

Just like everybody in this tread I want to be mortgage free. My original plan was to pay of the mortgage in 12 years but after a long talk with my partner we decided to cut it in half!

At the moment we pay £830 and £500 overpayment a month. Without the overpayment it would take 25 years to pay of the mortgage. With the overpayment it is 12 years.

We have a mortgage term of 3 years fixed rate at 3.99. I figured out that Nationwide allows us to change the mortgage period again a admin fee of £20.

Instead of putting the money in a savings account with 2.25% interest I want to increase the monthly payment by reducing the mortgage period. My idea is to go from 830 to 2000 (and 500 overpayment during good months).

My outstanding mortgage is 147,000

The current route (830+500 overpay) will cost me: 183,000 (12 years)
The revised route (2000+~500 overpay) will cost me: 163,600 (7 years)

Those numbers are not 100% correct but they give a rough idea. So it will save me ~£20.000 :eek: That cant be right can it?

Thats a good plan,,keep us posted how you get on....

rob404uk

Congrats on getting yourself into such a strong position. Personally, I would like a bit more than 5k as a back up. Boiler and roof goes in the same year, it would not go far. Saying that, I am sure you could borrow cheaply if you needed to so prob not an issue.

Only other thing to remind you of is even though your new plan will save you 20k, in real terms it will be less than that due to inflation.

Good luck

Mentox

All is still going according to plan (would be bad if it didn't so quickly :rotfl:).

I have a question about ERC, it is 4% for my mortgage and my interest rate is 3.99%.

When I pay £500 as overpayment I don't pay 3.99% over this amount anymore. So if I make an ERC of the same amount I will pay off £480 of the outstanding balance. I then don't pay 3.99% over that amount, lowering the amount of interest I pay per year by ~£20. In 5 years that will be £80 pounds saved.

Is this correct or do I miss something? To me it sounds worth doing.

LauraJo

Wow looking like a good plan! Sorry I can't answer your last question - way to complicated for me!

I am in a similar situation - going from 23 yrs to around 4. Its great fun when you see it all working. Feel free to take a look at my thread. In this situation getting a lodger or something like that might knock another 6 months off for example (we thought we would be able to live with a lodger for 2 years - we are one yr into that already and its ok!)

megela

Not entirely sure but I think you might find that the ERC kicks in for the whole mortgage balance not just the overpayment you made.

Mentox

LauraJo wrote: »

Wow looking like a good plan! Sorry I can't answer your last question - way to complicated for me!

I am in a similar situation - going from 23 yrs to around 4. Its great fun when you see it all working. Feel free to take a look at my thread. In this situation getting a lodger or something like that might knock another 6 months off for example (we thought we would be able to live with a lodger for 2 years - we are one yr into that already and its ok!)

I tried to convince my OH to live with a lodger but she doesn't agree with it. I know it would have made a huge difference.

megela wrote: »

Not entirely sure but I think you might find that the ERC kicks in for the whole mortgage balance not just the overpayment you made.

Hmm that is something I need to figure out, tried to call my mortgage provider (NW) but the person on the phone wasn't very clear (quite rare for NW as normally they have great support).