Best way forward? NRAM customer.

Sillysausageuk

Yup, I took a together mortgage in 2006 which equated to 109% LTV. We took it out knowing our income would rise dramatically in a short space of time so affording the mortgage was never a concern. Anyway, time is getting on and we have outgrown the house. We had it valued and it is worth the same as 6 years ago so really considering how the market is we were happy with that. Unfortunately this means our equity is really pretty low (4% with total owed and 9% with secured amount). We haven't saved anything during this time but took a small loan to get new windows, no credit cards just car finance other than this. Anyway, reason for this post is does anyone have any pearls of wisdom as to the best way forward? I know the answer is buckle the belts in and save but which way is best? Investment? Isa? Remortgage possible with or without unsecured element? Overpayment of secured/unsecured amount? We would really like to have moved on in 2/3 years Thanks!

R_P_W

spend as little as possible, overpay on debts and save

Thrugelmir

If you wish to buy a bigger house. Then saving is a basic requirement. Your money you decide where and what to spend it on.

Sillysausageuk

I know saving is the best and only option it was more the "how" I was interested in opinions on rather than the "what" iykwim.

Yorkie1

1. Do you have an emergency fund of about 3 months' expenses? That should be a priority.

2. Are the secured and unsecured parts on the same interest rate? What is / are the rate(s)?

3. Are there any / different penalties for overpaying either the secured or unsecured parts?

From what I recall on other NRAM posts on here, if you sell the property or remortgage without paying off the unsecured part, its interest rate goes up significantly. So do not plan to do anything without dealing with the unsecured part.

'Investments' usually applies to stocks and shares - and this is a medium to long term investment. Not worth doing if you plan to use the investment within 5 or 10 years. From what you've said, you'd like to aim to upsize sooner than that, so my thoughts are that this might not be best for you.

The question is then whether to put your savings into overpaying the mortgage, or a savings account.

As a general rule, if you can get a better gross interest rate in savings than you're paying on the mortgage, it's often thought better to put the money in the savings until you've accrued enough to move onto the next stage of the plan. If the mortgage rate is higher, then overpay (but not at the expense of the emergency fund - I'd make sure I had that first).

If the secured and unsecured parts of the mortgage have different interest rates, make any overpayments towards the higher one. But make sure you don't end up paying any penalties for overpaying.

The next stage of the process comes ideally when you've got enough money saved / overpaid to enable you to pay off the unsecured part, and to give you enough equity that you can either remortgage or look at moving.

In the meantime, go onto the debt free wannabee board, do a statement of affairs (SOA) and they will help you to reduce your spending.

Final point: I am not a financial expert so what I've suggested above may not be the best for you, but at least it gives you some things to start thinking about.

Sillysausageuk

Thanks! Currently both the mortgage and unsecured are on the same rate (4.78) but the unsecured will jump 8% if I move the mortgage and left the unsecured at nram. There are no early repayment charges. I used the calculator on here and if I overpaid by £250 a month I'd replay the unsecured element in 2 years (although that seems a bit quick to me for £8000)! I don't have 3 months emergency money, no. Hubby and I both have a job where if our current post went we would have to be moved or given severance pay. Also got mortgage ppi for sickness (even though we both have 6 months full pay). We are both very fortunate on that front.

Thrugelmir

As there's no guaranteed way of obtaining a return in excess of your mortgage rate. So overpaying the unsecured element first is your best option. For the reasons already mentioned.

£250 per month over 2 years equates to £6,000. Combined with your current repayments may well be possible to clear the loan.

Yorkie1

I would still aim first for the emergency money fund. That covers you for things like a car or boiler emergency, not just job issues. Stick it in an easy access ISA with a good rate you can find.

Then I would overpay the mortgage as it is a higher rate than most savings accounts you can find.

Others hopefully will be able to suggest whether it makes a difference in reality as to which you target (un/secured).

Sillysausageuk

Thanks! You've all confirmed my thoughts so that's fab. I have done the budget thing on here and if we stick to what we are supposed to spend a month (allowing for all extras) we still have extra over and above the £250 to put aside for other eventualities (boiler cover has already been a godsend lol) so think I can manage both. I am completely kicking myself when I actually sit and work out how much money we actually waste! It's disgusting!

Thrugelmir

Sillysausageuk wrote: »

I am completely kicking myself when I actually sit and work out how much money we actually waste! It's disgusting!

Debt Free Wannabe forum is a great place for support and advice.