Where should I start?

Stroppypops

I've posted a similar question before however I have now got into the savings habit and have finally got the mindset to become mortgage free. So my details:

I have a mortgage of £121,360 on Halifax's SVR of 3.99% with 32 years and 4 months remaining. I pay £556.50 pcm.

As it was a first buyer scheme I got a second loan as follows:

£32,500 with 5 years interest free then another 5 years at 3% with it needing to be paid off by the 10 year mark. I am nearlly three years into this.

Since January I have built up an emergency fund of £3k and I aim is (subject to change) to get it £5760 asap (for obvious reasons).

So do I:

A) Keep saving like I am until I get the 32k and then pay it off or,
Stop saving into my rubbish interest ISA (2.5%) and plough this into overpayments as the interest rate on the mortgage is higher or
C) A bit of both?

I am 27 and want to get my mortgage paid off by the time I am 40 but realistically 45.

So, where should I start?

Lomcevak

Are the repayments of the £32.5k loan enough to repay it after 10 years? And is the 3% fixed, or variable? If it's fixed and will clear itself in due course i'd let that one run in the background unless there are cashflow reasons to get rid of it.

Assuming the £32.5k can be left to run, the main mortgage would be the one to target, as (a) it's a higher basic rate than the 0%/3% loan, and (b) as it's SVR it's likely to go up again in the future - we're not going to be sitting at near-zero base rates for 32 years.

I'd also consider targeting the 0% loan in your signature, even if it's interest free I reckon it's always good to pay off family debts when you can.

One other thought, £3k is a lot for a traditional 'emergency' fund (unless you anticipate a £3k emergency), but i'm guessing that's really merged in with the idea of keeping a few months of expenses saved which is always a good idea before making mortgage OPs. So personally i'd aim for

- £500 - £1000 in an instant-access account to cover real emergencies

- and then build up 3 months expenses in an ISA

Only once you're done with those should you start OPing. The instant-access account isn't as good for tax/interest but it's useful to have money to hand without having to take it out of an ISA wrapper.

Stroppypops

Lomcevak wrote: »

Are the repayments of the £32.5k loan enough to repay it after 10 years? And is the 3% fixed, or variable? If it's fixed and will clear itself in due course i'd let that one run in the background unless there are cashflow reasons to get rid of it.

Assuming the £32.5k can be left to run, the main mortgage would be the one to target, as (a) it's a higher basic rate than the 0%/3% loan, and (b) as it's SVR it's likely to go up again in the future - we're not going to be sitting at near-zero base rates for 32 years.

I'd also consider targeting the 0% loan in your signature, even if it's interest free I reckon it's always good to pay off family debts when you can.

One other thought, £3k is a lot for a traditional 'emergency' fund (unless you anticipate a £3k emergency), but i'm guessing that's really merged in with the idea of keeping a few months of expenses saved which is always a good idea before making mortgage OPs. So personally i'd aim for

- £500 - £1000 in an instant-access account to cover real emergencies

- and then build up 3 months expenses in an ISA

Only once you're done with those should you start OPing. The instant-access account isn't as good for tax/interest but it's useful to have money to hand without having to take it out of an ISA wrapper.

Further details on the 32k loan. It has just been sitting in the background at 32k for three years as it is interest free. I make no payments at the moment but saving 500pcm as of January which I initially envisaged saving to pay this off. I will check but I believe that the 3% is fixed for the life of the loan.

Thanks for the input

Lomcevak

I think the specifics of the £32k loan will probably sketch out the rest of your plan.

If you can just let it run at 3% until it clears (at or before the 10-year mark) and there are no cashflow issues then it would make sense to target the main mortgage while the SVR is historically low. However, if there are gotchas in the £32k loan (e.g. penalties, interest rate hikes, etc.) then you need to make sure those are covered out.

Stroppypops

Small update:

I just remortgaged for an interest rate of 3.19% for two years meaning payments go down to £500.75! I also cancelled lots of pointless sky services and reduced my mobile contract from £45 to £9.

I just checked the mortgage documents and the loan is straightforward at 0% for the first five years then at 3% for the next five. If however, its not paid off in ten years then the interest rate could begin to hurt.

So, I'm going to save as normal this month and then next month the OPs begin at £400pcm. Can't wait to start making them.

Thanks again. My MFW journey can properly begin on 16th May!