Uncertain path to being mortgage free - My diary

Stroppypops

The path is unclear but at least my partner and I are clear about the goal.

We rushed into a first buy scheme 3 years ago due to an unexpected little lady being born (wouldn't change a thing now). The deal was a 125k mortgage with a 5% deposit and a 20% 2nd loan interest free for 5 years then at 3% for the next 5 years which needs to be paid off one way or another at the end of the 10 year period.

First of all I have to state my horror at the amount of people on my estate who are 2-5 years into these schemes without a clue about how to service the 2nd loan or even that they need to. :eek:

As it stands I have 120k on the mortgage fixed at 3.19% for two more years with the 2nd loan standing at 33k interest free. I also have 4.5k in the bank earning 2.5% under an ISA wrapper.

I have £580 a month either allocated to thsavings or OPs on the mortgage. I intend to fill my ISA first to have some cash and as a starting point to service the 2nd loan. This will be full in Sept. I then intend to chip away at the mortgage by £580 per month to build up my equity in the house. Come the next tax year I will repeat this process. This way in two years time I will have more equity in the house and savings. I would prefer to save save save but the interest rates have made me thnk about the OPs instead to build equity. Paying tax at 40% doesn't help my savings plans either.

The path is unclear because I chop and change my plan about what is the best method to service the 2nd loan and eventually become MF. It is not as straighforward as just OPing the mortgage every month.

I would be very happy to hear people's opinions on the above and also offer any advice.

The journey has started and eventually both the loans will be gone.

LittleMissAspie

What's the point of filling your ISA when the interest is less than you are paying on the mortgage? Since you are good at saving I would recommend an offset mortgage, although I see you are in a deal for the next two years.

So I would keep a couple of thousand in the ISA in case of emergencies, and put the rest into the mortgage. My instinct is to pay the mortgage first because the interest rate is higher but you have to factor in having to pay off the 33k in 7 years time too.

So here's what I would do:
1. Use the 580 for the mortgage while the 33k is at 0%
2. In July 2015 remortgage to an offset (if possible, not sure how these buy schemes work)
3. Save your 580 monthly keeping it offset against your balance
4. Pay the 33k as a lump sum after 5 years

If offset mortgage is not an option:
1. Use the 580 for the mortgage while the 33k is at 0%
2. In July 2015 switch the 580 to paying off the 33k. That should almost pay it off in 5 years taking the interest into account, you would need to top it up a little.
3. Then switch the 580 back to the mortgage.

Beckyy

As above sounds spot on. As long as you have enough for an emergency I wouldn't save extra for the sake of saving while the interest rate is lower than your mortgage interest, ISA or otherwise. Best of luck on your journey

Stroppypops

I wanted to fill the ISA just to have a decent amount available in case a remortgage wouldn't work in the future for whatever reason.

My plan was to try to remortgage to capture the second loan as well but if I couldn't I would still have cash available to service the loan.

Your points above make sense and due your points and my point in this post I have been going back and forward in my head.

LittleMissAspie

Stroppypops wrote: »

My plan was to try to remortgage to capture the second loan as well but if I couldn't I would still have cash available to service the loan.

That's a good idea as long as the rate is less than 3%, otherwise you're better off keeping the second loan separate and at 3%.

You can still service the second loan via the 580 which, by my calculations, will leave you with £1200 to pay after five years. You could even take that out of your emergencies fund and pay it back over the next 2-3 months.

If you can get an offset, whether that includes the second loan or not, you can put your emergencies fund into the offset right at the beginning and be paying less in interest immediately.

If the offset mortgage doesn't include your second loan, you will still be £1200 short but you will have paid more capital off your main mortgage. If the offset mortgage does include your second loan, you'll have no shortfall. (I think! Always do your own calculations)

If you can find an extra £20 a month to make it 600, you'll have no shortfall even if not offset.

Stroppypops

Thanks. I can easily find more money to save if really required.

Again, thanks for your help. OPs will start very soon.

Stroppypops

I will be calling the Halifax today to get details on how to overpay and start making payments right away. I like the way you can see your payments and interest amounts on Halifax's online banking, it helps to motivate when you can see the balance decresing.

pixiedust09

Good luck Stroppypops, some really good advice above.

Stroppypops

Well I would start to overpay if I could get through to the Halifax. Can't do it in branch anymore, can't get through over the phone and can't get a callback. This is the third time in three months I have had enormous difficulty getting through to them.

I've written a very strongly worded letter to them and I await their response. Their customer service is truly substandard.

Stroppypops

Well yesterday I made my first OP of £6. This was just to test the bank details I had for OPs was correct. I have also set up a SO for £500 on the same date as my mortgage payment date. This should knock the balance down a bit.

I will also add to that SO of £500 each week when my OH gets paid. So it has started!

Stroppypops

The first two OPs have gone thorugh and it all works. That's £8 so far with a whole load more to follow next month when it really starts.