Mortgage Free Wannabe - As Soon as Possible!!

MFW_ASAP

Hi,

I thought I'd join this board as I have a large mortgage that I want to be free from as soon as possible. My definition of 'free' might be different from most MFWs as I'm not necessarily going to clear the mortgage any time soon, I just want to reduce it down to a level I'm more comfortable with.

I currently have a mortgage of £240,000 and I'm on a 5 year fixed rate repayment mortgage that allows upto 10% overpayments. I'm therefore looking to reduce the mortgage down as much as possible over the 5 year fixed rate duration so that I have a lot more options when it comes to remortgaging.

As it's a repayment mortgage, a certain amount will be paid off the mortgage debt each month anyway. I worked out that at the end of the 5 years, these payments would reduce the mortgage down to £200k. I want to try and match these monthly repayments and reduce the mortgage to £150k.

I'm risk adverse and so I don't want to make overpayments directly onto the mortgage as I'll not get them back. I'm therefore going to put my money into Cash ISAs over the next 5 years and then remortgage onto an offset mortgage, moving what will be about £50k of savings from the ISAs and into the offset. I believe that this would give me the best of both worlds, a much lower mortgage and a hefty amount of savings that I can access immediately if needs be.

I bought the house with a £300k mortgage 3 years ago and I have repaid £60k over that period. I won't be able to make quite those level of overpayments going forward, but I'll do my best!

MFW_ASAP

This post for mortgage details as soon as I find them!! (and progress updates)

abouttimetoo

Welcome to the board MFW ASAP

Well done on your progress so far :j

Just a couple of other things for you to think about and I appreciate you said you are risk averse

• do you definitely know you could not get any overpayments back from your mortgage, have you asked them? Lots of different mortgages around that do let you do this so maybe an option to explore as you would get the benefit of a reducing balance/less interest to pay but know you have access to the money in an emergency
• you haven't mentioned your interest rate, can you get a better rate in an ISA than you pay on your mortgage

Good luck with your plans, you'll get plenty of ideas, support and encouragement around here

Regards
ATT

MFW_ASAP

abouttimetoo wrote: »

Welcome to the board MFW ASAP

Well done on your progress so far :j


Just a couple of other things for you to think about and I appreciate you said you are risk averse

• do you definitely know you could not get any overpayments back from your mortgage, have you asked them? Lots of different mortgages around that do let you do this so maybe an option to explore as you would get the benefit of a reducing balance/less interest to pay but know you have access to the money in an emergency
• you haven't mentioned your interest rate, can you get a better rate in an ISA than you pay on your mortgage

Good luck with your plans, you'll get plenty of ideas, support and encouragement around here

Regards
ATT

Hi ATT, thanks for taking the time to post.

I'm with Britannia and on a 5 year 2.79% fixed rate and while it is higher than the ISA return, it isn't as flexible. While I may have an option for payment holidays, I doubt it would be easy to get the money back out without filling in forms, etc.

The other concern is that if after 5 years I overpaid by £50k and then remortgaged with another provider, I'd either lose access to the £50k or I'd have to remortgage for £50k more than I owed. Who knows that the leding situation will be in 5 years, or my finances or credit rating. They could be a faint chance that I couldn't get my money back out and would either have to stay with Britannia and perhaps accept a poorer mortgage product or remorgage and lose access to my savings.

I used an offset mortgage calculator and it said it was worthwhile for the size of my mortgage if I had at least £40k in savings. I think offste mortgages are one of the best products around for helping to manage money (and for having a huge amount of emergency savings easily accessible) and so my goal after my fix ends is to get one.

£50k in the offset would allow me to last on zero income for over 2 years if the worse happens, and if it doesn't, then I'll have a reduced mortgage. It seems to be the safest option I can find.

MallyGirl

I am a big fan of offset mortgages - for some people. Be aware though that you don't get the best rates - the prices you pay for the flexibility.
We pay 3.9% as our facility is set at less than 50% of property value.

Good luck in your journey

MFW_ASAP

MallyGirl wrote: »

I am a big fan of offset mortgages - for some people. Be aware though that you don't get the best rates - the prices you pay for the flexibility.
We pay 3.9% as our facility is set at less than 50% of property value.

Good luck in your journey

I saw an offset mortgage calculator (it might even have been on here) that calculated how much you would have to put into an offset account to make it more attractive financially than an ordinary account. When I ran the figures, it said £40k in my case (but then we do have a large mortgage). That's pretty much what I based my £50k offset savings figure on - making sure that the offset paid its way.

Thanks for your good wishes, I'm going to try and put as much away as possible, but we might be having new windows fitted and that'll be a big impact on our finances.

DervProf

I took out an offset mortgage about 12 years ago (when interest rates were a fair bit higher than they are now). It certainly helped me to reduce my mortgage down to next to nothing in a fairly short space of time. The interest saving on my mortgage was greater than I would have achieved in a savings account, so it was a sensible thing to do.

The mortgage allowed monthly overpayments, which I made for several years, and lump sum payments which I also made a couple of times.

Being mortgage free well before retirement was always my aim, and an offset mortgage certainly help me to reach that goal.

Happier_Me

Hi MFW_ASAP

I have recently started my own MF diary and I can certainly give offset mortgages a big thumbs up, but it is true you pay a little more in interest for the flexibility and visibility these products give you.

Any money you hold in a current account also offsets your interest payments too. The general advice is to have 20% of your mortgage balance in an offset savings account - we have around 25%.

We are aiming for mortgage freedom second time round now but we won't be upsizing when we get there. If I were to have another mortgage in the future though it would definitely be offset!

Good luck on your mortgage free journey

MFW_ASAP

Happier_Me wrote: »

Hi MFW_ASAP

I have recently started my own MF diary and I can certainly give offset mortgages a big thumbs up, but it is true you pay a little more in interest for the flexibility and visibility these products give you.

Any money you hold in a current account also offsets your interest payments too. The general advice is to have 20% of your mortgage balance in an offset savings account - we have around 25%.

We are aiming for mortgage freedom second time round now but we won't be upsizing when we get there. If I were to have another mortgage in the future though it would definitely be offset!

Good luck on your mortgage free journey

Offsets have a higher rate, but if you have enough savings in them to offset the mortgage, then they become cheaper than a normal mortgage. There are various offset mortgage calculators online (I think MSE has one), so google one and run your details through to see how much you need to save to make them pay. I ran my details through and I need to put away £40k, but that's fine as I am currently on a 5 year fixed non-offset and I'm salting money away whenever I have any spare. Hopefully I should have or be approaching £40k in savings in 5 years time.

Good luck on your journey too!

getmore4less

I put the simple calculation for the offsetting amount required on the offset thread.

http://forums.moneysavingexpert.com/showpost.php?p=50879345&postcount=797

M : mortgage debt
S : standard rate
O : offset rate
C : savings capital
N : net savings rate

C/M == (O-S)/(O-N)



if you use a simple calculator you can mimic most senarioes

I use www.whatsthecost.co.uk

from your numbers so far

£240k 5y fix 2.79%

To pay off £40k in 5 years the current payment must be around £1180 with a full term of around 23 years.

At the mortgage rate to get down to £150k in 5 years you need a total payment of around £1958 so a target mortgage + savings of around 2k per month should do the job.