Overpay or Save vs Interest Rises

MarryNuncle

Hi all,

Brief question that'd I'd appreciated advice on:

We currently rent at £695 per month.

We are buying our house by taking out a £140000 mortgage on lifetime tracker that runs 2.19% above the base rate.

Our payments at current 2.69% will be c.£640 per month.

With the surplus £55 that we'll be saving per month, would you?:

- Overpay the mortgage at £55 per month (there are no penalties for this).

- Put £55 per month into an ISA as a (admittedly small) fund against interest rate rises.

This house purchase will clear us out - we'll have no savings, but no other debts either.

Thanks!

ch3101

Save up until you have a good emergency fund there, this should be about 6 months of outgoings. Then start to overpay the mortgage

MarryNuncle

Apologies for dragging this thread up again.

By monthly outgoings, do you mean our total monthly spend on everything (ie c.£3000) 6 x 3000 = £18000?

So save £18,000 before overpaying?

getmore4less

review your spending

the emergency fund is to cover loss of income so needs to cover essentials can't believe all 3k is essential spends.

MarryNuncle

No indeed. But £2000 is 'essential' if you're including all mortgage payments, bills, food, fuel and clothing, car tax, car insurance etc. (It's all budgeted out in YNAB)

So 6 x £2000 = £12000

£12,000 will take us 10 years to save, according to my calculations unless we make some serious cuts to spending. We do spend rather a lot on groceries. Other than that, we're reasonably thrifty.

Looks like mortgage overpayments are [NOT!] the way to go for us.

MarryNuncle

It sounds rather like I'm moaning (above), but actually I appreciate the advice, and if a £12,000 buffer is recommended, then that is what we'll aim for. Even if it takes a good few years.

LeeSouthEast

Bear in mind things like, if you have no income, will you be driving the miles still? So maybe you can knock your fuel bill right down. Etc.

The generally accepted wisdom is at least 6 months of OUTGOINGS saved up, not necessarily income.

MarryNuncle

I'm going to aim for saving £9000 across 6 six years (9000/72= £125 pm). Then start overpaying.

getmore4less

so you have 1k discretion spending review that.
2k is a lot for essential with such a low rent/mortgage
if you own you also need to budget repairs.

SG27

We have 1 years mortgage payments saved as an emergency fund.

I expect that £55 you will save over renting would be eaten up by general maintenance of the house possibly more depending on the condition.

getmore4less

What's the breakdown of the 2k?

are you including discretion spends like tv mobiles?

I would want a £2k cashflow buffer asap one medium house expense will have you on credit cards if you don't have any money