Mortgage overpayment - can't decide!

TopCat1978

I hope this is in the right place!

We have just remortgaged and cleared all of our debt. This has meant we have more secured debt on our property and put the mortgage back over 25 years but after a lot of consideration this was the best option because most of the debt had arisen as a result of an extension / improvements we had done on the house. It was the right thing for us, although some may agree it wouldn't be. Anyway......

We have one monthly payment going out each month :j and my salary means that this is easily manageable and ideally I would like to get the mortgage paid off in the same timescale as our original mortgage was - 18 years (currently 25years)! I know we could have done this when we remortgaged but I was being cautious as DH is self employed and I didn't want to over-stretch us.

So my questions are:

How much is a reasonable buffer to have in our rainy day fund before we start paying off our mortgage? I was aiming for £10k but is that reasonable?

I have currently rounded the mortgage payment up to £850 per month (Requirement is £776.84) and thought we wouldn't notice the increase and I like making round sum payments. Should I leave it at this for a while and see?

I understand that the mortgage overpayment should be reviewed based on the return you can get elsewhere, however, our Mortgage rate is 2.99% for 2 years. We have a Santander 123 account and two TSB accounts. I am thinking of paying £250 a month (well £500 and taking back £250) into a TSB account and using it to pay off a chunk of the mortgage each 6 months, giving me a 5% return on the cash before hand, but would this be best or should I pay off a set amount a month and make sure that our rainy day fun is maintained?

Sorry for so many questions, just quite new to this and trying to stay focused on the goal!

Thanks in advance

Savingdad

In your position I wound have my rainy day fund stashed in the high interest accounts and swop payments between them to keep the rate up.
I have £10,000 in my slush fund as this would keep us for a year with strategic cuts to our out goings.
After that I would pay off as much as humanly possible while you have a low fixed interest rate, the more you pay now the less interest you pay overall. There is a mortgage overpayment calculator on the site so I suggest you run a few figures through that.
I pay more than double my required payments and my interest rate is 2.5%, I want rid if my mortgage but I can reduce the overpayments with one phone call if I need to cut back so just do what you feel best doing.
I could earn more at the moment then I save by overpaying with more high interest accounts and cash juggling but I suspect the low rates are running out and I don't want to be stuck with a huge mortgage when rates start to rise.

TopCat1978

Thanks Savingdad, that fits my way of thinking too.

I want rid of the mortgage as soon as possible and I can make lump sum over payments too if I want (which could be possible as DH only contributes £500 a month to the pot (so to speak) and he can earn more than this).

I think I will let this month go through (November) and then probably up it again after Christmas. I am just concious of the fact that before we remortgaged we managed to pay £500 + on Credit Card interest a month so I don't want to get complacent with the 'new' money we have.


I think I will also do a new budget too and play around with the figures.

edinburgher

How much are your fixed expenses per month? £10k is pretty useless for someone spending £5k/mth, but would last someone spending £700/mth for ages

TopCat1978

Thank you, Our monthly DD's are £748 per month, (ignoring mortgage £850 and food / petrol £650). Does that sound about right?

edinburgher

£10,000 / £2,248 = 4.45 months

Do you think that's long enough? Do you have kids? Does DH have a long history of self employment/any fears about his income?

If I was self employed I'd want more unless I had a very solid income stream.

Savingdad

I have to agree I would want a bigger buffer than 4 months, I settled on 8 months spending as we are which would be 12 months + if we tightened our belts.