Time To set myself up for life :]

Luckyinlife

Hi guys i do have another user name on here but have decided to keep this journey in life on another name

Bit about me 27 years old have a son whos 3 :]
Self employed so yearly wage is variable between 20k-30k depending on how the year goes could be higher or lower

Currently in the process of Of getting a mortgage for 70k on a 90k house Hopefully ill get it and be 70k in debt but be on the ladder :] :beer: should know within a week or 2 20k deposit

Assets i have

A car worth 18k owned outright -- I am thinking of selling this and running around in a cheaper car something which would free up cash

I have close to 30k in savings

so have roughly 48k if i sell my car and get something cheaper

So if i get the house ill have 10k plus the car left over

So my idea/plan is to be mortgage free asap/ set myself up for life

Plan 1
keep the car for 2 years it will be then worth around 15/16k and sell it and see how much iv managed to save during this time and pay it off the mortgage once the fixed term is up

Plan 2
Sell the car now for 17/18k buy something for around 5k leave me with a total of 23k ill need to spend a bit on the house to update kitchen/bathroom ect so i could have around 10k left over after i work on the house for emergency

Plan 3
You guys have any good ideas for plan 3 ?

BigJohn3

What kind of mortgage are you looking to get? Fixed or variable, at what ratea nd for what period? Can you overpay without penalty fees or only a certain amount? All of these factors could affect what you can/should do.

Unfortunately I am not sure that after 2 years of use your car would have only dropped by about £2k unless it is an older prestige model which has already had the majority of its depreciation. Car values drop off a cliff as soon as you buy them so in general I would say f you want the money, sell it as soon as possible.

Having read around this site and other sources, the general rule of thumb is to make sure you keep savings to cover at least 6 months of no income, ideally 12 months. I am not sure if being self-employed is more or less of a risk. I suppose it depends what area you work in and how confident you are that there will always be some work. That is your call. One thing it does mean is that you will be solely responsible for sorting out any future financial plans such as a pension which needs to be factored in if you aren't already paying for one.

These are just some thoughts that came to me as I read your post and should in no way be viewed as discouraging you from trying to reduce your mortgage ASAP. Without the information I outlined in the first paragraph it is difficult to make any actual suggestions.

Luckyinlife

The mortgage it self is a high interest one due to settled defaults on account 6.0% interest also i can over pay but the ERC is 3% of what i pay off mortgage but as i see it this isnt ideal but if i pay 10k off the it saves me close to 30k in interest and years off the mortgage
Its fixed at 6% for 2 years then drops down SVR on 5% i could then go and look for a better deal or pay off as much as i can

Due to it being a high interest i need a plan to help get it down as quickly as i can really :]

Also the car will be worth around 15k as min in 2 years time it is a prestige model which sells for 38k new and has lost most of its drop off value so i suppose i could keep it enjoy it and sell it in 2 years also its always there to sell in case i ever need it as emergency but i could easly use a car that costs less and concentrate on the house instead of car :]

BigJohn3

This might be a dumb question but if you have the £10k savings in hand with the back up of selling the car to free up say another £10k if you are willing to have a car that is just functional rather than the nice prestige one it sounds like you currently enjoy, why not just put down a bigger deposit now so you will be borrowing £10k less and the provider cannot charge you the interest on it?

That way you would have lower repayments each month and if things go well with your business then you can overpay within the limits set out and be able to start hitting the capital of the mortgage quicker rather than wasting money on interest.

Have you tried the overpayment calculator on this site? I found it very useful when looking at my options as it shows year on year the difference in mortgage value between current and overpayments. On mine it showed that in 5 years I would owe £21k less by overpaying a relatively small amount each month. Once you get over the hump of mostly paying off interest each year and not touching the actual debt then it drops really quickly.

As I say just an idea and there may be reasons for not doing it but just curious.

BigJohn3

Having a larger deposit could also open up more mortgage deals to you as the percentage borrowed against the houses value would be lower, especially borrowing £60k on a £90k house rather than £70k.

Luckyinlife

Thanks john

I think i will most certainly sell the car and get something a bit cheaper just to free up 10-12k

Iv worked it out if i sell the car and after everything ill be left with around 27k ish after the deposit/broker fees/solicitor ect

this would then let me spend 8-10k on the house i purchase maby less but id rather be over than under

which would then leave me with 17k ish and after a 5k car ill be left with around 10-12k and emergency

so the putting down a higher deposit in my situation being self employed and defaults ect ect its the only deal i have available to me it is only for the inital 2 years as i need a place this year asap really

Only thing is i really need to keep 10k as an emergency fund this would be as a back up in case the worst happens I will have a house/son/car all to keep going for a year

BigJohn3

That all makes perfect sense. From reading your other posts it just looked to me like you might be sitting on more savings that you could put towards the mortgage but I didn't know you had earnmarked that much for the house. You definitely need the savings so are sensible cutting your cloth accordingly.

After all this I am not sure I can suggest much in the short term as it seems you have worked out what you can spend and acted accordingly. Over this 2 year fixed term you will just need to play it by ear and pay in what you can when you can but as you say, you've got your foot on the ladder which is the hardest thing and there is a loooooong time on most mortgages to make the savings later on when you are hopefully in a different position financially with more disposable income.

Best of luck and hopefully someone else will come up with another good idea for you.

Luckyinlife

Thanks john
Ya i just need the back up sitting there just in case im in a good position as it is but as you imagine think kinda money is a lot for a guy like me so want to manage it to the best of my ability

On the car front i dont drink smoke or do much else really my car has always been my relase in life so has its place but i can do that with mony in the bank to :]

BigJohn3

A nice car certainly has its place and it sounds like you work hard for your treat but as you are only 27 years there will be plenty of time to cruise around in ten years time when you have battered your mortgage!

Short term, long term gain and all that.