Mortgage free hopeful - overpaying question

sweaty_betty

Hi there - I've decided to take the plunge and join this thread.

We currently owe £130K on 3.29% fixed deal until 2018 (13 years of mortgage left). I've looked at switching, but the early repayment charges would make it not financially worthwhile.

We've decided to overpay a little a month (£50 - every little helps, right??) but are seriously considering, when we no longer need to pay nursery fees in September, ploughing the money we would have spent on childcare vouchers (minus tax etc) into our mortgage.

This would be around £300 and looking at the overpayment calculator this would save us almost £10k and 4 years.

We don't have any other debts but I'm just having a bit of a wobble about putting that kind of money into the mortgage and not keeping some back just in case we need a large amount in a hurry. Although looking at savings accounts the interest rates are so low I'm not convinced it's worth saving either...

Any advice?

System

Hi,

I guess it depends what you consider a suitable amount to have in the " rainy day " fund?

With the £300 a month you'd have why not save half and put half into Over-payments?

Guess it's all personal preference and what you feel comfortable with.

gavted

Hi,

I think Vinny has a sensible idea there. Go half and half until you reach what you think is a good sized "rainy day" fund. Then I would put it all onto the mortgage.

As for the size of "rainy day" fund? About 3 months outgoings is what I work on, dont forget when calculating this to look at what you must pay and those extras we have every month that are not essential. Its amazing how much we fritter away without realising. :eek:

Its a great idea to overpay, as long as you remember to live whilst you do it. A miserable life, is no life.

Tony_R

We have been overpaying like mad for the last few years and have made a significant dent on the mortgage. But in a few months we come up from renewal and are considering getting an Offset instead. This will mean the we'll still save the interest, but we'll have access to the cash if we ever need it, as we may well get a new bathroom and kitchen in a few years time. You might want to consider an Offset.

sweaty_betty

Thanks all :-)
I've just had a chat with my mortgage company, who say that any overpayment will sit in a specific account, being offset against the mortgage, which I can apparently withdraw whenever I want.
This seems almost too good to be true! And worth putting all the money in as I won't get a savings rate of 3.19% - does this seem right to you?

getmore4less

which lender?

there are 2 types of rainy day fund.

emergency, can you cover the biggest unplanned bill. with £300pm spare you can cash flow through a CC just stop overpaying till the bills are paid off.

I would have say £1k cash flow planned, should cover most things you forgot to budget for.

I am not a fan of the 50:50 approach, save the emergency fund then overpay everything until you use the fund and have to top it up.

Disaster loss of income how easy is it to replace the incomes(s) can you live on one income etc, recommendation vary between 3months-1year income/expenses. depends on a lot of things and you need to consider benefits.

This money can be in longer term savings as you hope to never need them.

sweaty_betty

getmore4less wrote: »

which lender?

there are 2 types of rainy day fund.

emergency, can you cover the biggest unplanned bill. with £300pm spare you can cash flow through a CC just stop overpaying till the bills are paid off.

I would have say £1k cash flow planned, should cover most things you forgot to budget for.

I am not a fan of the 50:50 approach, save the emergency fund then overpay everything until you use the fund and have to top it up.

Disaster loss of income how easy is it to replace the incomes(s) can you live on one income etc, recommendation vary between 3months-1year income/expenses. depends on a lot of things and you need to consider benefits.

This money can be in longer term savings as you hope to never need them.

Ok bear with me while I get my head around this

So we have around £1k, easy access, for an emergency fund.

A disaster fund (especially up to 12 months of expenses) will take quite a while to build up - if I am able to withdraw from my overpayment account (co-op) would it make sense to pay savings into this and then withdraw them if disaster strikes?

getmore4less

If they are sure you can withdraw without conditions then that is a reasonable place for money.

Do you have to ask, will they do checks etc. no good if you can't get it if you need it.

sweaty_betty

getmore4less wrote: »

If they are sure you can withdraw without conditions then that is a reasonable place for money.

Do you have to ask, will they do checks etc. no good if you can't get it if you need it.

Their words were "you can withdraw money at any point" but I'll be double-checking this before I put in larger amounts