Overpay or keep for a rainy day? 1 June 2015 at 1:42PM in Mortgage-free wannabe 6 replies 937 views

Jones01

Hello everyone,

I’m looking for some advice on what to do re overpaying mortgage or saving.

Background – previously been a Debt Free Wannabe and paid off around £13,000 with the support of lovely MSE people.

I currently have a £136,000 mortgage (5 year fix at 3.19% ends June 2019), I’m currently overpaying by £150 a month – can overpay up to 10% without penalty.

I want to be mortgage free as soon as I possibly can! I’m a single mother of a beautiful 5 year old and ideally would like to be mortgage free before she (possibly) goes to University which means max 13 years from now (although I’d like to pay it off in 11 years – no specific reason, I just like a challenge!)

So here’s the problem – I currently have no savings what so ever and have a few things that need doing around the house – need new windows, boiler has seen better days and will probably give up in the not so distant future – so I know I need to build up an emergency fund (which I’m trying to do now with £300 a month). I thought after I saved around £2,000 I could possibly up my mortgage overpayments instead of saving as I hope to be under the £100k threshold when I come to remortgage (had a nightmare with affordability last year and that was before the new rules came in! so trying to make sure that doesn’t happen again come 2019)

If my calculations are correct I’ll have to overpay by £450 from January 2016 onwards to the end of the fix in order to hit the £100k barrier that will (hopefully) make re-mortgaging a little easier, which means no extra savings in the next 4 years.

I know I could put the overpayment money in a savings account instead, and have that security should something go wrong I have the funds to cover it and then just pay it off as a lump sum, but I also know that if the money is available to me I might be tempted to spend it on other things that aren’t essential.

What would you do?
x

edinburgher

As a single parent, you are far more exposed to financial stresses and cannot take advantage of the economies of scale that are available to those of us sharing the costs with a partner.

I wouldn't consider overpaying a penny until you have 6 months of living expenses saved as an Emergency Fund.

In addition, if you want to save up for home maintenance and improvements, it's probably best to treat this as a second 'pot' of money (don't spend your emergency fund, new windows are inconvenient, not an emergency etc.) By the same token, a boiler conking out is not really an emergency if you know it's 20 years old and rubbish, it's a failure to plan

We save roughly 1% of our home value each year for home maintenance (something like £150/mth). If your home is newer, this may be overkill.

As regards affordability, you might like to grow your income a little (for example, online selling, paid surveys, or matched betting).

Luckyinlife

I am a single parent as well

I totally agree with edinburgher

Start working on a EF I would if i was you then once you have this in place you can chuck what you have at the mortgage

So for me due to what i do for a living i need/want 2 years expenses which i have nearly bar minimum ill live comfortable for a year and half then while i look for a new life plan.

If however your job is secure you could just save up 3-6 months emergency fund then start over paying then.

Seems like your doing really well bar the savings really so well done :]

Andy_Bez

advice I once was given - always keep a 'war chest' of savings somewhere.
Car services, boiler breaking, engine going, etc etc - keep some money safe..

Can you make over payments randomly when it suits you..chip away at the mountain slowly.

Jones01

Thank you for the replies, what you're all saying makes sense and I will concentrate on getting that EF together asap. I just get carried away sometimes when I think of paying off the mortgage

Thanks guys

Luckyinlife

Jones01 wrote: »

Thank you for the replies, what you're all saying makes sense and I will concentrate on getting that EF together asap. I just get carried away sometimes when I think of paying off the mortgage

Thanks guys

Great stuff make a diary on here where you can keep track and mainly support from other people who think like we do is priceless some stuff in life really is free :]

Good luck

egoode

I agree with edinburgher's advice, if you know you will need to replace the boiler soon than that should be saved separate to your emergency fund. If you haven't heard of You Need A Budget (YNAB) I'd highly recommend getting it they basically say things like boilers being replaced, cars needing new tires etc are not emergencies as you know these need to be done and you should put money aside for them now. You can try the software out for a month and they have loads of free classes to teach you how to use their system and opportunities to win free copies. I've found it really beneficial and I've set up a home maintenance category which I've used way more than I ever expected and it's also helped me cut down on some unnecessary spending although need to cut down on some things a little more.