Changing my mind, am I right?

stayathomedad_2

I am 36 years old and I am very lucky to live in a house that I could quite happily stay in for the rest of my life. I have always set myself the goal of paying off my mortgage by the time I am 40. At the moment I am estimating that my mortgage can be paid off in September 2021 at the age of 42 although if I were to make a major purchase like a car or something more expansive then this date will get pushed back.

I have always had the attitude that I would push any available funds to paying off the mortgage so my family have no savings.

In the last year my dad died at the age of 60 and the future of my once supposedly safe civil service job has become much more uncertain. I have now started the process of remortgaging and for the first time been told that I could only borrow the outstanding balance of my current deal. Any extra would need to be justified to the mortgage company. I had always worked on the assumption that I would be able to borrow what I wanted up to 60% or 70% LTV. Currently owe about 50% LTV.

Therefore there are two things playing on my mind. Firstly if anything did happen job or health wise would I be better off if I had some savings. Secondly if I were to die as young as my dad did wouldn't I be better off spending money now on stuff I planned to do when I am mortgage free.

With the chance to get a 5 year fix at about 2% and being able to get 3% on my current account with Santander should I be changing my plans and building up savings instead of paying off my mortgage?

bexster1975

Hello!

Big questions for a Friday night!!

Firstly, if you lost your job, it would indeed be wise to have some savings. Especially true if you can't get mortgage overpayments back which you imply. Think about how long it might take for you to get a job that would pay the bills if you lost yours. What are your monthly essential outgoings? Know these things and you have a target figure for your emergency cash.

Second, if you were unfortunate enough to die as young as your dad sadly did you would still have had 18 mortgage free based on current plans - not too shabby. No one can predict death and ill health, you just have to make your plans and alter them along the way as it suits you.

Based on your maths at the end, it appears yes you probably should be building up savings.

The thing is, it's really a personal thing. Folk will tell you mathematically you are looking at 1% more interest on savings than your mortgage interest so it's a no brainer. But other people want the security of the mortgage gone forever. Could you not just do a bit of both? Or even get your emergency fund to a level that makes you less worried about job loss then back to paying off the mortgage.

I'm not sure there are any right answers, but good news there is there aren't really wrong ones either!

Good luck, well done so far!

Bexster

midnight_child

Hi,



Remember that the additional money you have paid off early will already have provided a much better future for yourself and your family, than not having paid anything over standard payments.

My view is to find the right balance between paying off the debt early, while not missing out on doing things you enjoy. You look set to be mortgage free (this mortgage at least) long before retirement, which will allow you freedom in the future. The difference between being debt free at 40, 42, or 45 is really not much in the grand scheme.

If you can save at a higher rate after tax than the mortgage interest, then this would be a more efficient way to run things. Its certainly a good feeling to know you are doing one over the banks!!

However, I would certainly try have something accessible in case of emergency. this could be savings, or if your mortgage allows you to take back overpayments that may be an option too.

Best of luck
MC

midnight_child

Forgot to add that if you are worried about job security perhaps think about if you want any over payments you make reduce the standard monthly payment rather than the term of the loan. Doing this means you can still overpay (subject to early repayment charges), but if you did lose your job you would have a lower monthly payment to keep a roof over your head.

Luckyinlife

EF emergency fund will make all your worrys go away we all do it in different ways.

Personally as im self employed i like to have 2 years mortgage payments saved up very extreme but makes me feel better.

If you are a year or 2 off from mortgage freedom at 40 hold off on cars ect ect till its done then go buy the car you like :]

sounds like youv done a great job up till now tho so well done you should be very proud

stayathomedad_2

I am still very keen to be mortgage free asap. I guess the biggest shock is the fact that under the new tighter rules my house might not be an asset I can always borrow against automatically if an emergency occurs.

If I can get the 2.04% 5 yr fixed rate mortgage I will get a 20 year term rather than the 10 year term I was planning. Instead of payments of about £1450 per month they would be less than £800. The difference plus any money I have to overpay I will manage differently. If I can get more than 2.04% interest I will put the money in those accounts (I currently have a 123 santander current account). Only when they are maxed out will I make overpayments on the mortgage.

I could still pay off at the same rate or actually a bit quicker but will need to be more disciplined to not spend the money on other things.

I read somewhere that you really should have 1.5 times your normal annual outgoings in savings. That would be about £48,000 for my family which seems a ridiculous figure to need to have in savings when you don't have any.

Luckyinlife

If you can get that deal would be great i havent seen a lot of fixed deals for 5 years at that rate myself its a win win deal either way

for the savings it all depends on you as a person i guess we all manage stuff differently

if i was you start as a start get 3 months of bills saved up in saving and see how you feel if you can build it to 6 then 9 and finally 12 months i think youll be ok :]

Thing is say you have 20k saved up and your coming to the end of the mortgage you could use the EF to pay off the mortgage if it covers it :] so either way having a nice savings pot gives you a lot of peace of mind.

48k is extreme just go with what you think is right for you

bexster1975

£48000 seems excessive by any standards. Again, to get a guide think about how many months of essential bills you would like in hand should you lose your job/ change your job/ become unable to work etc. lots of people say about six months worth of essential spends is enough but I agree self employed/naturally cautious won't see it as nearly enough. I don't know if you read Mr money moustache ( American) but he works on the idea of spending less and having more ( time, happiness etc). If your essential bills are low, what you need to earn to survive is small. Paying off the mortgage is of course a huge part of that.

Maybe less stress will make you less likely to die prematurely.

Bexster

aznlayer

I think you raise a good point.

Frugality is a lifestyle that I (and I presume a lot of others) enjoy living. So if I was to "go" tomorrow, I wouldn't regret how I lived because I have no care to be caught up in the commercial world.

Saying that however; I think it's important to stop now and then and check that you have a balanced life. I hear people say "il pay my mortgage off and then start enjoying life" - I don't think enjoying life should ever be put on hold, especially for something as common as money.