Four years and two months to reduce the mortgage

Hi everyone :)

I have been a long time lurker and have decided to join the forum and keep a diary. I am really good at focusing on the more short term goals (saving for one year) but reducing the mortgage is a longer term goal and I need something like this to keep me focused on the end goal.

I got my first mortgage in Feb 2010 for a smidge over £75k (£75k mortgage plus the fees on top). Initially, I was on a two year fix. This ended and I went onto standard variable rate of 3.5%, before it was put up after one month to 3.9%. I panicked at the rise so did a five year fix at 4.04%. Unfortunately at this time my property value had gone down so I had a higher LTV than what I would have now. The fix ends in Nov 17 and based on using the calculation tools, the early exit fee is higher than the amount I would save by switching. Also, if I switch, I would have to pay off the shared equity (more to come on this).

My current mortgage stands at £69,964.37 and was originally 40 years, now 34 years and 2 months remaining. The standard monthly payment is £317.88. This may seem an extremely long term to most but it was the only way I could get on the property ladder and afford it. I know it is bad but I also justify myself a lot and thought (and I guess still think) as a lot of my friends were renting at the time / quite a few still are, in the same area and paying up to £1k a month. Yes obviously their places were much larger etc than mine, but I thought even with the amount of interest I would be paying, I am not throwing it away on that sort of rent. I think I would have cried if I had to spend that!

When I purchased my property, it was before help to buy and I did a shared equity first time buyer deal. The property was £116k and I paid £12k deposit, £75k mortgage and £29k shared equity (25%). I know there are mixed feelings about shared equity but it has worked out pretty well for me. I own 100% of the property, there is no interest and have 10 years to pay it off. In 10 years, or whenever I sell, whichever comes first, or if I change mortgage provider, I have to pay back 25% of the current value. My flat is currently valued at £127k so it would be looking like an increase to a smidge under £32k, so an extra £3k back. But by using the tools on MSE I have worked out I would have paid more than this on interest if this had been on the mortgage... if that makes sense?

Therefore, I have four goals for reducing my mortgage:
1. I have four years and two months to "save" the £32k to pay off the shared equity... hence the name of my post (the last six years have flown by!!!! And I have enjoyed some absolutely amazing holidays with my money over the last three since getting a better job). Interest rates on savings are so low I intend to pay it off the mortgage instead. Therefore, I am saving money on the interest on the mortgage and hopefully when I remortgage, I will have a better LTV. I also intend to get a further advance to pay off the shared equity so again, the more I overpay, the better rate I hope to get;
2. I would like to move to a bigger place so I see overpaying as saving for this;
3. As a long term goal, I would like a small property as an investment for my retirement... but this is a long way off and there are many other avenues to explore (I'm currently 27 and have a pension so I am not too concerned about this yet); and
4. The main goal out of all this is to be mortgage free.

My monthly costs:

• £3,500 in total. Not to be touched and for a rainy day!

• £1,674.89 (this could be a little higher as I salary sacrifice for additional annual leave)
• Expenses. These vary and I don’t want to rely on them. Therefore, I have not included these.
• Pension. Again, this is not accessible and money I can use. Therefore, I have not included this.

• Mortgage - £317.88 (fixed until November 2017)
• Council Tax - £76 (I am waiting for the Council to increase this as new properties have sold on the cusp of this and am preparing my case to disagree in anticipation!)
• Electricity - £54.63 (no gas) (I have just price compared this as my fix was running up and got a new deal)
• Water – included in service charge
• Contents insurance - £12.89 (difficult to change – many insurers won’t provide contents insurance if you have a 100% flat roof and this is the cheapest I can find)
• Building insurance – included in service charge
• Service charge - £163 (I save this amount every month into a savings account and pay 6 monthly in advance. There has been a serious overspend this year and am awaiting the notification of this, expecting £300 :( the accounts are approx.. 18 months in arrears and as the site is not yet built, the residents do not have total control. A new management company started, who are much better, and this amount seems to be from the change over. Soon, the site will be complete and we will have much more control and the new company are doing well with savings e.g. employing a handy person instead of contractors for small jobs. I was quite involved in this previously until the handover, but not so much anymore. Again, a not really controllable cost, until the site is handed over, but I don’t see a repeat of this happening again)
• Ground rent - £14.59
• Mobile phone - £36 (I know, I know, but I love my technology too much)
• Home phone / broadband - £27.70 (deal has expired and this is on my to do list)
• TV licence - £12.12
• Food - £150 (I intend to do the grocery challenge as my New Years Resolution)
• Car lease - £89.45 (this is covered by expenses and also with the mileage I do with my job (having a car is essential) it works out at roughly the same price as the amount of maintenance. I also get family discount so a good price)
• Petrol - £180 (again, I get expenses towards some of this)
• Car insurance - £35 (I pay into a savings account monthly to save for this, as the insurers seem to charge you more if you pay them monthly! I also price compare every time this is due for renewal using all the sites available and then barter with the company on top)
• Car tax - £2.91
• Car maintenance - £0 (I don’t really spend anything due to having a new car every few years)
• Entertainment - £??? (I have no idea what I spend on this. This is an area I intend to budget on, perhaps withdraw x amount in cash and only spend that)
• Amazon prime - £4.99
• Gym - £28 (may write down how often I go over the next three months and see if it is cheaper to do a pay by use type of thing, as opposed to monthly membership)
• Life insurance / critical illness etc. - £23.20
• Bank fee - £10 (I do actually get my use out of this with mobile phone insurance and travel insurance (these paid out a total of £619 last month due to a holiday mishap))
• Savings - £163

Total Expenses: £1,311.88 (excluding “entertainment”)

Since April 2015, I have been overpaying by £70 a month so that brings my new total expenses to:
Total Expenses: £1,381.83 (excluding “entertainment”)

In December, I stopped saving the £163 (this was for a blow out trip to Australia) and increased my total over-payments to £270:
Total Expenses: £1,418.83 (excluding “entertainment”)

Therefore, I am left with £256.06. This needs to cover entertainment and misc items e.g. toiletries, presents for birthdays / Christmas. I am usually quite good and buy most of my presents in the sales (I’ve just done a huge shop and have got the majority for next year out of the money I receive for Christmas!). I am also a sucker for clothes, shoes and bags and have had a little splurge with my remaining Christmas money oops. But after my trip last year, I saved up for it by giving up clothes, shoes etc. as I really do not need them! My other indulgence is holidays if you haven’t already guessed! I think I may say £200 a month for “entertainment” and maybe withdraw this in cash and anything I don’t spend, keep for future months / my holidays. Then I have £56.06 left for misc items.

Hopefully, I can keep to this and overpay £270 every month. I have rung the bank and set this up to go out with my normal mortgage payment so I will see how I go over the next few months. I want to overpay and manage it, but I don’t want to completely cut back, if that makes sense? According to the calculator, this will cut 21 years off my mortgage (although I know this doesn’t include the shared equity) and save me £39k in interest!!!

So my tasks over the next few days are:
1. Try to get a home phone / broadband deal
2. Look at my food spending and prepare for the new year spending challenge
3. As part of the food challenge, do an inventory of food I have
4. Keep a tally of food costs
5. Do a toiletry inventory to work out what I actually have so I don’t buy something I have loads of and do buy something I have none of… I seem to have enough shampoo for a lifetime but no toothpaste, and then I go shopping and buy shampoo but not toothpaste!
6. Make sure I use everything offered by my bank account
7. Keep a tally of gym usage
8. For my next pay day (18 Jan) – withdraw cash for entertainment

I think Christmas is a hard month to get totally organised due to the spending etc. so I want to get myself in a position to start in Jan, but as I get paid in the middle of the month, I am counting Jan as starting on pay day!

Thanks for reading and sorry for whittling on. I look forward to my journey!
Mortgage at 1 January 2016: £70,203.66


  • SueP19SueP19 Forumite
    1.8K Posts
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    Wow and welcome

    I own 100% of the property, there is no interest and have 10 years to pay it off. In 10 years, or whenever I sell, whichever comes first, or if I change mortgage provider, I have to pay back 25% of the current value. My flat is currently valued at £127k so it would be looking like an increase to a smidge under £32k, so an extra £3k back.

    I don't have any experience with equity share but the equity share has increased by £2,750 in 6 years and until you either get a mortgage that will cover the whole amount or have enough funds to pay off the balance you are stuck with the mortgage company you have at the moment. I can see how it would be a lifeline but also how it could be a burden

    I wish you lots of luck
    Debt Free Diary - Second Chances! Life in a Tourer........Tilly Tidy Founder in 2016, Tilly Tidy 2023 £17.43, NSD Jan 2023 9/10, Debt £13,491.65
  • Thanks SueP :) I guess if I wanted to I could pay it off now and get a bigger mortgage, but after using the online calculators I would pay more interest on the additional mortgage than the amount the property, and therefore the shared equity, is increasing if that makes sense? I know my situation is a little more complicated that the standard pay off the mortgage early so I do apologise for all my detail and whittling on! Perhaps I should call it mortgage and shared equity free!
    Mortgage at 1 January 2016: £70,203.66
  • getmore4lessgetmore4less Forumite
    46.8K Posts
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    As above the shared equity means you own are at risk that the rises could overtake virtual interest.

    £127k value £70k mortgage shared owing £31.75k*

    £101.75k LTV needed 80%(£101.6 with a little extra) that would be just over 4* salary(£25k)
    Any further increas in value will improve the LTV needed(but the loan will go up).

    This is worth looking into for when the fix is up.
    or sooner what's the ERC?

    Say 2 years to fix ending outstanding mortgage £68k
    with £270pm overpayment(£588 total) in 2 years £61200

    LTV in two years 73% before any increases that opens up the 75% market

    If property went up 5% in 2 years LTV very close to 70% LTV(with £558 payment) that would open up even better deals.

    AS you are probably in a position to consider the buying out the equity now I would have a very keen eye on the values,(especialy what other shared equity are getting valued at for the buyout rather than selling)

    Be ready to jump if things start moving, if the development is finishing, that will take that competition away so resails might start going up.

    Might be worth a broker enquiry to test the water for getting a mortgage under the new rules. and be ready to produce the relevent information when the mortgage time comes.

    *£29k, £2.75k over 6 years is an equivilant rate of about 1.6% BUT you then have the ongoing interest on an extra £2.75k till the initial £29k is paid off unless you saved that virtual interest so still only need to raise the £29k

    On the SOA re car.
    Since the work expenses cover much of the running costs I would separate out some of those eg. if paid mileage then only personal fuel needs to go down, depends on the way you get expenses how to allocate. if variable it will be a guess(aim low) but the car leasing is dependant on it and even an old car won't have £1k of maintenance year after year.

    If you can get the lease and work related fuel covered by expenses that frees up quite a chunk on te SOA, how much expenses did you get in 2015, that would be a reasonable guide for 2016 unless there are changes in te job.

    (The other issue with lease is that it is like a debt, a commitment to pay a certain amount for a certain time it does not go away if you stopped using the car).
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