I'm joining your ranks

BrandNewDay

Actually, we're currently mortgage free, but we'll be 54,000 in debt on September 14, all going well.

We have a two-year fixed rate (what I prefer to call a "teaser" rate) of 7.44% - I really, really want to pay down what I can, as fast as I can. However, I don't know if it's a good idea to put all our eggs in one basket.

We have no other debts. We have a small amount of savings, an efund of sorts, but I think that's about to be wiped out when I have to pay for my new visa. So, rebuilding that will take top priority. I'm not sure what our efund should be, exactly, but I'm thinking at least £1000 as we have two cars in case one dies and even if my husband loses his job, we won't be immediately strapped (the way one would in America, for example.) But, what if the roof springs a leak or something. I guess we'd better have at least the amount of our homeowner's insurance deductible, right? Anyway, £1000-£3000 should be good.

We are not currently paying into a pension. Husband has a few that he's ignored/hasn't payed into for about a year, now. I believe we should set something aside for retirement, the sooner the better, as we're in our late 30's. I'm not sure I'm thrilled with the pension idea, but I do like that they're protected in case of legal/bankruptcy problems. I guess that's a discussion for another forum.

What IS significant, I think, is that paying down the mortgage is a good way to save us money, get us security, and have something as a bit of a pension. I worry about a house crash leaving us in negative equity. I worry that we'll be in the hurt locker when we want to refinance in a couple of years. I'd like to refinance for a fixed rate for the length of the term, just so we can sleep at night, and then take little whacks out of the principle every month.

I am operating under the assumption that we are in this house for the rest of our lives, but never say never.

I do think £50 a month is quite do-able. It doesn't seem to produce a major difference o the overpayments calculator, but the interest rate is better than a savings account.

Is my thinking screwy, here -

Savings account at 6% (I'm a non-taxpayer at the moment) would mean that I'll gain 6% per annum.

Mortgage at 7.4% is steeper than that. Putting money towards that saves me that interest. If the house loses value over 25 years, we'll at least have saved ourselves a lot of interest on the loan and have our home free and clear.

Then, there's a fairly safe assumption that the house will gain SOME value over 25 years. So, that could be an additional GAIN of interest.

Is that how it works, or am I thinking wrong?

david78

Yes, that's correct.

Every £1 you put into your mortgage effectively earns you 7.4% interest tax free. If you put the same £1 into a savings account paying 6% AER it earns you 4.8% after basic rate tax (you can earn 6% if its a cash ISA).

So the best place to put any spare cash is in your mortgage.