Mortgage overpayment advice please

armchaireconomist

Hi all,


Looking for advice/opinions on my current situation please.


Some background information: I bought my first house at 21 in May 2016 (58k mortgage); it was in a dire state but approximately 20k less than surrounding properties. Having spent 3 month renovating (I know a lot of tradesmen and not afraid to get hands dirty) i'm now moved out and living in the property. Having never taken a major loan, mortgage, or credit or any significant note this debt rests uneasy with me and i'd like to pay it off as soon as possible.


I'm currently paying just shy of £300 a month repayments on a 2yr fixed deal at 3.79% (95% LTV), having added 15k+ value to the property i'll be looking to remortgage with a significantly lower LTV & interest rate in 18 months time but I've been toying with overpaying recently.


Having spent all of my 7k savings on deposit/renovation I've been piggy banking approx. £200 a month into various accounts as "emergency" funds if you like. (I take home £1450 after tax and pension and am financially independent). I'm now wondering whether to overpay the majority of this as opposed to putting it into savings. My savings obviously pay significantly less than the rate of my mortgage. What would you do in my situation?


Given the relatively low value of my mortgage I want to pay this off completely sometime in my mid 30s, but having lurked on the forum i'm beginning to see the importance of an emergency fund (major repairs, unemployment) given my now fairly substantial financial commitments. £200 P/M into savings/overpayment is pretty much the limit, I don't having any issue meeting current payments but my lifestyle is impacted slightly. I keep telling myself i'll thank myself long-term but (without touching savings) i'm basically living payday to payday.


Thanks in advance.

lcfcstephen

If interest rate on the mortgage is greater than the interest on savings accounts then you financially it makes sense to Overpay.
BUT you want to make sure that you have enough savings to cover any disaster, especially if your finances are tight (ignoring savings) month to month.
So I would keep saving till you have at least six months regular expenses in the bank and then start overpaying it some. Obviously you may have other things that you want to save for, or you may want to continue saving some each month. It's a tricky decision to make, and without knowing everything nobody can say what will actually turn out to be the right decision

muhandis

Personally speaking (I'm quite risk averse), I would save until I have about 6 months worth of bare-minimum expenses (mortgage payment, utilities, council tax and groceries) in easily accessible cash. Once I have that (which should also cover any other emergencies that might come up) I would overpay my mortgage.

Obviously this would differ based on how secure my job was, the form of income I receive, any dependents, other possible commitments, etc

armchaireconomist wrote: »

Hi all,

Looking for advice/opinions on my current situation please.

Some background information: I bought my first house at 21 in May 2016 (58k mortgage); it was in a dire state but approximately 20k less than surrounding properties. Having spent 3 month renovating (I know a lot of tradesmen and not afraid to get hands dirty) i'm now moved out and living in the property. Having never taken a major loan, mortgage, or credit or any significant note this debt rests uneasy with me and i'd like to pay it off as soon as possible.

I'm currently paying just shy of £300 a month repayments on a 2yr fixed deal at 3.79% (95% LTV), having added 15k+ value to the property i'll be looking to remortgage with a significantly lower LTV & interest rate in 18 months time but I've been toying with overpaying recently.

Having spent all of my 7k savings on deposit/renovation I've been piggy banking approx. £200 a month into various accounts as "emergency" funds if you like. (I take home £1450 after tax and pension and am financially independent). I'm now wondering whether to overpay the majority of this as opposed to putting it into savings. My savings obviously pay significantly less than the rate of my mortgage. What would you do in my situation?

Given the relatively low value of my mortgage I want to pay this off completely sometime in my mid 30s, but having lurked on the forum i'm beginning to see the importance of an emergency fund (major repairs, unemployment) given my now fairly substantial financial commitments. £200 P/M into savings/overpayment is pretty much the limit, I don't having any issue meeting current payments but my lifestyle is impacted slightly. I keep telling myself i'll thank myself long-term but (without touching savings) i'm basically living payday to payday.

Thanks in advance.

armchaireconomist

Hi both, thanks for replies.


My total monthly bills are just over £600 and my "living" costs are around £400. This leaves me with £200 bumper P/M and £200 into various piggybank accounts (of which around £150 isn't earmarked for future expenses - £50 easy access cash account, £100 stocks & shares ISA).


At £150 P/M it would take me 3years and 4 months to build a £6,000 emergency fund. I also want to fit a new kitchen and bathroom to the property at some point in time so really i'm looking in the shorter term here. If I had that amount of "cash" at hand i'm not sure i'd be able to not spend it on home improvements.


I wonder what your opinions are on perhaps earmarking another (small) amount to overpayments whilst saving? I've just checked the overpayment calculator and even £20 P/M indefinitely would save me £3000 interest & something in the region of 3 years off the term.


Thanks.

muhandis

I see where you're coming from but the thing with overpaying is that any money that goes into the pot is then out of your reach. Even an S&S ISA can be part sold off in case you need cash, but there's no way to get any overpayment back easily.

That's my personal take on it, I wouldn't be comfortable putting money into overpaying my mortgage (or for instance into a pension) unless I had 6 months worth of mortgage+basic expenses saved up in (relatively) easily accessible accounts.

armchaireconomist wrote: »

I wonder what your opinions are on perhaps earmarking another (small) amount to overpayments whilst saving?