Balancing multiple goals

kev2009

In similar position also, i'm in early 40s, bought place in 2015, first property. I've got mortgage over 30 years, currently on a 5 year fixed ending in 2020. I've not overpaid to date as due to expenses etc, not had the money to do it and have been working on building up a emergency fund like yourself incase the worst happens as i'm single so no other income to help if the worst did happen.

I've been using a spreadsheet and I've decided to start making overpayments. Due to potential interest rate increases, i'm planning to keep the term the same and overpay a small amount this year and then each year up to 2020 pay as much as i can. Then will likely get another 5 year fixed rate and then continue to over pay as much as i can each of those 5 years but keep my monthly payments the same and reduce the term. Reason being simply if interest rates do go up before i re-fix in 2020, i want the longer term to hopefully have lesser impact on monthly payment rises. Once I've fixed, i'm hoping to pay as much as i can off which will hopefully lead to a good reduction in my mortgage by 2025 and therefore will be in a much better position with a smaller mortgage to then re-evaluate what to do then i.e fix for 2 years, 5 years, go variable etc.

I'm not overpaying each month, i'm basically going to save the money in an account and subject to not needing it, then over pay towards the end of each year as my mortgage allows a 10% over payment each calendar year based on the over payment figure calculated in Jan of each year. SO after this year, i'm looking at trying to save as much as i can over the next 2 years initially to overpay the mortgage and then continue that for another 5 years if i can without anything unexpected happening. If this works out, i'm hoping to be a much better position with the mortgage and will be easier to manage, lower monthly payments etc.

Any small savings i make each month will get routed the the annual overpayment so in some ways will help get a little bit more to pay off the capital.

Kev

kev2009

Forgot to say, i'm also paying into company pension, i pay in 10%, company 8% and i'm not in the high tax bracket, not even close.

I have considering paying more into the pension but i'm also thinking best to get mortgage lower/cleared first and then look to maybe double pension contributions. I'd really like to get the mortgage sorted by 2030 but that may just be a pipe dream, will have to see how things go and if its possible. I know maybe i should of started overpaying sooner but needed a bit of security first to know i could at least pay the mortgage bills for x period of time without the thoughts of "how will i pay that next month" etc. Due to my salary, i couldn't get my mortgage over 25 years so i had to get it over 30 years (bit of a nuisance but it did mean my monthly payments were lower) so in a way that has helped albeit the 30 year takes me right up to retirement age for me or very close as i think there is plans to move my retirement age up to 68 before 2030, think it was in 2028 they plan to increase it.

Kev

RichyRich

Kev, thanks for dropping by! I'm not a financial advisor and that's probably at least partially why I am struggling to balance all my goals in a way that pleases me - but for what it is worth I agree with your sentiment about building up an emergency fund. It's important, in my opinion, to have enough easily accessible money on hand should something happen that means you need it - how much tax you might have saved by doing x, y or z is irrelevant if when it comes to using the money you can't get to it!

kev2009

Same here RichyRich, i'm no financial expert so am just trying to do what i can, however i do wonder at times if its the right thing or not. I think for now, emergency fund is totally worth doing as you never know when things will change. But then as far as should i pay off mortgage, put more money in pension, put it in ISA, stock and shares - no clue. I started a pension a little before i was 25, but i paid in a fixed amount and sadly never increased it, it was a private pension as i worked via a agency so no company pension back then and i paid in a few years of the same amount.

I then got a perm job and company paid into pension, i didn't need to but could if wanted to but i didn't, i thought, i'm new, let just see how the job goes etc. Anyway few years passed and i then moved private pension to company pension scheme as private one was only projected a 4-5k pension per yer. Company one was projecting more but even now, i'm only projected to get approx 9.5k per year (assuming retire 65 and no 50% to partner etc as i'm single at present, and includes a 3% rise per year). This does assume i take 25% tax free of my fund and then buy annuity which tbh for the % going in, seems a bit low. At present i thin annuity is best for me as single and once retired wont have another source of income and if markets crash etc, could loose a lot whereas annuity may give me less but that figure is set for life and can factor in a % increase to hopefully help with the annual increases in bills etc, at the end of the day, i'm hoping to have an affordable, comfortable retirement whereby i can have the heating on if needed and not have to worry about how will i pay for it. Would like to have some holidays, not extravagant big holidays, probably just to places within the UK, may long weekends or maybe a week or so here and there. Hopefully afford to replace my car every 3-5 years fingers crossed.

I realise i'm a fair way off from retirement yet so the predictions are almost meaningless as i believe until you get closer, around 10 years away, is when the numbers actually become more realistic to what you might get.

As i have no cue, I've left it in the default plan at work. I don't have funds yet to start a iSA etc, think like yourself whilst interest rates are relatively low compared to what they could be, best to pay off what i can now to avoid a potential hike in repayments or the potential of needing to see as wont be able to afford it if they went up very high. Once mortgage is down much lower then i can take it a bit easy and maybe priorities ISA, pension more but that is at least 7 years away before than is even a remote possibility assuming i stick to paying of what i can each year from mortgage. I realise 'd save hopefully a fair bit in interest by doing that as my interest rate is over 2% atm but its not like they give me a cheque for the money back so to speak so its just not having to pay it for 30 years, hopefully i can do within 15 years meaning i save myself 15 years of payments, unless i decide to move etc, which i would like to potentially but due to age, and potentially getting a mortgage for only 10 years for example. At present the type of place i'd like is worth about 100 - 140k more than the estimated value of my place and i'm assuming i'd own it by then.

Kev

RichyRich

Took another step towards mortgage freedom today. My lovely 2 year 1.19% fixed rate comes to an end on 30 April, and Nationwide released the rates to commence on 01 May today so I've plumped for a 5 year fix at 1.89% (£999 fee). In these times of uncertainty I think a longer term fix is worthwhile. Spoke to the wife and we are going to "up" our contributions to the degree that by the end of the five years, during which we can still overpay by up to £24k a year, we should be within spitting distance (well, two years or thereabouts) of paying off the mortgage altogether. Needless to say I'm feeling a lot more positive about the situation now that the plan is a lot more concrete and I can actually visualise the journey. To freedom!

RichyRich

Tracking update.

Mortgage balance as at 1/1/2018: £214,663

Mortgage balance as at 1/1/2019: £198,257

Other goals reached: cash savings pot at £15k, an amount at which I'm comfortable for it to stand as an emergency fund. Sitting in a Marcus account.

I started a new job in November and have set my pension investment at 15%. My employer will contribute 11.5% to this giving an overall contribution of 26.5%. I took a pay rise so I am hoping that I will not "miss" this money, however, it's taken a few months for them to arrange the deduction. My overall take home will still be slightly more than in my old job which will enable me to contribute a bit more to my S&S ISA this year (which was woeful last year at around £4k predominantly due to topping up cash savings).

New contractual monthly mortgage payment from May will be £860. We are planning on overpaying this by around £1300 per month with a view to driving a big hole in it by the time the fixed rate ends. This larger ongoing monthly overpayment (current overpayments are between £700 and £800) might not start until March or April, though.

This is because the budget has taken a massive tumble on grounds of several large items of expenditure. Three of these are purely indulgant. We like to be organised (Not that we're very good at It!) so have booked my annual leave for the year up in advance. We've booked our easter, summer and October holidays which mean that I've paid the Easter one and the deposits on the other two. Needless to say this is a bit spendy. I've also had to pay the best part of a grand to secure out new mortgage deal which was paid from my credit card - I could have delayed booking the mortgage rate for a few months but there would be no guarantee that the rate would be available and I could have added it on to the mortgage but I would have missed out on nearly 2,000 Hilton points by doing that. The joys of renewing home insurance next!

So a few months for things to "settle down" (how many times do we say that!?!) but I'm hoping for a strong year in terms of bringing down the mortgage and upping the S&S ISA.

Happy 2019!

RichyRich

February overpayment made yesterday and another milestone: down another five grand to the sub-£195k mark with the balance standing today at £194,818.

Both my wife and I have increased our monthly payments into the joint account with a view to making a serious hole into the mortgage over the course of our five year fix. Expected monthly payments around the £2k mark of which £860 ish will be the CMI meaning overpayments of about £1,100 per month - which means that if we stick to our plan we will pay £66k off the mortgage in overpayments alone over the five year term (plus whatever the contractual payments knock off the capital). This is still well within our 10% allowance and I have every confidence we will stick to it as we have the past few years.

It's also quite a good "safety net" because Nationwide puts the overpayments into a reserve which can then be called upon in an emergency so if the worse happened we could stop payments for a decent period of time (as we currently have £20k in the reserve) while we get back on our feet. Obviously that's not what I want to do, as it would "undo" the good work of overpaying more quickly, but it's good to know it's there.

Emergency fund wise I'm stocked up, so as far as the balancing of multiple goals goes, I am taking 15% from salary at source to my pension (plus employer contribs) and any excess going to the S&S ISA. I'm nowhere near the £20k max for this year but hope to get closer to it in 2019/20. All in all I'm pretty happy with the balance right now but let's see how that goes.

See you at the next milestone, if not before!

RichyRich

Well I'm becoming a bit obsessed with this now. I got a letter through on Saturday confirming that our 5 year fixed rate of 1.89% starts on 01 May.

We've both already "upped" our contributions to the joint account by £100 each which should mean another £200 (ish) towards the mortgage. Why ish? Well, some bills are going up, so it might be a bit less.

Not quite at the next £5k milestone on the mortgage yet, but I'm feeling fairly positive about the multiple goals. I got my full isa allowance invested last year and since starting my new job I've been maintaining 15% payments into my pension (plus employer contribs). It might not be perfect but I'm broadly happy with the balance for now.

Until the next time!

RichyRich

I got paid on Friday which means it was time for the May overpayment, which was a bit higher than usual due to receiving an extra £100 into the joint account for renewing the mortgage with Nationwide and the leftover electricity credit we had from our old supplier which was returned to us. The upshot of all this is that we have hit another £5k milestone with the total mortgage balance now sitting comfortably under £190k.

The "multiple goals" segment is not doing too badly - obviously pension payments are continuing apace due to being deducted directly from payroll but I'm struggling to see that I'll be in a position to maximise my ISA this year (though, really, we are only just into the new tax year by just over a month so things might change).

I do however have £9k sitting in cash in my ISA which I haven't invested yet. I'm dithering on this, because the value of my investments has spiked, and while I know you can't really time the market its a lot to put in in one go especially when the valuation seems high. Who knows I might kick myself one day but for now I'm going to ride it out where it is and remain poised to move it over if the market drops.

Until next time.

RichyRich

Quick update for tracking purposes: the overpayment made yesterday brought the balance of the mortgage to under the next £5k milestone...by about £7! So the interest that accrues this month will bring the balance back up above £185k temporarily until the next monthly payment, but as the milestone was hit I'm claiming it.