Time to be a bit more sensible!

floopsy

Long time lurker here and really enjoy reading the forum but not really posted at all in the 9 years I have been a member, this is about to change!

To be fair one of the reasons for not posting is due to me thinking we are not in too bad a place financially and just tootling along without any major concerns really, but a recent event has really made me sit down and consider what our priorities should be and I have decided that we really need to be Mortgage free and to do it in the shortest time possible without having to sacrifice too much of the fun stuff.

The wife and me fully agree with the old sayings “you only live once” and “no good being the richest corpse in the graveyard” and intend to try and make our journey as sensible as possible without sacrificing too much fun stuff, if we can.
I have a nice company car and can use it for private miles so no issue, but for about the last 10 years I have been treating myself to some nice sports cars to blast about in at the weekends. Porsches, Aston Martin’s, Mercedes AMG etc, yes mid-life crisis and all that. Using some of our savings but mostly borrowing on personal loans, it has not been a huge risk as the cars have always had good equity in and could be sold if I got into trouble. Even with buying and selling several cars I had not really lost much really, the odd few £1,000’s or so, that I brushed off and convinced myself l could live with!

To give example and the cause of my lightbulb moment

Brought a Mercedes in January this year for £43,000, it was 5 years old, original owner paid £128,000! I paid for this with a loan for £30,000 and the rest from savings. Loan cost was £396.38 a month, over 7 years. At the beginning of October, I could see that the prices were dropping rapidly for some reason, so made the decision to get out as soon as possible and sold to a dealer for £36,000.
In the 10 months I have owned it I covered a grand total of 1,750 miles, it also cost £500 to insure and £500 to tax and I lost £7,000 when I sold it, £8,000 in 10 months!!!
At a rough calculation it has cost me a heart breaking £4.50 a mile………this must stop, I work too hard to throw it away like that and I still have a big mortgage at age 52!

Car went last week, loan paid off and my Mortgage free wannabe journey started.
Next action was to use more savings to clear some additional borrowings taken out over the past 20 years on my mortgage, cleared Mortgage 3 £6,900 and Mortgage 2 £18,100, why I have not done this before I have no idea, small monthly amounts but they all add up.
I spoke to my bank, First Direct, yesterday about the main Mortgage 1 account as I think changing to an Offset Mortgage may suit our circumstances now we are on this journey.

Current amount owed is £96,835.10 on a fixed rate of 2.59% until 27th September 2020, the term left is 13 years.
They will not let me change over to an Offset unless I pay £2,332.40 early repayment charge, the house was valued in 2016 at £190,00, so reasonable equity in it. The Offset rate on offer is at 2.15% fixed for 2 years.

Reason I think an offset will be better is that I have still got about £20,000 in savings that I want to keep as a cushion, and not pay of the mortgage, just in case we ever need it.
My wife’s earnings cover all our standing orders, direct debits etc with a bit left over and my £3,000 a month (after tax) for food, leisure and our main expense which is holidays.


We are lucky to have had 4 individual weeks this year already and another in December for 15 nights for the wife’s birthday, we will spend approximately £12,000 this year and this has been a similar amount for a long time, in theory if we just had one a year we could have been mortgage free years ago, but we would not have the memories or the sun burn!

My plan going forward is the following and would welcome any advice and suggestions.
• Try to work out somehow if its worth paying the redemption figure and getting into an Offset. If there is a benefit, get the offset set up asap
• If not, keep the repayment until the term ends, then maybe go offset, keep building up the savings pot in the meantime.
• Current mortgage repayment is £743.17, If I take the offset, its only £172 per month interest, so I can pay £571.17 each month from wife’s wages which equals the repayment figure we currently pay, plus I think I can easily overpay £500, overpay an additional £1,000 a month that would be for holidays and drawing it back when needed and having £1,726.90 left for spends, in the idea scenario.
• Try and be a bit more sensible with the holidays, we both work very hard and need to have a good break but maybe we will try to book 14 nights, rather than 7 as its much more expensive the way we have been doing it due to daughter (18) and dog not wanting to be home alone for more than a week at a time, they may have to manage.

Mortgage £743.17
Wifes Life insurance about £125k £10.15
My life insurance about £125k £18.00
Wifes car wih MB Finance, paid max off £25.00
Wifes gym membership £28.50
Council tax £154.00
Gas/Elec £120.00
Water rates £61.76
Wifes contact lens £13.00
Tv licence £12.83
Broadband £38.00
Wifes mobile £6.19
Total £1,230.60

Wifes wage £1,500.00
My wage £3,000.00
Total £4,500.00

Left after bills £3,269.40

Let the journey begin!

gallygirl

You are 52, earning good money but have only accumulated around 100k equity on your house and 20k in savings. If I was you, I'd not trust myself to keep the 20k and not blow it! What overpayments can you make without penalties? Do you have your 20k in decent fee paying accounts - e.g. NWide at 5%?



Retirement is fast approaching. What pension provisions do you have?Are they adequate? When are you both planning to retire? You only live once, it's true, but 'jam today' may leave you with only bread and butter tomorrow. How many extra years are you prepared to work to fund holidays (that you need because you're working!)?



Paying off the mortgage should only be one of your plans for the future, don't look at it in isolation. But better to be looking at it than not!

floopsy

thanks for the reply gallygirl
yes, i agree, I think we should be ok with pensions, wife will have max civil service pension and i have a sipp with about £250k in and company pension thats resonably good as well. I will also get about £100k from a trust fund in a few years time, so think we should be ok unless we have to stop work suddenly.
I would not know what to do with myself without work at the moment so will probably start to seriously consider retiring in about 8 years time when im 60, lots can happen in 8 years!

floopsy

I could pay the £20k of the mortgage tomorrow but would not be comfortable without a good cusion in the bank, thats why i think offset is the way forward for us.

bexster1975

I think a little " short term pain, for long term gain" would be my solution. Assuming pension provision is more than adequate, you could be mortgage free in about 30 months if you can go without flash holidays for a couple of years. The car situation might have been painful, but sounds like the wake up call you needed.

I don't know what you do for a living, but no mortgage will offer you and your wife a good deal of freedom to choose what you do for cash, and how many hours a week you do it. Whilst you earn very well, you should definitely capitalise on the advantage. You have lots of nice memories ( and the sunburn) for now. Get the mortgage gone before you are 56.

Bexster

floopsy

Thanks Bexster for your reply, yes i agree, but i think that might be just a little to full on for us, I have known to many people that have sacrificied lots, paid everything off early, retired then not lasted very long unfortunatly.
The best approach for me is just cutting down i think, if we did just half of current spends then i think we could easily be mortgage free way before im 60. Wife already only works 4 days a week.

Do you have any experience in working out the offset senario and whether to pay the redemtion?

bexster1975

I don't have any experience of the offset thing. I don't think I'd personally pay the redemption. How long do you have left on your fix? If your £20k is in high rate interest accounts (5%) then you are likely better off that way anyway. I agree with keeping a substantial emergency fund.

It's worth keeping in mind that you can become ill long before retirement, so reducing outgoings that are necessary is always a sound option. I agree, paying the mortgage off in two and a half years does seem hardcore. It depends whether you foresee doing your current role until at least 60. I never saw my job as sustainable until 60, which was why I paid my mortgage off so I could work for myself, more part time than my role of the previous 15 years.

Just some things to think about. The fact you are getting your financial house in any sort of order is always a great start.

Bexster

Happier_Me

I wouldn't bother paying the redemption costs either and I'm a big fan of offset mortgages, had one for the last 10 years. If you earned a conservative 1.5% on your £20k in an instant access savings account I reckon it would take you over 10 years to cover the cost of the redemption figure.

I would start to firm up both your shorter term (mortgage freedom) and longer term plans (retirement). You spend a fair amount on luxuries and if you want this to continue into retirement you need to know 'your number' - the amount of household income (after tax) you ideally need to sustain the lifestyle you want ...from there you can work out the amount of retirement savings you have/are on track to achieve and any gaps in your retirement savings.