Time to stop (over)thinking and time to start doing!! 23 April 2019 at 6:08PM in Mortgage-free wannabe 67 replies 6.5K views

Throwaway1

I always knew I overthought things but even I didn't realise just how much until it came to house buying and then mortgage overpaying.



When we took out our mortgage we went long (30 years) intentionally to allow us a buffer of lower payments if ever needed but with the intent of overpaying. We've now been in our house 4 and a half months and have yet to make an overpayment as we just cannot work out what the best course of action is. We're in the very lucky situation where we can easily afford to OP - our problems are all mental blocks. We are too terrified to do anything. It took us 5 years of renting after our marriage to dare buy a house in the first place! We are both equally in agreement that apart from out mortgage (and student loans) we will never, ever, buy anything on finance. Ever. Whilst I appreciate how lucky we are to be able to say that, and hopefully stick to it, it does mean that we feel the need to have a large amount of savings at all time. Savings that should really be put into the mortgage if we could dare to let go of them.



So, the mortgage. We have a £161,250 mortgage on a 10yr fix at 2.64% making payments £649.08 a month.



Here comes the bit where I need advice and possibly tough love to get some big girl pants on. Between us we have now got 20k in savings and we appear to have 2k left between us each month after all expenses. I also have 10k that my mum lent us with a 'pay me back at some point' attached to it. We felt mentally that we needed that as a buffer to allow us to to pay the 70k deposit and fees but we now need to look at whether we pay it straight back, or a bit at a time, or whether we put that into the mortgage and pay my mum back out of our surplus each month.


So, if you were me without the worries, what would you pay to where and how often?



We've toyed with the idea of:


a) paying regular OP of £500 a month which is a good balance between being affordable and not scaring the pants of us.

b) paying the £6000 straight up to save on the interest repayments straight away
c) using my mum's 10k and 6k of our own to pay the 10% allowed off right away and then the 2k each month will help us save back up and pay my mum bits off each month


Plus some payments of an unspecified amount over an unspecified duration to my mum.



We just dont know what to do! We are down to one car as we realised we didn't need 2 now my husband gets the train to work each day (no parking at this job in city centre) and his failed his MOT and was 13 years old. My car is now 11 years old and whilst runs fine I'm aware that we may need money to buy a new one at any point (this one cost 6k 8 years ago and I'd probably do that again). We also have a house full of mismatched furniture we got free or very cheap so we may want money to do something about that at some point. We also want money for emergencies such as boiler breaking or other house related problems we don't even know could exist. Plus, of course, either of us could lose our jobs at any point and then if we've given up all our savings that wouldn't count for anything and regular mortgage payments would still need to be paid.


We're probably going to do a) or more likely b) but aren't decided yet. It doesn't help that we have to phone everytime we make a one-off OP so that it reduces the term and not the monthly amount. We can set up a direct debit to reduce the term which is why we are tempted by a) but then we are paying extra interest each month compared to paying it all at once.

Cariad71

I would pay your Mam back now as you are in a good financial position.
Then i would pay 1k back monthly. This still gives you 1k a month to play with (emergencies/car/furniture).

Now I know that this scares the living daylights out of you BUT!!..... if you do this you will save 51,798 and be mortgage free 20 years and five months earlier! (assuming same rate of course).

If you paid 2k a month overpayment, you'd be mortgage free in about five and a half years.

If you pay 500 a month extra, you'd reduce your term by 15 years and 11 months.
Whatever you decide, you're in a great position. Good Luck

jackieblack

I agree
Pay Mum back now - you have £20k savings between you can use some of this as a buffer/emergency fund
Maybe start off OPing £500 a month and stick another £500 into a savings account and see how you feel in a few months time. If you’re managing fine you can always transfer these savings to the mortgage and/or increase your OP.

Of course, the above assumes that you’ve both already got adequate pension provisions in place...

Throwaway1

Cariad71 wrote: »

I would pay your Mam back now as you are in a good financial position.
Then i would pay 1k back monthly. This still gives you 1k a month to play with (emergencies/car/furniture).

Now I know that this scares the living daylights out of you BUT!!..... if you do this you will save 51,798 and be mortgage free 20 years and five months earlier! (assuming same rate of course).

If you paid 2k a month overpayment, you'd be mortgage free in about five and a half years.

If you pay 500 a month extra, you'd reduce your term by 15 years and 11 months.
Whatever you decide, you're in a great position. Good Luck

Oh gosh! Thank you. I was thinking 1k a month was too far if paying mam back the whole 10k too but 20 years 5 months earlier is insane. I'll have to check the calculator but I think we'd be into overpayment charges pretty quickly if we were to do that. It does sound exciting though! And whilst it would be very scary for a few years, it would mean no worries over mortgage payments for the rest of our lives.

Throwaway1

jackieblack wrote: »

I agree
Pay Mum back now - you have £20k savings between you can use some of this as a buffer/emergency fund
Maybe start off OPing £500 a month and stick another £500 into a savings account and see how you feel in a few months time. If you’re managing fine you can always transfer these savings to the mortgage and/or increase your OP.

Of course, the above assumes that you’ve both already got adequate pension provisions in place...

Thanks Jackie, yes we both have pensions in place. Mine isn't great now I've gone from teacher wage to TA wage (overthinking got too much with teacher stress so I had to switch jobs for my own sanity) but it is there. Husband's is pretty good.

Nichelette

Does your mortgage give you the overpayments as a buffer? We can take payment breaks up to the value we've overpaid should we need to which is reassuring.

You have a large emergency fund but you seem very worried (I know it's a big commitment, our mortgage is massive). Have you thought about boiler cover or similar to set your mind at rest a bit? Corgi offer it, it includes a yearly service and you can get cashback too. I'm going to set it up when I remember!

I'd personally pay your mum back and make overpayments at a level you feel comfortable with but won't get charges. If you can do more I'd save it until you can repay again without charges.

julicorn

My 2 cents:

A) Pay your mum back now. It's well and good that you're not ever wanting to buy anything on finance in the future, but being in debt to your mum isn't any better imo (ok, you don't have interest to pay, but it's got to be more of a 'moral' burden).

You sound worried about locking away money that you might need for something coming up. I get where you're coming from. What has helped me massively, and I think would help you too, is a budgeting app called YNAB which uses 0-based budgeting. You give every single penny you have right now a job (e.g. allocate specific amounts to your mortgage, groceries, eating out, etc), including to things that only happen occasionally (car repairs, home repairs, job loss fund, that sort of thing). If you do that, you have completely clarity over what your money is there for, and how much you can truly afford to put towards your mortgage every month (taking into account irregular expenses that will come up infrequently as well). With that sort of system, many of the things that you might be worried about aren't actually emergencies any more, but rather planned expenses that are likely to happen eventually. It's honestly made a huge difference for us - we would have never felt confident to overpay as much as we do, 'just in case something comes up'.

Throwaway1

Nichelette wrote: »

Does your mortgage give you the overpayments as a buffer? We can take payment breaks up to the value we've overpaid should we need to which is reassuring.

You have a large emergency fund but you seem very worried (I know it's a big commitment, our mortgage is massive). Have you thought about boiler cover or similar to set your mind at rest a bit? Corgi offer it, it includes a yearly service and you can get cashback too. I'm going to set it up when I remember!

I'd personally pay your mum back and make overpayments at a level you feel comfortable with but won't get charges. If you can do more I'd save it until you can repay again without charges.

No, unfortunately, once it is paid that is it, no buffer. That's a good point re. boiler cover. We are covered twice in fact as it is included for free for the first year with BG and our home insurance covers it too. Thanks for the reminder on that.

Throwaway1

julicorn wrote: »

My 2 cents:

A) Pay your mum back now. It's well and good that you're not ever wanting to buy anything on finance in the future, but being in debt to your mum isn't any better imo (ok, you don't have interest to pay, but it's got to be more of a 'moral' burden).

You sound worried about locking away money that you might need for something coming up. I get where you're coming from. What has helped me massively, and I think would help you too, is a budgeting app called YNAB which uses 0-based budgeting. You give every single penny you have right now a job (e.g. allocate specific amounts to your mortgage, groceries, eating out, etc), including to things that only happen occasionally (car repairs, home repairs, job loss fund, that sort of thing). If you do that, you have completely clarity over what your money is there for, and how much you can truly afford to put towards your mortgage every month (taking into account irregular expenses that will come up infrequently as well). With that sort of system, many of the things that you might be worried about aren't actually emergencies any more, but rather planned expenses that are likely to happen eventually. It's honestly made a huge difference for us - we would have never felt confident to overpay as much as we do, 'just in case something comes up'.

a) I never thought of owing my mum as being like finance as we are able to pay it back instantly but I guess you are right. It's really hard for me to give up that safety net as she definitely doesn't need it or expect it back for a while yet. I guess it is something that is hanging over me though and maybe it being gone and not having to think about it will actually help more than it being there. It does seem to be a popular option on here which is making me think that maybe I should just do it.


b) Thank you so much for the recommendation. I've never heard of it before but I will definitely be sitting down with the husband tonight and working our way through it!

julicorn

Throwaway1 wrote: »

a) I never thought of owing my mum as being like finance as we are able to pay it back instantly but I guess you are right. It's really hard for me to give up that safety net as she definitely doesn't need it or expect it back for a while yet. I guess it is something that is hanging over me though and maybe it being gone and not having to think about it will actually help more than it being there. It does seem to be a popular option on here which is making me think that maybe I should just do it.

Not at all trying to make you feel bad about wanting that safety net btw, or not viewing it as a classic 'loan' - it makes perfect sense, but at the same time you seem to be in great shape financially and can probably afford to take that little weight off your shoulder.

b) Thank you so much for the recommendation. I've never heard of it before but I will definitely be sitting down with the husband tonight and working our way through it!

No worries at all! It's a paid app btw, but you can find 3 month free trials online (without needing to provide card details or anything silly like that, so no risk of forgetting to cancel it). Within that time, you can also just pick up the principles and probably DIY something like that in excel. I personally really like the app, the way it makes finances much less scary for me, the insight I get from it and the way it allows me to really prioritise things like savings and mortgage overpayments, but fundamentally it's just a way of thinking about money which you can learn from the free trial, and use in other ways afterwards.

Throwaway1

Ok, spoken to mum and she doesn't want us to pay her back yet. In fact she was a bit offended that we were even considering it so soon when she has no use for it and we still have such a large mortgage! Her idea was that we keep it safe and unspent for if we need it as 'it would only be sat in her bank account instead of ours' and instead we OP to get the interest down.



So, new plan. My husband wrote a script to work out how much we can OP each year for the 10yrs to stay within the 10% allowance and then divided equally each year's equally over 12 months. (Ours allows 10% of the amount outstanding on the anniversary of the drawdown date each year).



The first year is of course: £16,125 or £1343.75 a month

The second year is around £14000 ish.
The third year is around £12,000 ish.
etc.


Annoyingly, I can't remember the exact numbers but I'll update later when he is home from work.



So our very, very ambitious challenge is to try and potentially hit the 10% each time and then when we are out of our 10yr fix there will be around 17k left which in an ideal world we will just be able to pay off (as the latter years will only allow us to OP small amounts so hopefully we will be able to save the 17k up whilst being limited by the ERC - we'll see).


I feel the £16,125 may be beyond us this year, and, even if we do scrape it, the following year being another £14k may be too much but it will get easier with time. We're going to stick to a minumum of £500 a month OP and then review our savings at the end of the year to get as close to the 10% as we feel comfortable with. Now that we're not paying my mum back yet though, I think we will overpay 6k as a lump sum on Saturday so then the £500 payments are done. We are already 4 months behind with the 5th month being due on the 1st so this way we will offset the loss of interest savings from having paid the first part of the year's late by paying the next 7 month's early. We can then concentrate on saving up the extra £10,125 which in theory should be doable if we are 2k in surplus each month.