Mortgage repayment advice...please

edited 11 July 2019 at 11:19AM in Mortgage-free wannabe
13 replies 1.2K views
TimmancTimmanc Forumite
20 Posts
edited 11 July 2019 at 11:19AM in Mortgage-free wannabe
Hi all

I would greatly appreciated some advice with regards to overpaying my mortgage, with the aim being to clear it completely as quickly as possible.

Situation

Current mortgage outstanding- £93000
Term 23 years exactly
Fixed at 2.09% for another 2 years
Monthly standard payment £450 but currently overpaying from salary by £400 per month so £850 total
Maximum I can overpay per month without penalty is £790 so £1240 total although this is too much of a stretch from salary

I have been given 50k and (not everyones advice I’m sure) I want to get the mortgage paid as my next and main financial milestone

I ideally want to avoid penalty charges so my thoughts were to do as follows

Up the £400 overpayment to the max (£790) by taking £590 per month from the 50k and £200 from salary (as this would free up £200 a month for day to day living as I have a young family and the wife is ill and unable to work at present)

This would mean that in 5 years time I would have £14600 left from the 50k (let’s imagine no interest is earned to keep it simple), and approx £12500 left on my mortgage so I could clear it outright.

I appreciate there are a lot of variables that can change this plan - health, redundancy etc but I’m basing on how things are today to at least formulate a plan.

Am I missing anything or is their a better way?

Ps - I have no other debt

Many thanks in advance
«1

Replies

  • edited 11 July 2019 at 12:44PM
    getmore4lessgetmore4less Forumite
    46.8K Posts
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Forumite
    edited 11 July 2019 at 12:44PM
    Overpayment to the limit now not monthly.
    Reduce payment.
    Check out a 2year bond for the bulk of what's left

    Keep back/save enough for the next 10% ERC free window.

    Monthly savers get more than 2%.

    There will be other options to structure it.
  • edited 11 July 2019 at 3:31PM
    TimmancTimmanc Forumite
    20 Posts
    edited 11 July 2019 at 3:31PM
    Overpayment to the limit now not monthly.
    Reduce payment.
    Check out a 2year bond for the bulk of what's left

    Keep back/save enough for the next 10% ERC free window.

    Monthly savers get more than 2%.

    There will be other options to structure it.

    thank you your comments

    So, as I have already overpaid each month so far this year would you advise I find out how much I have left in the non ERC overpayment allowance and pay it in bulk. Then at the start of the next ERC free window pay the full 10%? - this will be reduce term even quicker than monthly overpayments?

    Are bonds risk free, just that the interest isn’t guaranteed?

    Thank you 😊
  • edited 11 July 2019 at 4:14PM
    LomcevakLomcevak Forumite
    986 Posts
    Part of the Furniture 500 Posts Name Dropper
    Forumite
    edited 11 July 2019 at 4:14PM
    I have a young family and the wife is ill and unable to work at present
    Given this, I'd be cautious about overpaying at this point unless you're very confident in your ability to get another job in case of redundancy / other unexpected events.

    One of the problems with OPs is that they have long-term benefit, but in the short term they have little effect - your monthly payment still has to go out. So if you drain your savings, put a lump sum on the mortgage, and then your circumstances change, lack of free cash can be a huge problem (especially if you're single-income). In your position i'd want to make sure I had plenty of cash on hand, ideally 6 - 12 months of income, as a buffer against the unexpected. So I probably wouldn't draw down the £50k as fast as you're suggesting. Obviously depends on exact finances though.

    I understand the desire to overpay the mortgage, but personally I wouldn't overpay much more until the end of your current two year fix - depending on your savings needs, you might have headroom to increase it a bit - but instead I'd look to make a lump-sum payment at the end of your current two year fixed instead if circumstances allow at that time. That keeps cash in reserve if you need it over the next two years, and with a 2.09% mortgage you're not going to lose a massive amount in interest terms - e.g. could save half at 1.5% instant in Marcus, half at 2% 1-year fixed, which seems a decent trade of for access to liquidity.

    Also, if you're a higher-rate taxpayer then worth considering pension position if you haven't already, as it's often substantially better than overpaying the mortgage.
    £40k-in-’23#18 £6896.94/40,000 (17.24%)
  • 8ofspades8ofspades Forumite
    141 Posts
    Lomcevak wrote: »
    Given this, I'd be cautious about overpaying at this point unless you're very confident in your ability to get another job in case of redundancy / other unexpected events.

    One of the problems with OPs is that they have long-term benefit, but in the short term they have little effect - your monthly payment still has to go out. So if you drain your savings, put a lump sum on the mortgage, and then your circumstances change, lack of free cash can be a huge problem (especially if you're single-income). In your position i'd want to make sure I had plenty of cash on hand, ideally 6 - 12 months of income, as a buffer against the unexpected. So I probably wouldn't draw down the £50k as fast as you're suggesting. Obviously depends on exact finances though.

    I understand the desire to overpay the mortgage, but personally I wouldn't overpay much more until the end of your current two year fix - depending on your savings needs, you might have headroom to increase it a bit - but instead I'd look to make a lump-sum payment at the end of your current two year fixed instead if circumstances allow at that time. That keeps cash in reserve if you need it over the next two years, and with a 2.09% mortgage you're not going to lose a massive amount in interest terms - e.g. could save half at 1.5% instant in Marcus, half at 2% 1-year fixed, which seems a decent trade of for access to liquidity.

    Also, if you're a higher-rate taxpayer then worth considering pension position if you haven't already, as it's often substantially better than overpaying the mortgage.

    I agree with having an emergency fund but I would also check to see if your mortgage allows for payment holidays if you've overpaid - this could help you judge how much to risk.
  • TimmancTimmanc Forumite
    20 Posts
    Many thanks for the replied, these are greatly appreciated.

    To cover some of the points, I am indeed confident I can find another position should redundancy strike - of course illness has to be taken into consideration however I have 5 months salary saved separately and sickness / accident insurance and also have the option to take a payment holiday on the mortgage and pull from the overpaid fund.

    I feel this negates some of the risk of shelling out a large sum.

    Pension is certainly a consideration, I could always add to it but I’m comfortable with the pot currently and do want to get the mortgage out of the way even if this isn’t necessarily technically the ultra best way of using the fund.

    I think - and again I’m open to suggestions - that based on a mixture of comments here I will overpay in lump sum the amount I can still overpay this year without incurring ERC, then OP the full amount for the next year in month 13. Keep aside the following years in a 1 year fixed and bank the rest in a fixed 2 year bond. Then repeat....

    My calculations means I can then pay off the last amount at the start of year 6 and have s little bit left over. I can’t see a way of getting it paid quicker than 5 years and a day (unless I find more money of course ��)
  • MovingForwardsMovingForwards Forumite
    16.2K Posts
    10,000 Posts Fourth Anniversary Name Dropper Photogenic
    Forumite
    I would split some into 1y, 2y, 3y and 5y fixed rate bonds. Keeping surplus for emergencies and in an interest paying account.
  • A_Frayed_KnotA_Frayed_Knot Forumite
    3.3K Posts
    Seventh Anniversary 1,000 Posts Name Dropper Photogenic
    Forumite
    My tuppence worth, would be overpay what is left of your 10% allowance this year, then full 10% allowance at next start date.

    Meanwhile I would be "paying back" the overpayment you used to make from your salary which you were going to reduce to £200/month back into what is left of the 50,000 pot.

    The same the following year - full 10% overpayment, until June/July when your fixed rate ends, and you are "out of deal" then pay what is in your £50,000 pot, then start a new deal the following month.

    I think when going for your new fixed deal, they would ask you what the new balance would be. I know I mustered up every penny and paid to my mortgage as I wanted to get my mortgage balance as low as I could, when I re-mortgaged for a new deal. That way the interest was a lot less every month. My usual o/pments then went back into my bank account.
    At the same time I reduced my years and upped my payments, that way I still had the option of o/p 10% if and when I had some extra money :D

    I actually ended up quite a few months at svr as a new fixed rate would have restricted me too much.

    Hope this all makes sense to you.
    Always have 00.00 at the end of your mortgage and one day it will all be 0's :dance:
    MF[STRIKE] March 2030[/STRIKE] Yes that does say 2030 :eek: Mortgage Free 21.12.18 _party_
    Now a Part Timer from 27.10.19
  • TimmancTimmanc Forumite
    20 Posts
    Thanks all - some real food for thought here. Some of it is fine margins but every penny in my pocket is better than the banks so thanks for giving me some different angles to explore

    This may be a stupid question but what Is the likelihood of my mortgage provider (nationwide) giving me impartial advice on this ? (Just interested on their take also)
  • LomcevakLomcevak Forumite
    986 Posts
    Part of the Furniture 500 Posts Name Dropper
    Forumite
    Timmanc wrote: »
    This may be a stupid question but what Is the likelihood of my mortgage provider (nationwide) giving me impartial advice on this ? (Just interested on their take also)


    They should tell you what you can and can't do under the terms and conditions of the mortgage, but I would be surprised if they would give you advice on what you should do - they wouldn't want the liability.
    £40k-in-’23#18 £6896.94/40,000 (17.24%)
  • TimmancTimmanc Forumite
    20 Posts
    Lomcevak wrote: »
    They should tell you what you can and can't do under the terms and conditions of the mortgage, but I would be surprised if they would give you advice on what you should do - they wouldn't want the liability.


    That’s fair enough. Thanks for the advice, have a great rest of weekend
This discussion has been closed.
Latest MSE News and Guides

Boost your Nectar points

Get up to £25 in bonus points

MSE News

Ask an Expert: Scams

Watch MSE Katie's answers to your questions

MSE Forum

Hot Diamonds 40% off code

Including already-reduced outlet stock

MSE Deals