Financial Freedom through Mortgage Freedom!

financialfreedomxo

Hi, 
My desire is to live a life of financial freedom. I think one of the main ways to achieve this is to attain mortgage-freedom. As such, we recently (June 2020) became 100% debt-free and I believe this is the best time to begin focusing on our mortgage-freedom. 

The figures:
Our mortgage debt is: £65,993.68
Interest Rate: 3.38% fixed
Remaining term: 14 years and 6 months 

Our strategy:
We don't really have a strategy per se, but we are on hyper-mode. Meaning, every penny we have left over we overpay on the mortgage. We found out that the maximum Early Repayment Charge we could get charged is just shy of £3,500 and I don't mind paying this as long as we are mortgage-free. 

Prior to starting this thread, we had only ever made 1 over payment of £500 lol. I'm SO ready to be mortgage free NOW! and I'm going to make sure it happens. One thing that led me to this was the debt freedom. Ever since we have been debt free, life has been more stress free because we need less money to live. Our largest bill currently is now our mortgage and I know that once we are mortgage free life will be much more free because we will have more freedom to choose what we do with our time. We won't HAVE to work. Working will be a choice, and even then, we will be able to work part time and still live a relatively good life. 

I can almost taste the freedom! Also, I believe this mortgage will be paid off in a short amount of time because, £65k isn't much especially with the 10% over payment allowance and relatively good income streams. Let the journey begin! 

financialfreedomxo

I forgot to mention that, this year I haven't overpaid a single penny.
So, we have £6,794.64 remaining to overpay (without an early repayment charge). As such, I am putting away small amount of money until we reach that amount and just overpay it as a lump-sum. Our goal date to overpay this by is 30 September 2020. 

longway2go

Welcome and good luck. Although your rate isn't massively high you may be able to get a better rate. You would need to make sure this would still save money taking fees into account but worth a look. 

LadyGnome

Good luck. 

OP the mortgage can be addictive but make sure you have the basics like an emergency fund in place and pension contributions. 

Your mortgage rate is quite high, will you be able to switch on to a better deal at some point?

LadyGnome

If your interest is calculated daily and you can make small OP then don’t leave the money sitting in your bank account building up unless you are keeping it as part of your EF until you are sure you don’t need it or you are getting a better interest rate than you are paying on your mortgage (unlikely right now). 

financialfreedomxo

longway2go said:

Welcome and good luck. Although your rate isn't massively high you may be able to get a better rate. You would need to make sure this would still save money taking fees into account but worth a look. 

Thank you! You’re right isn’t the lowest of interest rates but I can’t switch for the next 4ish years (that’s what our variation document says anyway). By which I’m hoping to be finished paying it off by then. Sadly I just have to work with it. Serves me right for not looking around more. 

financialfreedomxo

LadyGnome said:

Good luck. 

OP the mortgage can be addictive but make sure you have the basics like an emergency fund in place and pension contributions. 

Your mortgage rate is quite high, will you be able to switch on to a better deal at some point?

Thank you LadyGnome. I’m not sure we can switch at this point, not for another 4 or so years anyway. But I will look into it. 

Also, that’s another thing an emergency fund!!! I need to get one together. You know, the thing is, when I want something I get so tunnel visioned. And that’s how I’m feeling about the mortgage. I’m not seeing anything else other than mortgage freedom. However, this isn’t the way to go because I need to live through this journey and not scrimp through it. I’ll be putting a bit of money aside from next week for it. 

Do you think 6 months of expenses is fine for an emergency fund as a general rule? 

financialfreedomxo

LadyGnome said:

If your interest is calculated daily and you can make small OP then don’t leave the money sitting in your bank account building up unless you are keeping it as part of your EF until you are sure you don’t need it or you are getting a better interest rate than you are paying on your mortgage (unlikely right now). 

This makes a lot of sense but I thought it would be a better idea to pay it off as a lump sum because then it would knock a huge chunk off the interest in one go? Is my think faulty? Does it make better sense to pay it off in bit of say £1000? What are your thoughts? 

South_coast

Check your paperwork/speak to your provider regarding large OP's. Most will see this as a partial redemption and recalculate your payments as a result. This will mean you can make larger OP's (as the proportion of the contractual payment will fall, assuming you want to allocate the same amount of money to it each month), but it will mean you use up your OP allowance faster and more will be subject to ERC's. For me (NatWest) a £1000 payment will mean a recalculation therefore I avoid it, but £999.99 = absolutely fine 😀

LadyGnome

As a general rule it is better to pay off smaller amounts more often. If you save for 10 months then pay off £1000 you have paid 10 months interest on that £1000. If you pay off £100 per month for 10 months you will be reducing your interest bill month on month as the balance drops. 

Saving up lump sums can be the right option when your financial situation is precarious/ variable; if savings rates are higher than mortgage rates (if you can save the money at 4% and have a mortgage at 2%) or where OPing is in anyway restricted. 

financialfreedomxo

South_coast said:

Check your paperwork/speak to your provider regarding large OP's. Most will see this as a partial redemption and recalculate your payments as a result. This will mean you can make larger OP's (as the proportion of the contractual payment will fall, assuming you want to allocate the same amount of money to it each month), but it will mean you use up your OP allowance faster and more will be subject to ERC's. For me (NatWest) a £1000 payment will mean a recalculation therefore I avoid it, but £999.99 = absolutely fine 😀

South_coast you are a Godsend! I'm with Natwest too. I just came off the phone to them right now and they confirmed what you said. As such, I have changed my strategy. I'm going to me making over payment of £999.99 or less. This also means that I can make more monthly  over payments as well. So it works out for the better!