Moved to the "forever" home. Now to pay it off!

pepperwand

Hi everyone, I'm pretty much a total newbie here but have been reading your diaries with interest and I thought I'd start one of my own as I'm feeling daunted!

We've just moved to the house that we aim to live in long term and hopefully until our two young children are grown up. We absolutely love it but in order to move from our previous house we've had to increase the mortgage both in amount and extend the term out to 25 years....so feel like we're back where we started (previously at 19.5 years.) 

We're in the South East so prices round here are relatively high. We now owe £270k at 1.64% and 65% LTV. 

The aim is to slowly chip away at the mortgage to bring the term in. It's currently set to finish when we're 60 and we'd like to get that under 50 in an ideal world. We won't be able to put much into overpayment for the next couple of years as we currently have two children in nursery which costs us £900 a month but when that bill goes we should be able to overpay more.

Wish me luck!

caeler

Good luck!  I've found it really motivating to keep a diary, I hope you do too! @pepperwand

tacpot12

Congratulations on having found your forever home and being able to buy it. Your aim of chipping away at the mortgage term is the best approach. Doing so has a snowballing effect, so you will be able to achieve more impressive reductions in the amounted owed in later years, especially as the children get older and hopeful need less financial support from you.

I was able to reduce a 25 year mortgage to 17.5 years through making overpayments, and reckon i saved about £10,000 in interest.  (I was paying 9.9% interest in the '00s!)  

Do continue to report your successes here. It will encourage others. 

pepperwand

Thank you! It was a big decision to move up the ladder. We went back and forth on it because our first house was affordable and we were lucky enough to be able to pay off some lump sums to bring the term down....we knocked almost 11 years off the mortgage in 6 years. So it does feel scary to have increased the term again but we LOVE the new house and it gives us much more space as a family and is in a quieter, nicer area. So overall I think it'll be worth it but I really want to try to overpay from the start....nomatter how small an amount.

I've set up a separate account on my online banking and named it "mortgage overpayments" and am putting spare money in there so it's out of our current account and doesn't get spent. 

pepperwand

Statement of monthly finances:
Joint income: £4500
Mortgage: £1100
Nursery: £900
Car payment: £400 (car was bought outright but we're reimbursing savings)
S&S ISA: £100
Children's savings: £100
Food: £400
Phones: £20
Electricity/gas: £120
Water: £30
Council tax: £240
TV/phone/internet: £50
Home/life insurance: £50
Cleaner: £60
Petrol: £200

Left over: £730

But there's always something else every month; car costs, clothes for the children, haircuts etc. Even so I think seeing it on paper I can see there's money there for overpayments, especially if we're careful with spending. Lockdown is definitely helping with no spending on going out! 

pepperwand

I've tried to call our new mortgage provider a couple of times with no luck..... I'm just put on hold continuously with a message that they're operating with reduced staff due to Covid   

I can see from their website (Virgin Money) that they have an instruction saying you can make payments on your mortgage via BACS and provide account details with an instruction that your mortgage account number is the reference. Is it as simple as that? The other times we overpaid was with a previous provider and was just a couple of lump sums that I did over the telephone.

pepperwand

So I finally managed to get through to Virgin Money after sitting on hold for nearly 20 mins and it is indeed what I thought, we can just set them up as a payee in our online banking with our mortgage account number as the reference and send payments that way. We can't make our first overpayment until after 7th Feb (when our first payment is taken) so I'll have to wait a bit longer. Now I've caught the bug I'm raring to go!

Husband and I have agreed to divert the £100 a month we were putting in children's savings into mortgage overpayments for the time being. Then anything extra we have at the end of the month will be split between children's savings, mortgage overpayments and our house renovation fund.

pepperwand

I noted on another thread someone was saying about making sure you're putting money towards pension as well as overpayments. I currently pay in 10% and employer pays in another 10% so I don't feel I can pay in much more at the moment, particularly as I'm not on a very high wage. Mr Pepper though is a higher rate tax payer and I do keep telling him he should look to increase his pension contributions - they're around 3% employee/4% employer at the moment from memory but for now he wants the cash in the bank each month. I will raise the subject with him again though.

Getting the balance right between pension/mortgage/cash savings/children's savings is something I struggle with. My current plan is to just keep paying a bit into each.

caeler

Great news @pepperwand on the regular OP! 
I'm going to focus on pensions next right or wrongly! 

pepperwand

@caeler I don't know if there's ever a right answer is there? In my circumstances it probably makes more sense on paper to focus on putting money in a pension as I'm in my 30s so has decades to grow. Or even to put it in my S&S ISA as that's making me far more than the 1.64% interest we're paying on the mortgage. But there's such a huge psychological incentive to making overpayments/knowing you own your own home. I don't really know what the best thing to do is other than make sure I'm paying into a pension, overpay mortgage, drip feed money into my stocks and shares ISA etc. 
Certainly when the mortgage is gone I'll be throwing money into my pension! 

savingholmes

Congrats on finding your forever home and being organised enough to plan all this at your age. You could aim for mortgage neutral and use a combination of approaches... The benefit of mortgage OPs is certainty but it may not offer the best return long term. Only you can know what's right in your circumstances.