Mortgage free by 40-wishful thinking?!

eternal_sunshine

Hi folks,

thought I would dip my foot in here.

currently 34(almost 35) and have set myself (and husband) the challenge of being mortgage free by forty (May 2026).

mortgage is currently at £89426.62 on a fixed rate of 1.92% until 31/7/21. We can only OP 1000 a year with my current lender so we are going to go onto SVR from next August. This is currently 3.59% which is obviously much higher than our fixed rate(and could increase by then too) but I am sort of thinking that a higher interest rate over a short period is better than a lower rate over a longer period? (Currently term is sitting at 14years 9 months).

I was originally going to move to a lender where we could OP 10percent of the balance whilst on fixed rate but still couldn’t clear it as fast as we would like. There is always the option of going into a fixed and just saving like mad during that period and throwing a large amount off at the end,but I still don’t think that would clear it enough. 

I’m reluctant to move lenders because my partner currently has two part time jobs and I am on maternity leave which will roll into another maternity leave and then I hope to reduce my hours. I feel we wouldn’t look as desirable with reduced hours,three kids and pushing forty? Maybe that’s not true.

Our ability to overpay this year is pretty limited. Firstly I want my rates bill to come in so I can clear it (I live in Northern Ireland). I then want to get my emergency fund back up to 6000 (2100 to save for that) and then I will start saving. The overpayments will be coming from my wages and we will pay bills/live off husbands wages/child benefit. It’s pretty tight but we have been living like this for a while so kind of used to it. I hope to overpay by 1000 this year and then save as much as possible(preferably around 10000) to throw off once my fixed rate ends. 

Then I hope to overpay by 1000 per month in order to clear the rest. Definitely a stretch and still not sure it’s entirely doable but I like the challenge,and if it’s really not working we can always cut back the OPs but I really hope to not have to do that.

I make these goals for myself and then get really obsessive about them-I am so impatient at the minute because I can’t do much whilst in my fixed rate but wanted to post this thread to get my thoughts down/for accountability/to see if there were any glaring holes in my plan or something obvious I am missing.

tacpot12

You could ask your lender if they have an Offset Mortgage product you could move onto. This might keep the interest rate below the SVR, but also allow you to overpay into the savings account. You can save your emergency fund there as well so that you are getting the maximum reduction in the interest you are paying.

I'm sure you will find that you can repeat your plan of saving your overpayments into a savings account while you are on a fixed rate deal, and allowing yourself to drop onto the SVR at the end of the fix, and use your savings to overpay much more than fix would allow. I'd be reasonably confident that your lender will have a two-year fix offer when you drop on the SVR. If they don't, you can look around the market at that time. If you can't get a deal with them, and can't move, well the decision is made for you. I think this is a better plan that the offset mortgage. The problem with an offset mortgage is that while you are saving interest you are not repaying your mortgage. Your solution is better, so I would go with that one. 

I understand the rationale about staying with your current lender. It will be cheaper to use their fixed rate deals if they have them, and they are reasonable deals than being on the SVR long term. 

eternal_sunshine

Thanks for the input @tacpot12 I appreciate it! I don’t think my current lender offer an offset mortgage but I will double check with them-I have over a year to sort out my options which is good,and I am grateful that I am not trapped in a 5 or 10 year fixed,so not too long to wait! 

I just wish I could know now how much I will
be paying on SVR and how much that will cost me(and try not to cry too much at the extra interest I will have to pay!) like I said,very impatient!

a flaw in my plan unfortunately is that I haven’t factored in any costs I will incur once lockdowns are lifted here (eg kids classes,transport for work when I go back) or things such as HP on a new car should one of ours die. I think once things like that happen I will find I have bitten off more than I can chew but I have to remember that any reduction in term is a positive thing,even if it means not reaching my goal.

eternal_sunshine

so the first £100 has been overpaid! It feels nice to be off the starting blocks but I am just itching to get more paid!

also realised that lenders don’t necessarily run January-January in terms of overpayments which is what I had thought-I think a lot of them run mortgage year to mortgage year. My fixed runs out in July 2022 so based on that I think I may be able to OP 1000 in the first half of 2021 and another 1000 in the second half. Will need to check with my lender and it won’t massively affect things as if I OP an extra 1000 here,it’s 1000 less money I have to OP next year, but will still save a bit of interest.

a few expenses coming out which I could have done without-we booked family photos which are in a few weeks. That will set us back around 500 (which just seems extortionate but we got them for my first born and I would feel bad not doing the same for my second!) 

also got a new sofa and realised I can’t just change the accessories in the room,it will need repainted. So another few hundred pounds. Not to mention things opening up again and kids groups restarting! I’m in a bit of a quandary about what to do with these as eldest starts playgroup in January so not sure if there is much point starting her back in things that she will have to stop but then she hasn’t been around kids very much at all so probably useful to set her up a bit before being thrown in with 20 other kids at playgroup!

two classes for both kids will cost me 220 every six weeks (so around 36 a week) which of course I didn’t factor in when I had my ‘mortgage free by 40’ brainwave lol.

the way I’m trying to look at it is if my mortgage ran its term I would be around 51 when it cleared so anything below that will be great-it’s not a failure if it’s not gone by 40 but I will push towards that.

also seeming unlikely that I will get part time hours when I return to work which we had been planning on so there will be two days childcare for two kids to consider,but that isn’t for another two years once I factor in annual leave etc.

just pouring out some thoughts here to get things out of my head as I am a terrible worrier/overthinker!

i wish I could think of ways for us to cut back a bit without being miserable. Our biggest problem is definitely food but we have no help with childcare and don’t drink/smoke/spend lots on clothes or entertainment so this is our only extravagance(and I don’t even mean meals out or lots of takeaways lol). We have definitely been disorganised lately though so probably shopping more than we need to.

Sapindus

Suggestion - make it one class for each kid a week and get together with local friends for walks in the park etc?

family355

Congratulations on your first £100 OP And welcome! 

I only started my diary in the first lockdown so have had a few goes at ‘lockdown essential only spends’ and ‘not lockdown day to day spend’ ie 3 x school bus fare & dinner money amounts to around £250 per month plus clubs/kits etc. 

We do not want to live the lockdown life for the next X years as it’s been tough however shaving some years and interest off is still our aim! 

Inspiration from other diaries is invaluable & small payments really do add up. I set my direct debit for an extra £137 per month which I so far haven’t missed and added any extra payments I have got through cashback etc 

Good Luck! 🙂

FtbDreaming

Morning! You can only try can’t you. My goal is similar but slightly lower (69,700 in 7 years) but I also have my 40th as my target! 

I also have 3 kids and when they were younger 6 & under I spent a lot of money on clubs and was driving round every single evening to this club and that. Things tended to dwindle off as they got a bit older then it’s all come to a stop since covid. 

I would probably go for a 2 year fix and savings if it were me. It gives you an emergency fund incase anything pops up and also lowers that massive interest rate. You could do 3x 2 year fixed and pay off the savings as lump sums at the end of each one. Just my idea x

eternal_sunshine

Sapindus said:

Suggestion - make it one class for each kid a week and get together with local friends for walks in the park etc?

Yes I think something like this could work a bit better-one of the classes is a music one where they can interact with other kids so great for socialising. The other is swimming which we always said was important as we wanted them to be confident swimmers-however I am wondering if this is actually something that could be held off until primary school age? DD1 did swimming from 3-13 months but has now not been in a pool for 13 months (unsure when this will restart as we are in Northern Ireland so timeline is different to England). Unsure if there is much point restarting her at this age or not...

eternal_sunshine

family355 said:

Congratulations on your first £100 OP And welcome! 

I only started my diary in the first lockdown so have had a few goes at ‘lockdown essential only spends’ and ‘not lockdown day to day spend’ ie 3 x school bus fare & dinner money amounts to around £250 per month plus clubs/kits etc. 

We do not want to live the lockdown life for the next X years as it’s been tough however shaving some years and interest off is still our aim! 

Inspiration from other diaries is invaluable & small payments really do add up. I set my direct debit for an extra £137 per month which I so far haven’t missed and added any extra payments I have got through cashback etc 

Good Luck! 🙂

Thanks for the welcome! I have just bookmarked your diary to read later-I feel like you were more realistic than me when you chose your title lol!

fantastic that you have set up a direct debit,good job with not missing any payments so far! I did cringe a bit in your post reading about your non lockdown costs-I have all this ahead of me when mine start school/want to go to clubs etc. If I clear mortgage by 40 my eldest will be 7 so ideally I would have the free money to start helping with their costs when they start secondary school and my eyes are really watering at the price of things lol.

eternal_sunshine

FtbDreaming said:

Morning! You can only try can’t you. My goal is similar but slightly lower (69,700 in 7 years) but I also have my 40th as my target! 

I also have 3 kids and when they were younger 6 & under I spent a lot of money on clubs and was driving round every single evening to this club and that. Things tended to dwindle off as they got a bit older then it’s all come to a stop since covid. 

I would probably go for a 2 year fix and savings if it were me. It gives you an emergency fund incase anything pops up and also lowers that massive interest rate. You could do 3x 2 year fixed and pay off the savings as lump sums at the end of each one. Just my idea x

Ooo yes our goals are quite similar-I will take a read of your diary when I get a chance,always motivating to read about people in a similar situation.

I agree your idea of staying in a fixed is a good idea,I’m just not sure if my patience would allow me to do it lol!

on a totally a separate note I have just remembered that when I go back to work I will have 200 pounds of money to pay out per month for the bus. Plus two days childcare for two kids. So a good chunk of my wages gone. Lockdown/maternity leave has really spoilt me as I have just totally forgotten about some of the basic outgoings I used to have!

caeler

Good luck with your journey. Re overpayments, maybe check what the ERC would be of you go over £1000? Might not be too awful, better than OP on SVR?