Mortgage Freedom Sanity Check - one week to go!

hjghg5

Hello!  It's been a while since I was last here, to the point that my old thread (https://forums.moneysavingexpert.com/discussion/5898509/5-years-to-freedom#latest) has been closed.  But I have an update...

As per the previous thread, I last remortgaged in October 2018.  At the time I took out £100k over 10 years, fixed at 2.25% for the first 5.  My deal allows unlimited overpayments because I was due an inheritance (the house sale was going through the probate process at the point I remortgaged so I knew my share of the proceeds was imminent), and once I got the money I made some decent overpayments.  The original plan was to get it paid off in 5 years.

I don't have access to an online statement for the current figures, but by my December 2021 statement the balance was down to £48k with the final repayment due in September 2026.  Since then I've also made an extra £70 repayment on top of the contractual payment every month because it brought it to a nice round £1000 which is affordable for me.  

Doing some back of fagpacket maths, I think that my outstanding balance will be around (maybe just a bit over) £30k when I get to remortgage.

I currently have over £30k in cash in the bank.  Some of this is my money for the month, some is emergency savings and some is money I'd earmarked for another overpayment until I realised I could get higher interest if I leave it in a savings account.  I also have a couple of regular savers set up which will add another £5k or so by next September.  For context, I also have decent amounts in pensions and a S&S ISA and continue to pay monthly into those too.  I'm fairly well paid with a stable income.  Also for context my house value is probably now £350-£400k.

So, my current plan is...

1. Don't make any more overpayments before the end of the fixed rate and put the money in savings accounts instead.  Don't scramble for a new deal (despite the fact that I don't have an ERC!)

2. Decide next September how much to pay off the mortgage.  

a. If rates are much higher than savings rates (and my employment looks secure) pay it all off and rely on credit cards to cover emergencies until I rebuild my emergency fund.  Not paying £1000 per month on the mortgage will rebuild it fairly quickly, and although I'd be relatively low on cash for a while I would still have the S&S ISA/pension.

b. If mortgage rates are still relatively sensible (and bearing in mind that a relatively small proportion of my repayment is interest) and/or savings rates are decent, repay some (amount to be decided) but let the mortgage run for another year or two.  At this point the low amount owed/time to go and the costs of switching to another deal mean I'm likely to stay on my lender's SVR as I wouldn't save enough from a lower rate to cover fees.  This also means I'd keep the ability to make unlimited overpayments.

c. Consider an offset mortgage.  Whether I go for this will depend on how much it costs for the comfort of knowing that the emergency fund is still accessible.  I'd be pretty close to fully offset so interest would be minimal but I assume there would be product fees.

Does this look sensible?  And in particular is there any compelling reason I should do something now rather than just keeping my options open for next year?

jimjames

Looks sensible but if savings rates were still higher than mortgage rates I wouldn't be overpaying.

savingholmes

jimjames said:

Looks sensible but if savings rates were still higher than mortgage rates I wouldn't be overpaying.

I agree.

Just don't fall into the taxed interest trap either.

hjghg5

Yes, I think I'll be fine as this year rates have only really gone up for the second part of the year, and next year I'd probably be moving a decent chunk from savings to the mortgage mid tax-year, but I'm conscious that I could get close to taxed interest territory if I'm not careful.

I'm not ruling out keeping the savings and just paying the mortgage monthly if savings rates are good enough but I do put some weight on the psychological benefits of knowing the house is paid for no matter what.

hjghg5

A couple of months on and I've had a progress check.

When I took out my mortgage there wasn't any online access to it so I had to wait for paper statements, but having just opened a savings account with the same building society (1% higher than what they're charging me) I can now see my balance online.

Current amount outstanding is just over £37k, my current savings are just over £28k and all at a higher rate than the mortgage. Every month I pay £1000 off the mortgage and put £600 into regular savers (on top of my pension/s&s ISA contributions). I'm also putting any extra bits of cash into easy access accounts. By my calculations if I keep that up I'll have cash to spare by the time my fixed rate ends in September.

hjghg5

I have got into the habit of checking the position on the first of each month. This month for the first time the total amount of cash (savings accounts plus current accounts) exceeds my debt (mortgage balance plus credit card). Official pay off date isn't until September/October, but it's nice to know that I could do it now if I wanted to. (Although technically I couldn't because some of the cash is in fixed term accounts expiring in September but I'll ignore that for these purposes).

hjghg5

Time for a check in and things are all on track. I've now got about £10k more in cash savings than my outstanding mortgage balance with 2 months to go.


This means I'm starting to think about practicalities - which pots to take the money from and how/when to actually make the payment. I have a kroo current account which pays a decent interest rate so the plan is to start moving money from savings accounts into that then make the payment from there. Some of my accounts are limited access/fixed so I'm also checking dates and making sure I have enough withdrawals left.

It's getting close!

savingholmes

What a fab position to be in - congrats.

beanielou

That's an amazing position to be in.
Not long to go now 

hjghg5

It's the final countdown. Santander offering a 5.2% easy access account is good timing because one of my main current accounts is Santander, so I'm emptying out other savings accounts into the new Santander account from where it should be (fraud checks aside) a simple process to transfer it to my lender before the end of the month.

Almost there!

hjghg5

Almost my last update. My plan is to make the payment next Thursday so I phoned today to get the final number. I've realised that as I have savings accounts with the same building society the easiest thing to do is to move the money across during the course of the next week and then do an internal transfer (it's not my highest paying account but still well over 4% so not a horrendous place to park the money for a few days).