Mortgage overpayments - what would you do?

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Hi guys

My partner and I have a joint mortgage on our house with a balance of 218k and 28 years left (monthly payment is 1200 a month)

We just had a baby so our monthly costs will go up and my partner will make less money because we're looking into her going back to work part-time, but I also just moved jobs and I will be making give or take 4.7k a month net.

Our estimated monthly costs are 3k so this will leave me with 1.7k every month left in the bank.

I also have 80k in my savings.

What would you do in my situation?

I'm thinking about:
  • making a 40k lump sum overpayment now (I can do it as I am coming to the end of my mortgage deal so the 10% limit doesn't apply)
  • setting up a £250 a month regular overpayment
  • putting £250 a month into a junior ISA for my baby

This would leave me with £1.2k a month for emergencies and expenses such as holidays. Also I would be able to pretty much half the length of our mortgage and be mortgage free in 14 years 4 months.

What do you think of my strategy? Would you put more as a regular overpayment and/or make a bigger lump sum overpayment? Is putting 250 a month in a Junior ISA enough? Do you think 1.2k a month for emergencies is enough or should I have more? I have no idea how much kids cost but for the next 2 years they shouldn't cost much...

Looking forward to hearing some advice and how you may have tackled a similar situation.

Thanks :)

Comments

  • 20vt-rs
    20vt-rs Posts: 677 Forumite
    Mortgage-free Glee! Name Dropper First Post First Anniversary
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    Hi there - Firstly congratulations on the baby!
    I think your strategy outline sounds good, paying off a lump sum will significantly reduce the monthly interest on your mortgage, and each subsequent monthly payment will make a bigger dent in the overall balance. Just make sure there are no penalties in doing this, check with the lender first.
    As you are coming to the end of your deal, also look to lock in a new deal, I know they are not great at the moment, but going onto a tracker for example may be better off that going on the lenders standard variable rate.
    You will still have 40k in savings, it's a lot to have there, is it invested anywhere and making you some money? Review that also, and consider other investments, or even more OP to the mortgage if the goal is to clear it all off.
    If you have capacity, also make a regular OP to the mortgage each month, if you do that rather than for example paying anything left as an OP at the end of the month, it's already gone and you know it's not there to spend away.
    Good luck, I think you have thought this out and are being sensible...
    P.S - I am assuming you are into pedaling based on your username, I am a fellow TCR owner :)
    Mortgage Free Wannabe Light Bulb Moment (Early 2012, started May 2012)
    Original Mortgage Amount - £147k (Oct 2005) / Term 27 years (To 2032)
    Target to Pay off by 2026 by overpaying - Officially Mortgage Free June 2023!
    Balance Reduction Progress: May12 £128k / Nov13 £120k / Dec15 £107k / Mar18 £87k / Mar21 £46k / Jun22 £28k / Jun23 £0!!

  • GiantTCR
    GiantTCR Posts: 133 Forumite
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    20vt-rs said:
    Hi there - Firstly congratulations on the baby!
    I think your strategy outline sounds good, paying off a lump sum will significantly reduce the monthly interest on your mortgage, and each subsequent monthly payment will make a bigger dent in the overall balance. Just make sure there are no penalties in doing this, check with the lender first.
    As you are coming to the end of your deal, also look to lock in a new deal, I know they are not great at the moment, but going onto a tracker for example may be better off that going on the lenders standard variable rate.
    You will still have 40k in savings, it's a lot to have there, is it invested anywhere and making you some money? Review that also, and consider other investments, or even more OP to the mortgage if the goal is to clear it all off.
    If you have capacity, also make a regular OP to the mortgage each month, if you do that rather than for example paying anything left as an OP at the end of the month, it's already gone and you know it's not there to spend away.
    Good luck, I think you have thought this out and are being sensible...
    P.S - I am assuming you are into pedaling based on your username, I am a fellow TCR owner :)
    Thanks.

    So yes, our mortgage deal comes to an end in 4 months and I have secured a new deal, more expensive than the one we have currently but that's the market. Also I can ditch the deal I secured and get a new one in the remote chance that the interest rates will drop before my new deal kicks in, which is unlikely but not impossible.

    The 40k in savings are currently invested in a stock and shares ISA and a stock and shares GIA. They're not making me money because this year the market has been utter crap so I'm 2k down from when I started. I'm planning on leaving the money there for a long time so they will eventually make me money  :D

    Thanks for sharing your opinion, I really appreciate it.
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