Paying through the nose

AnxiousAardvark

I'm a decade long lurker on this forum but have never felt the need to contribute...until now.

Some background
I got interested in personal finance and FIRE in my mid 20s.I learned the power of compounding returns, so knew it was a huge advantage to start investing early. With that knowledge, I pumped everything I had spare into a low cost equity index tracker fund inside a stocks and shares ISA. 

At that point, although I was gainfully employed, I didn't have a great salary or much disposable income but I lived within my means and saved more than I spent which resulted in having about £50,000 in my ISA by the time I was in my late 20s. I had it all planned out - save 60-70% of my net earnings every month and retire by 45. Of course, life got in the way.

I bought a flat.
Then moved to another flat.
Then I got married.
Then we moved to a house.
Then we had a child.

And to finance each of those "life events", large chunks of my nicely tax sheltered nest egg was gobbled up.

And now the house isn't big enough.

Present day
So here I am, nearly 40 and in the process of voluntarily saddling myself with a Very Big Mortgage, replacing my currently very reasonable mortgage. It's almost too painful to write - in August 2024 I will be the owner of a £389,000 mortgage.

This is deemed affordable because I'm fortunate enough to work in a highly paid corner of a highly paid industry. Household income is £150,000, over £100,000 of which is mine. I live in a major city but not in the expensive south, so that money does go a long way.

I don't want to have to work until I'm 67 and the most practical way to prevent that is to make sure I don't have a giant mortgage for any longer than necessary. So this thread is to keep myself honest and to share some of my thoughts on how I might attack the mortgage, either directly on indirectly.

Brie

Anyone looking at their finances should lay out their budget to see what they are actually paying out each month to see where savings might be made.

You might consider going on to the top stickie on the debt free board and fill out the statement of accounts.  Post it there or post it here and see if anyone has any suggestions.  Or simply keep it to yourself to see what you want to do about any possible excesses.

South_coast

You can do this! Yes, it's a Very Big Mortgage, but you also have a Very Big Income to service it. You can pay down the mortgage, or you can go back to your trusty S&S ISA to build up a mortgage neutral fund - heck, you can even do both 😀! Just stick to the basics: needs v wants, being mindful of lifestyle inflation, and having a sensible EF, and you'll be done before you know it 👍

AnxiousAardvark

Thanks @South_coast . Writing about it is quite cathartic. You're quite right when you say I have some choices to make about how to attack the mortgage. 

For the purposes of getting some options together, I'm currently operating on the assumption that I should come up with a realistic plan to be able to retire at 57 which is when I can take start drawing my personal pension (unless subsequent governments increase the age). I did some boring sums based on my current situation:

(!) NERD ALERT (!)

Pension:
Pension pot is currently £80,000, 100% in an All World Equity Index Fund
Including employer contributions, I add £2100 per month to this.

If I assume 17 years (taking me up to age 57) of continued contritbutions at this level, with a 7.32% annualised return (which is the 25 year average for the tracker) - I get a rather exciting looking pot of £1,122,733.


7.32% sounds a bit pie in the sky though, and with a more realistic 4% return the final pot is a less exciting £769,869.


Savings:
My S&S ISA is £112,000, 100% in a Vanguard LifeStrategy 80% Equity Fund
Assuming a 4% annual return and no further contributions, I'd clear £220,824.45 by the age of 57.

Debts:
25 year mortgage £389,000 @ 4.89% fixed for 2 years.

After 17 years without any overpayments I'd be left with an outstanding mortgage of £178,390. So if I don't overpay, I'd have a £178,390 hole to fill either through regular monthly payments or as a big lump sum to clear it.

To get a 57 year old retirement date to coincide with being mortgage free, I'd have to overpay by £500 a month. That is doable but daunting.

SOOOO...
All I have to do is consistently overpay my mortgage by £500 a month for the next 17 years and at 57 I'll be laughing all the way to the Bahamas with £1,345,733 to last me until I die.