My Mortgage Reduction and Savings Diary 23 April 2008 at 11:49AM in Mortgage-free wannabe 196 replies 17.2K views

SuiDreams

Hi,

I should be debt free (except for the Mortgage) at the end of May, I currently have very little in savings (less than £1000) and am planning to make a huge effort on the savings front this year. Am hoping to have at least £5000 before the end of the Tax year.

I currently have less than £26,000 remaining on my Mortgage and last year managed to get a 4 year capped deal with 1% discount for the first year and reduced by remaining term from 17 to 15 years. This is the best deal I could get at the time as my mortgage was so close to most leanders minimum mortgage Value. My current payment is £230 per month which includes a £15 over payment, which I think I've been paying since I 1st got the mortgage. I can over pay by upto 10% per year without penalty.

Is it worth me trying to increase my over payment by increments of £5 every month. Or try and better my savings target if possible and pay a lump sum off at the end of the tax year (probably only £1000, if I reach £5K target).

Edit : - Think I'm going to change this into a Diary thread as others have and use it to try and keep myself motivated.

SuiDreams

Sorry Additional thought, my Dad managed to pay his Mortgage off early by keeping payment the same when rates decreased, Is this a sensible option could I ask Mortgage Company to not decrease the payment if rates go down, (but obviously relaculate it if rates go up)?

Dithering_Dad

I'd look at building up my savings so that I had at least 3 months worth of outgoings to tide me over. I personally have 6 month's worth of emergency savings, but this is because I am a contractor and so my work is of a temporary nature.

Once you have your emergency savings in place, then I'd look to trying to hit the 10% contribution level each year, with any savings above this level put away into a higher interest account ready to pay onto the mortgage at the end of the redemption period.

Your dad was right to keep the monthly payments the same and you should too. If you don't, then every time you overpay, your mortgage provider will reduce your monthly amount proportionately- this means that your mortgage term will be exactly the same and all you're doing is 'pre-paying' your mortgage, not reducing it.

SuiDreams

I think I'll need approx £3000 to cover 3 months bills, or £4800 to cover monthly salary, luckily (or unluckily depending on how you look at it), I'm entitled to 3 months notice at work, so if the worst did happen I should have some work before the three months is up even if its only temping and also have permanent sickness cover which would pay 60% of my Salary until I die or return to work (probably the only decent benefit I get with work, except for the life insurance).

Dithering_Dad

SuiDreams wrote: »

I think I'll need approx £3000 to cover 3 months bills, or £4800 to cover monthly salary, luckily (or unluckily depending on how you look at it), I'm entitled to 3 months notice at work, so if the worst did happen I should have some work before the three months is up even if its only temping and also have permanent sickness cover which would pay 60% of my Salary until I die or return to work (probably the only decent benefit I get with work, except for the life insurance).

It's useful to include any insurance policies in your "Emergency Money" planning. I come across many people on MSE who are against the "Pay of your mortgage" idea and usually roll out the old "You're locking all your money away and won't be able to get it back in an emergency" argument. When you ask them to name an emergency, nearly all of them would be covered with 3 month's emergency savings, redundancy protection (and redundancy payments), sickness insurance, home contents & Building Insurance, Car Insurance, etc, etc. If these anti-MFW's actually followed their own advise (and listened to their own fears) they'd have £100k of cash sat in a safe in a nuclear bunker!

Better to be realistic and work out what your likely financial porblems may be over the next (say) three years, what your job security is and then see what insurance you have in place and what insurance you could do with. You can then calculate your emergency cash around this and put that amount away. It's usually not as large as you may think.

As far as I'm concerned the best insurance policy you can have against financial problems in the future is having your house paid off. You can always get enough money together to pay your bills and to buy food (part time jobs, pub work, etc) but if you've got a large mortgage to service and the threat of losing your home, it's a completely different ball game!!

Sounds to me though that you're doing really well on the MFW front, good luck over the next few years!!

SuiDreams

Well I'm one step closer now, phoned Mortgage company today to ask them to not reduce my payments if the Interest rate decreases and sent a fax confirmation to them as well, unfortunately they have to have everything in writing. Now just in the process or sorting out how much is going into savings this month.

setmefree2

Just wanted to wish you Good Luck:T:T:T:T

SuiDreams

Thanks, after I got off the phone with them I realsied I should have checked what my current balance was. Might ring them again tomorrow, to check balance.

Dithering_Dad

Ask them if they have an online facility for their mortgages because if they do then you'll be able to look at your balance whenever you like, which is a great overpayment incentive when you see that figure dropping.

SuiDreams

Well pulled out the last mortgage statement last night, so I know what Mortgage Balance was at the end of the year. Need to check what Balance is now and also need to confirm current rate as it went down earlier in the year. Once I've got current balance I'll try and add to MS money and see if I can track it through there (assume MS Money figures won't be 100% accruate though).

Dithering_Dad

While it is nice to see 100% accurate figures, if your mortgage provider doesn't have that facility then it's just as valid to set something up in MS Money or MS Excel to give a rough guide. When you're talking about 10's of thousands of pounds, if you're a few quid out here or there, it's not the end of the world.

You'll get the same thrill when you see those figures dropping, no matter whether they're 100% or 80% accurate .