Help and Guidance

confusedftb · 25 November 2019 at 12:05PM

Hi All,

Got our mortgage approved and we are looking to move to our new home soon.

With regards to the mortgage, we have a 1.99% fixed for 5 years. Estimated total fixed costs £1200 (mortgage £950, council tax, heating and electric, broadband)

My partner has a credit card debt of around £1500 which is on 0% APR until mid next year.

The mortgage loan is £224k, total repayment is of £341k

We both work, but our contracts are not permanent contracts, which means we could be out of work but it does not look as if that is going to happen soon, hopefully. Currently, we can easily pay of the monthly mortgage without any problems. But i like to think in the long term and i really want to plan for it.

I have few worries atm.

- how to ensure that we do not get kicked out of our home, insurances such as PPI's or etc
- should i overpay the mortgage or save money? in high interest account or etc.
- i have asked my partner to clear the credit card debt asap even if it is 0%

All of your help and guidance is needed on how to manage my finances.

Thank you very much in advance. :T

Willing2Learn · 25 November 2019 at 12:09PM

Hi,

Do have an Emergency Fund (EF) or buffer, to tide you over for few months, should the worst happen?

Edit: My employment contract is only for 12 months and expires every May. So I have a six month buffer saved up, to cover my backside, just in case the contract is not renewed and I have a short period without work.

confusedftb · 25 November 2019 at 12:56PM

Willing2Learn wrote: »

Hi,

Do have an Emergency Fund (EF) or buffer, to tide you over for few months, should the worst happen?

Edit: My employment contract is only for 12 months and expires every May. So I have a six month buffer saved up, to cover my backside, just in case the contract is not renewed and I have a short period without work.

Thank you for your input, yes that is the plan.

I am aiming to have a 6 month emergency fund and once that is saved up i will try to save the funds in high yielding saving accounts.
Any other funds will be spent on over payments.

sourcrates · 25 November 2019 at 1:10PM

To be honest with you, should the worst happen, a credit card debt of £1500 is peanuts, and its a non priority debt anyway, compared to a mortgage debt of £224k.
A sizable EM is advisable, but it would depend on how soon you both found alternative employment as to how effective that would be.

As regards PPI, I don`t think that product is available any longer, although it may be in a different format, I have seen Income protection insurance, that may be worth looking at.

confusedftb · 25 November 2019 at 1:19PM

sourcrates wrote: »

To be honest with you, should the worst happen, a credit card debt of £1500 is peanuts, and its a non priority debt anyway, compared to a mortgage debt of £224k.
A sizable EM is advisable, but it would depend on how soon you both found alternative employment as to how effective that would be.

As regards PPI, I don`t think that product is available any longer, although it may be in a different format, I have seen Income protection insurance, that may be worth looking at.

thank you. Yes i appreciate that £1500 is peanuts compared to the total £341k mortgage.

I am sure I should be able to have the Emergency Funds within 2-3 months at the most.

Once I am done with the EF, what should my next plans be?

EssexHebridean · 25 November 2019 at 1:49PM

If you both work in short term contracted roles I have a hunch you will fail to find any insurances that would actually cover you suitably - although I could be wrong.

There are two things you can do to be reasonably sure of being able to continue to pay your mortgage if you have a short period of reduced income.

1) As others have said, build an emergency fund that will pay your basic outgoings for a period of 6 months or even longer. and
2) Be willing to do whatever you need to whilst looking for your ideal role in order to bring in some money.

Personally if I were you I'd firstly set the CC payment to a few pounds above whatever the current minimum is - this means that payments don't fall off over time, and you pay slightly more without even noticing you're doing it, meaning there is less to pay off at the end of the 0% period. If you have a spare savings account unused then I would also siphon off the relevant amount to clear the remaining balanced on that card as well - that way the money to clear it is ringfenced and you won't feel you're "robbing" your EF when the time comes to pay the balance.

I would then save the rest of my surplus in the Emergency Fund until I reached that 6 month period - once that is hit, you might want to continue feeding it with a small amount every month to account for inflation - but beyond that, again, leave that ringfenced for "just in case".

From that point, you have a choice between overpaying your mortgage and amassing a more long-term savings pot - again if it were me I'd go with hedging my bets here and put 50% of any surplus to directly overpaying the mortgage if you are allowed to do so. If you can't currently make OP's on your fixed deal. then you can set aside the money that you WOULD have overpaid ready to throw at the mortgage when the fix ends. It's worth remembering that the sooner you start overpaying, the greater impact you have, though. Even £10 a month makes a huge difference later on.

getmore4less · 25 November 2019 at 2:04PM

The first thing to do are proper budget(s) so you know how much you need in the back up pot for loss of income.

I think you need 4

1. Both in work
2&3 each of you out of work
4. Both out of work

That will tell you your minimum spends(all discretionary spending removed) and if you will have a shortfall if either or both of you are out of work and how much money you need to fill the gap

How much Disaster fund you need will depend on your assessment of risk of one or both of you not getting contracts renewed and how long to replace the income.

Remember non renewal of contract is redundancy so payments will be due if there more than 2 years.

Disaster funds
are for loss of income and can be in longer term saving options as you don't need instant access to most of it just enough each month the disaster does on.

Emergency funds are for unexpected spend this needs to be fairly instant or just a line of easy credit

Disaster funds can also be part of long term saving as the hope is you never need them, ultimately the disaster fund is the retirement fund so some of it outside the lock in of a pension wrapper can serve both uses.

if you don't already have the budgets/tools then use the SOA format to get started.
https://www.lemonfool.co.uk/financecalculators/soa.php

For planning and what to do next work backwards from planned retirement.

confusedftb · 25 November 2019 at 4:13PM

getmore4less wrote: »

The first thing to do are proper budget(s) so you know how much you need in the back up pot for loss of income.

I think you need 4

1. Both in work
2&3 each of you out of work
4. Both out of work

That will tell you your minimum spends(all discretionary spending removed) and if you will have a shortfall if either or both of you are out of work and how much money you need to fill the gap

How much Disaster fund you need will depend on your assessment of risk of one or both of you not getting contracts renewed and how long to replace the income.

Remember non renewal of contract is redundancy so payments will be due if there more than 2 years.

Disaster funds
are for loss of income and can be in longer term saving options as you don't need instant access to most of it just enough each month the disaster does on.

Emergency funds are for unexpected spend this needs to be fairly instant or just a line of easy credit

Disaster funds can also be part of long term saving as the hope is you never need them, ultimately the disaster fund is the retirement fund so some of it outside the lock in of a pension wrapper can serve both uses.

if you don't already have the budgets/tools then use the SOA format to get started.
https://www.lemonfool.co.uk/financecalculators/soa.php

For planning and what to do next work backwards from planned retirement.

thank you, very valuable information.

the scenario planning is absolutely a great idea. i shall do that on paper and in my mind.

so i have been on a part-time contract, with the same firm for more than 3years, but my hours have always been full-time. will i still be entitled to redundancy pay?

what options do i have for Disaster Funds? can you point me to a right direction please?

For Emergency Funds, i believe if i save them in an account paying more than 2% per annum, it will be fine, as my mortgage fixed rate is 2% for 5 years.

Thanks for SOA tools, will definitely use them.

With all this being done, i also want to keep on overpaying. ideally aiming to pay off the mortgage in 8-10 years.

EssexHebridean · 25 November 2019 at 4:18PM

If you can find an instant access savings account paying more than 2% interest please do make sure you post about it here so we can all open one!

Remember that "disaster fund" and "Emergency fund" are just names for savings that you only touch in certain circumstances. Many of us also break down our general savings into "named funds" too - I have them for everything from routine fun stuff, through to holiday savings and car costs.

confusedftb · 25 November 2019 at 5:34PM

so if there is no instant access account saving more than 2%, it is better to overpay as soon as i have collected the disaster and emergency funds.

then out of those saved funds, what should i do when them? keep them in a saving account? or somehow try to grow them through investments or etc?

EssexHebridean · 25 November 2019 at 5:54PM

You will need to check the T's & C's of your mortgage deal. Our fixed deals always allowed us to OP up to 10% of the outstanding capital balance as at the previous calendar year end. Our final fix was a 5 year one though so we hit the OP limit part way through and for the remaining couple of years just had to stash money in savings ready for it to end. On the day the fix ended I made two £10k bank transfers and then rang them up and paid the last little bit off using a debit card over the phone. Made the call-handler's day, that did! :rotfl:

Whether you invest or not is not a question for this board - although there is an investments board on here I believe. Definitely do NOT invest either of your EF or DF though - those absolutely must be safe and at no risk of losing them.

Personally allowing that savings rates aren't wonderful currently I'd say that yes, you'd do well to pay as much off the mortgage as you can going forward. It leaves you in a better position if mortgage rates rise, too.

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