Mortgage reduction wannnabe

lowmiles · 2 May 2017 at 1:51PM

Hi all,
Whilst I'd love to be mortgage free, reducing the debt seems more attainable currently. We bought our first house a 2 years ago, debt is 235000 and pay around £1000 a month. (35 y term). We are in a position to pay off around £300 extra month. Is it better to pay off a recurring amount monthly or save and pay off a lump sum yearly?

User1489 · 2 May 2017 at 6:41PM

Hello MRW!

I would suggest;
1) be sure to have an emergency fund. most people here have an amount (me: £1000) in an easy access cash pot that is used to cover a leaky roof, boiler blow-out etc. without this, there is no point overpaying because you just end up in debt if something goes wrong!

2) the overpayments...

so, most banks have a 10% overpayment policy. if you're looking to pay £300 a month/£3,600 a year, you should be fine on this front for a good while. Personally I would say that you should pay off £300 monthly. This should set you up psychologically with a lot of little quick-win adrenaline bursts to keep you going

However, you may wish to put cash into a pot instead and pretend you are "offsetting" the cash - this way if a BIGGER life problem hits, you have access to that cash - even though it is meant for throwing at the mortgage.

The real answer of course is, what would make you happiest? Mathematically, paying monthly will reduce interest charges in the longer term. But will it feels as good? If it doesn't feel good, will it be sustained behaviour?

Whatever you choose, GOOD LUCK and well done on making a sensible choice for your future, whichever route you take to get there

Big love,

Man versus Mortgage

lowmiles · 3 May 2017 at 2:25PM

rasputin_thorpedo wrote: »

Hello MRW!

I would suggest;
1) be sure to have an emergency fund. most people here have an amount (me: £1000) in an easy access cash pot that is used to cover a leaky roof, boiler blow-out etc. without this, there is no point overpaying because you just end up in debt if something goes wrong!

2) the overpayments...

so, most banks have a 10% overpayment policy. if you're looking to pay £300 a month/£3,600 a year, you should be fine on this front for a good while. Personally I would say that you should pay off £300 monthly. This should set you up psychologically with a lot of little quick-win adrenaline bursts to keep you going

However, you may wish to put cash into a pot instead and pretend you are "offsetting" the cash - this way if a BIGGER life problem hits, you have access to that cash - even though it is meant for throwing at the mortgage.

The real answer of course is, what would make you happiest? Mathematically, paying monthly will reduce interest charges in the longer term. But will it feels as good? If it doesn't feel good, will it be sustained behaviour?

Whatever you choose, GOOD LUCK and well done on making a sensible choice for your future, whichever route you take to get there

Big love,

Man versus Mortgage

Thanks for the thoughts. It appears if I pay off a lump sum each year the monthly mortgage payments decrease, If I overpay monthly this doesn't seem to be the case is there a reason for this?
The lump sum appeals as if I needed to stop overpaying for whatever reason my mortgage will be cheaper.
In addition having some savings for unexpected costs sounds good.

lowmiles · 13 June 2017 at 1:59PM

So thought I'd get this diary rolling. Yet to start overpaying but will in a month when finances are less strained and normalised. (My OH has just returned to work from maternity leave). Started a blitz on outgoings so far:
switched energy supplier. (save £200 a year)
Cancelled phone contract and bought a sim only deal for my old phone. (£12.50 to £3.50 month)
Cancelled talk talk £32 pm and got sky broadband/ line for around £60 a year (great MSE deal from a month or so ago.)
In process of Switching to TSB from Santander 123 (should get £10 per month for a year plus £130 switching fee and save £3 account fee).
Shopped at aldi normal shop reduce from £65 to around £40
Extra income:
Carboot (sold some old baby toys and other junk) £34 profit.
Sold two unused bikes. £40
Still to do:
Pay off santander 123 Credit card (around £1k pay off each month in full) and research best value alternative cashback card.

Anything else I can streamline?

Dogbooks · 13 June 2017 at 5:41PM

Great start lowmiles! Some people post their SOA on here for readers to get a full understanding of your finances and be able to help you streamline some more. That may be worth doing when finances go back to normal? Best of luck!

lowmiles · 13 June 2017 at 7:34PM

Dogbooks wrote: »

Great start lowmiles! Some people post their SOA on here for readers to get a full understanding of your finances and be able to help you streamline some more. That may be worth doing when finances go back to normal? Best of luck!

What is SOA?

Dogbooks · 13 June 2017 at 10:22PM

Hi Lowmiles- apologies it means statement of affairs! It's like a budget for all your income and outgoings so we can see where your money is going and if you can improve at all

I found this link http://forums.moneysavingexpert.com/showthread.php?t=107280 which provides some further info- this one is linked to Debt Free Wannabe but definitely applicable here!

Hope it helps

lowmiles · 18 June 2017 at 9:45AM

Thanks dogbooks I will do a SOA at the end of the month.

I've been playing with some of the MSE tools and have a clear 3 year plan now.

Currently on a 5 year fix (ends 03/2020), at 3.79% which is poor compared to current rates on offer.

IF we can manage to overpay £400 a month we can reduce our mortgage to £208k compared to £223 K with no over payments.

Taking current house prices in our area we can then remortgage at 60% LTV and get the best rates.

Using the MSE best buy tool:
When Remortgaging we could get mortgage repayments down to £660 p/m.

Or knock 10 years!!!off our mortgage and pay what we are currently paying.

That's my motivation sorted.

gallygirl · 18 June 2017 at 11:13AM

Rather than overpaying on a 3.79% mortgage you would be better off opening a few interest paying bank accounts )e.g. Nationwide Flex Direct @ 5%) and/or regular savers (e.g. First Direct 5%). When regular savers mature you could then overpay the mortgage with the lump sum.

Exciting time, sorting out your finances and strategy :T.

Mortgage reduction wannnabe

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