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How much effort is it worth putting in to paying off a mortgage early? What is 'early' anyway? We've got 13 years left, and I'm switching to a fixed rate...(24 Posts)
What have you done / do you think is best?
I know some people give it their all, and put everything they can into the mortgage to pay it off soonest - I just don't know if thats the right thing for us to do.
We're on an uncapped tracker mortgage, and planning on switching to a 5 year fix, and we have just over 13 years left. We're both around 40, so will be in our early 50's when this one is paid off at the current speed.
Increasing the mortgage term by a couple of years gives us extra cash (youngest child about to start at nursery, so useful, but not essential for the budget). Reducing it makes payments look scary!
This isn't our 'forever' house, so we'll be wanting a bigger place (and a bigger mortgage) at some point.
I don't know what would be best!
Omni I've just been reading one of those "Secrets to Guaranteed Wealth" type books by one of Australia's leading financial gurus (because I'm in Oz) and he had a whole chapter on the benefits of paying off early. It's more effective the earlier you start but it saves thousands in interest. If I ever get in a position to have a mortgage <sigh> I'd totally be wanting to do that. hth
We're on an uncapped tracker as well, personally I'd stick with it. I wouldn't increase the term if it is not absolutely necessary. I wouldn't reduce it either as you then do have to make those increased payments. What you could do it to look into whether you can make overpayments on an adhoc basis. That way, if you get a bit of extra money, you can do that, but if you don't have the extra money, you know that you still have a manageable repayment. You might be able to elect for your overpayments to shorten the term.
It is true that it makes you as rich as you can be paying down the mortgagae but you shoudl,n't let it compromise your life. My DH is obsessed with our mortgage and he wouldn't go on an £1 tractor ride at the farm with me and DS the other day as that £1 was earmarked for the mortgage!!!!!!
If you got a 5yr fix but wanted to move in the next 5 yrs, you would need to take the mortgage with you and then take out an additional mortgage loan on the top to cover the excess. They wouldn't give you more lending on the same deal. If you wanted to pay your fixed off so that you could take out a bigger loan with a different company or whatever, it would cost you a nasty penalty. I wouldn't fix in your position.
Anyway my DH would PHSL if he could see me dishing out financial advice when our outgoings were (only a bit) bigger than our incomings this month
Thanks Phd. I appreciate the input! Tis a responsibility, this. DH falls asleep instantly if I talk finances, so it's all my decision.
I've been faffing with an online mortgage calculator, and it does save a lot (about 7K in interest if I go for a 10 year rather than a 13 year term), but at the cost of a much higher monthly bill.
Have done a bit more research since DD fell asleep and think I may go for a mortgage that allows overpayments, then I get to have my cake of manageable repayments and still knock chunks off the debt if finances allow.
You haven't given enough info to help with an answer...it's all a balance of things like income, savings, how long b4 you need a bigger house, exactly how old you are, do you have a joint mortgage, do you have debt, your household budget..etc, etc. I'm not suggesting you give any of this info away!
Personally from what you've said, I'd look for an offset tracker mortgage with no (little) tie in period, see how that suits. If you don't like the results with the first year or so, look at what other options are around then. Fixed rates have their advantages and it's a good time to get one, however you are tied in for the foreseeable.
oooh, crokky! x-post there, and oddly saying pretty much what I'd decided!
This is a portable mortgage, so we could move with it. Good point about needing a different deal to make up the difference if we do move. I've just looked and I think I'll go for the 3 year fix (no fees on that one), portable, allows overpayments up to 10%.
Aargh, I hate this gambling. How do I know what interest rates are going to do!
And more x-posting (am slow today!). Thanks SH. You're right, of course, I haven't said any of that stuff - some of it I don't know (eg I'd move tomorrow, DH never, cos he doesn't like moving and I don't like our house!).
I'm pondering shifting off my (seemingly ideal) BR tracker for 2 reasons:
first (and no small deal this) it's Barclays. Used to be Woolwich when I took it out, then they merged, or something. I loath Barclays and do not want to be forced into banking with them.
and second, I seem to have absorbed the idea that interest rates go up after a recession. So I want to be nice and safe and fixed.
We have about 3 months salary in savings, both have occupational pensions, no other debts. In the new year we'll take the hit of 2 sets of nursery fees to pay, rather than one, and I'm about to go onto SMP as my occupational maternity pay ends. I keep meaning to overpay, but never seem to...
No idea, but know what you mean baout Barclays.
WE too were with Woolwich and then they merged. I wouldn't have chosen to be with Barclays at all.
The advice that I decided to follow was: keep the regular expenses at an absolute minimum. Saving £7000 in interests doesn't pay for the stress of spending the next 10 year with a monthly mortgage payment that is preventing you to do many things you want. You may be saving a few hundred pounds per month, but what would you do with that money if you were not paying it into the mortgage?
Agree with the benefits of paying off early, but if the mortgage is a very cheap loan... keep it. However, if the new monthly payment is still easy to afford, go for it.
I wouldn't consider overpayments if you only have 3 months worth of savings. However, I would do whatever necessary to get rid of Barclays...
I'm not helping, am I?
oh, I'm dithering now!
Just looked again at my choice for switching, and it's a 3 year, not a 5 year deal.
And went online to find out why our tracker repayments are still so high (despite all time low interest rates), which is one of my gripes about our current deal, and found out that they only review payment annually. So, in effect, we are overpaying this year, as more of each payment is going on capital and less on interest.
Aaargh, I don't know.
I work in banking/financial advice.
At the moment I would make voluntary overpayments whilst yr rate is very low and/or you can afford it. Overpayments now will have a greater cummulative effect as they will start chipping away at the actual capital (most of the monthly payment is just interest). Even with a 13 year term you'll be mortgage free before yr children leave home which is not bad.
Don't officially reduce the term as it is then a definite monthly commitment. Doesn't seem a great idea with two x nursery fees. Having said that if you are loaded then do it.
Thanks Silk, not loaded, no! Right, am leaning towards staying on current deal and making voluntary overpayments...
x posts Omni - that's good news about this year - you've already made in roads into this mortgage.
Does, however, seem fairly poor that Barclays only review the payments annually. Most mortgage companies alter payments more frequently. If you don't like the company then maybe it's time to change
I had the barclays/woolwich offset tracker and it worked really well for us (paid off mortgage in 5 yrs)...I also still bank with barclays and quite like them. So am thinking maybe I'm not the best person to be answering this post...goodluck with whatever gamble you decide to go with!
I would do this...
Fix your rate so you know what you're going to be paying every month (if you need the peace of mind).
Then pay off chunks of the mortgage when you have it. You can usually make capital repayments up to 10% of the outstanding loan. This lets you save the cash and choose how you spend it.
Have you considered offsetting? First Direct have a good capped tracker (which could be best of both worlds for you). They do their mortgages on an interest only basis and you can offset your savings against the balance. ie you have a mortgage of £100,000 and savings of £5000 so you only pay interest on £95,000. You can also use the balance on your current account to offset too. Then if you need to draw out money you can. Interest rates on savings are low so your money is working harder. You can also pay off chunks of the capital as described above.
Personally, if I could I would do the First Direct capped, with the capital you would have been repaying every month going into a savings account by sranding order (so you don't forget/spend it) then pay off chunks regularly. Say quarterly.
And I don't work for HSBC or First Direct (but am in the industry)
Depends on interest rates. If you're paying more in interest on the mortgage than you're getting in interest on your savings, then it's worthwhile putting your savings into your mortgage IYSWIM. We did that a few years ago. It was very scary not saving anything, but we didn't eat into our savings, just added to our repayments what we would normally have been putting aside for saving. It really made a difference when we sold up, as we effectively had more cash for the new house.
We paid our mortgage off as quick as possible. We have friends who did the same. None of us have regretted it, saves thousands and thousands in the long run. Living without a mortgage is bliss.
I really don't think interest rates are going to go up much in the short to medium term. If you have a look at the papers from the last few weeks, there are suggestions that interest rates may not rise at all for the next year and even then not by much before 2013. If you're on one of those very cheap lifetime trackers I think it would be crazy to go for a fixed rate now, personally.
Try not to have a mortgage if possible.
We used savings, borrowed from friends/family and bought outright.
No interest payments meant we payed it all off fairly quickly.
Living without mortgage as early as you can is good for peace of mind.
A vote for an offset here as well! I have an Abbey one and it worked well for us. Before we had a tracker flexible mortgage, and frankly we never made overpayments as "there was always something else", and I was very cautious about tying up savings into a mortgage (what if there was an emergency etc).
However, with my offset we have a separate savings pot which offsets the interest, but if we need the money for emergency urgently we can actually take some out - so I am effectively overpaying but I can "change my mind" if I need the money for anything.
One word of warning re: offsets is that they tend to be more expensive than your standard flexible mortgage - so they only work well if you increase your savings regularly. So you need to do few calculations
I agree about the offset mortgage - if you're really set on the idea of paying off early it's the way forward. As long as you keep throwing money into the offset pot it works really well and it's great to watch your mortgage going down before your eyes!
(In fact, we're now in the position that the money we have means that we should be able to get rid of the mortgage, but as we're looking at buying an investment property what we'll do instead is take some of the money back out and buy it cash rather than getting a new/more expensive mortgage for the new place).
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