This is a dire financial situation isn’t it?

[Whataballsupp]

I’m recently a single parent. I own the home we were both in and now I’m obviously paying everything for it, mortgage and bills around 1,400 a month. The mortgage I owe is 290k, I’m 36 and it’s still got 36 years left to run on it.

At the moment I have a spare 1k a month. I am trying to save this as I am now a single parent and who knows what is going to happen. But I’ve just looked on an overpayment calculator and if I overpaid mortgage by 500 a month for example, it takes around 20 years off the mortgage. Even making that overpayment for a year would cut down a few years I have to pay it off.

Should I be saving or overpaying? I am panicking as it’s just me and I have only 5k savings overall at the moment. Don’t know what to do.

We have a similar mortgage. We were overpaying previously. Owing to higher interest rate on savings account and a fixed low mortgage, money goes into a 5-6% savings and we will make more that way.

The only time i'd not think this would be best is if overpaying will tip you into a better loan to value next time you remortgage. We are already at 40% which is the best rate of interest so it didn't factor into our decision.

You can always take a mortgage holiday (check with your bank) if you have historically overpaid and then need some cover.

I would do half into mortgage and half into savings.

Well, having to work until 72 is quite shit.

Make sure you've done a full zero based budget with sinking funds for annual payments and for car repairs/ home repairs etc.
Apologies if you have already done this. I find being a sole parent, having these means I'm never caught out and savings are always for something, nothing is saved without a purpose. If you still have £1k spare and £5k saved I'd save until you have 3 months expenses then overpay as much as possible towards your mortgage. You can always pay less one month if needed. The sooner you get your mortgage manageable the better. How long I'd the 3% fixed for?

I think it's completely tone deaf to call this financial situation 'dire' when there are people in rented accommodation who struggle to sleep at night and have to choose between heating their homes and feeding their children.

A little basic awareness would be prudent.

Bear in mind that if you over pay, then the compound interest will decrease so it is definitely worth doing this. I would overpay by £750 and save £250 until you have a buffer of savings to support 6 months of bulls. Also at your age, consider getting an income protection policy into place. Assume you have life insurance!

Thats low.

Yes, just seen interest rate. Maybe save into an account until your rate changes. You're fine by the way, yes you have a big mortgage but you also the means to pay it and you just need to plan aggressively to pay it off.

It's not a dire situation.
You are paying nursery fees, and have 1k free a month. Nursery fees are going to drop.
Assuming you are financially separated from your child's father, and it is just your name on the house, I would:
Get a high interest account - there are loads above 3% - and save into that.
When nursery fees drop (should shortly after 3rd birthday, I think - that could have changed) save the extra.
When the 3% mortgage deal finishes, see what interest rates are doing. It is likely your mortgage rate will go up, but you should also have a decent savings account. Reconsider at this point if it is worth paying off a chunk of your mortgage.

When school starts, and childcare drops again, increase the amount you save/overpay again.

We try and add half of pay payrise onto a savings standing order. So, say our pay goes up £50 a month, £25 extra goes into the savings account each month straight after payday.

3rd into mortgage, 3rd into pension, 3rd savings.
once saving are over a comfortable roof replacement level consider adding to mortgage.

yes, given that you can make savings rates more than 3% at the moment, I would safe it (in a fixed rate account) and pay a chunk off when you remortgage. As soon as savings interest rates go down below your mortgage rate, start overpaying. That way you’ll have the slight enjoyment of beating the system a bit!

try not to panic op. I know from experience that it’s scary but you sound like you’ve got your head screwed on. Good luck.

Save into savings while the savings rate is higher than your mortgage rate. When this changes pay off a chunk then. Then split after that to a regular overpayment and some saving.

Are you on repayment mortgage or interest only? Hopefully the former.

Have three months wages in savings, then put every spare penny into the mortgage

Which part of all this is the dire bit??

Dire is your outgoings being more than your income. Dire is being up to your eyes in debt. Having enough of an income to be able to save £1000 a month is noones idea of dire

This is the right answer from a financial POV - put the money wherever the interest rate is highest. Imo you should also have 3 - 6 months expenses in an emergency fund and consider pension savings as the tax benefits can be considerable.

£5K is a relatively small amount of savings for one family, and I would feel very vulnerable in your position with that amount saved, so I would do as some others have suggested and get £12K saved over a year, then re-assess.

You sound really sensible and it looks like you can do both. £500 saving and £500 onto the mortgage

We did both saved money and overpaid over the last 8 years it's had an dramatic effect. We couldn't over pay at all with young kids with first house and mortgage - that changed when we moved.

As others have said, save for a year in a higher-interest account and then transfer the money into the mortgage.

How much are your childcare costs? Would you be able to use them to pay off the mortgage/save in the future?

I'd save in a high interest account like Chip or Chase until mortgage rates go higher or savings rates go lower

Can you save it all and then make a lump sum payment at the end of the year - and then decide how much to save? I was in a similar position but have now stopped overpaying to pay off more expensive debt - car loan at higher interest rate. I may consider overpaying in future but for now it’s a lower priority. I have a good credit rating so in an emergency could borrow cash if needed.

2.5 costs a fortune in nursery. I would put it in savings until your child goes to school and the childcare fees plummet.

Also look at remortgaging whilst paying off a lump sum as this may be a better option if the interest is higher on an isa etc.

You can always look at downsizing too.

It's not a dire situation - at least you have cash for a new boiler etc - those are the scary expenses when you are a lone parent.

Mix and match. Keep some savings and make some overpayments. If your savings get to be over £10k then switch to putting everything extra onto the mortgage. It'll all get a LOT easier once school starts with less childcare costs. You're doing really well to have savings already in your situation, well done.

We tend to pay a bit over every month and save into various accounts - it's been as little as 50 quid every month when we first overpaid.

At end of year after paying off Christmas we overpay from one savings account against mortgage.

I would be building up savings with that spare money. If you lose your job next year you can't pull it back out of the mortgage.

Overpay after you've got a year of expenses behind you (expenses you'd incur if you were in dire straits and trying to live on bare minimum, not a year of income). Later when you need to remortgage you could look at paying off a lump sum or reducing the term.