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.

Build up a savings buffer that will allow you to pay the mortgage for 6-12 months plus some other survival money if you cannot work.

Then I would use the extra money to pay off the mortgage.

The other possibility is an offset mortgage.

Not read full thread, so this may have been mentioned. Are you contributing to your pension? It’s usually more tax efficient than post-deductions savings from your wages. Especially if salary sacrifice means you become eligible for Child Benefit. Your mortgage rate is good, you could salary sacrifice till it runs out, then switch to monthly additional payments (and rely on compound interest to help boost your pension), or do a bit of both. Eg half to each. Usually a private pension can be accessed 10 years before state pension age, hence going up to 57 soon. If you have any mortgage left to pay at that point can use a lump sum from pension (tax free if below 25%).

Paying off the mortgage isn't always the best thing to do long term.

Do you have a decent pension?
Have you started an ISA for DC?
Do you have life insurance, critical illness and income protection?

You need a combination of these things.

You could invest the extra money for example into a private pension, use the 25% tax free draw down when you're allowed currently age 57 and use that to pay off the mortgage instead.

But you need to work the numbers out and get some financial advise. It doesn't cost a lot and you'll fell better having a combination of plans in place.

That said, paying more off the mortgage whilst the interest is low will help you suck uk the extra when you renew on a higher interested rate. But in your shoes I would still see and IFA.

What are your other monthly expenses? I'd work out what you and DC need to survive each month, then save that amount x 12, so you know you're covered for a full year if you lose your job or something. Only overpay mortgage once you've got that emergency fund, cos you can't get money out of mortgage once you've put it in.

Pay 1/2 your repayment mortgage amount every two weeks, works out to one month over-payment per year and cuts about 1/4 to 1/3 of the mortgage off the total by lowering principal and therefore interest to be paid (provided you aren't violating the bank over-payment amount (but almost never does as its too small). £1000/month, pay £500 every two weeks.

Whats your mortgage percentage? You can get ISAs at 5% I'd save save save and if you wish when the mortgage term comes to an end you can pay extra and reduce the term of the mortgage but at the same time have a decent emergency fund incase "shit goes wrong" I have a specific SGW fund.

It doesn't make any sense to overpay a mortgage if you can get more in an ISA and can keep the cash more accessible in case of an emergency. Xx

Just read your update that your mortgage is 3%, definitely save into a high interest savings account like an ISA, its literally just a numbers game. You will make more saving the money (unless you think you'll spend it if its sitting around), its a no brainer.

What a misleading title. It’s not a dire situation to have £1k per month spare. How ridiculous. I’m a widowed parent and I have 0 spare each month. I’m not even going to comment on what you should do financially as you are not in a dire situation.

Found an actual example for the above technique, agree with those who say build emergency fund first but this way is optional and you can always go back to the standard payments if necessary:
Advantages of Biweekly Mortgages
Borrowers can pay off the mortgage sooner by making one extra payment per year. For example, let's say a borrower has a £200,000 mortgage with a rate of 5% and a 30-year term. If the borrower does the biweekly mortgage, the loan would be paid off in 25 years or five years earlier versus the traditional mortgage with monthly payments. The extra payment per year adds up over time and allows the borrower to own the home sooner.
The interest saved as a result of a biweekly mortgage is also a significant benefit. Using the financial details from the above example, the total interest for the traditional mortgage would be £187,000, while the biweekly mortgage would cost £151,000 over the life of the loan. Not only does a biweekly mortgage pay off the mortgage sooner, but it also saves the borrower £36,000 in interest over the life of the loan.

Or if you creep into the 40% tax bracket put extra into your pension. X

Sorry but calling your situation 'dire' is pretty offensive to a lot of people. having a mortgage til that age is common. Save as a priority so you have a safety net, then look to overpay.

I know you said you put that 1k into savings but you'd have a lot more in savings if you weren't touching it.

Have you budgeted for things like Christmas/ birthday/ holidays/ nice things?

I would personally like to have £10k in savings then start at the mortgage.

Is it possible to put your potential mortgage over payment into a seperate account and then one a year use that money as an overpayment?

I know financially better to have high interest savings and a low interest mortgage but honestly you do not want to be paying a mortgage back at 72! I am a little conservative that way though and I would prefer to own my home and not owe the bank

When you child finishes nursery I would also be putting a large amount of that cash off the mortgage too.

this is what we've always done.

fixed for 2/3 years, house value increased and remortgage adding some savings each time to reduce the LTV ratio and therefore get a better rate.

Bought first house at 26, mortgage free at 43.

I never understand when people say their mortgage will be paid off in 30 years, does no one do this

I agree with this comment, your situation isn't dire at all OP.

I would save for another six month to a year - that way you’ll have build up a nest egg should you need it… then next year start overpaying.

Totally agree!
'Dire' ??

In that case you’re better to save. You’ll still get the same compound benefit of it being in a savings account, so save in an account with >3% interest rate.

Then when it comes to remortgaging and refixing at a new rate, contribute from your savings account to reduce the amount of borrowing at what will likely then be at a higher rate.

Depends what the savings are for, and for how long you intend to save for. Inflation will reduce the value of savings eventually, so I would personally invest it into property, which is unlikely to lose it's value in the long run.

Ik afraid I agree it's not dire. I'm a SP with a 100k mortgage that I keep extending to cover the costs of necessary life like fixing a roof or new windows that are completely shot. I have no savings despite working a full-time 40k job. I work on the basis that when the kids leave home I can downsize and pay it off then. It would be great to be able to save anything each month, but i can't.

Are putting the max amount into your pension?

I would, but ill health means reduced earnings, and sub £200 a month to live on after bills (ie under £200 for groceries, clothes, holidays etc) even after extending my mortgage term to bring down the monthly payments. No way I can pay any extra, so a mortgage till my mid 70s it is!

I would save until you have enough savings that you can live off for 6 months - then start over paying your mortgage.

OP has found herself in a new and somewhat vulnerable situation. I’m assuming she’s used to having two incomes coming in. Subsequently she is feeling anxious, so I understand why she used the word ‘dire’.

do not overpay yet.

save where you can get a higher rate of return and then do an overpayment

Money Saving Expert has a calculator which indicates if it’s worth saving and then using that to overpay, rather than overpaying each month.
im now putting an amount each month into a 7% interest account and will that to pay off a chunk every year or two. That was the best way for me.