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.

Although it might seem scary, I don't think your situation is dire OP. You have choices

you should keep some cash spare in savings in case of emergency e.g job loss or house issues broken boiler etc…

you are in a good situation as once you grow old you would have lots of equity can always sell and downsize once kids are older and out of the home. You may even find another partner etc so keep going I think you feel insecure which I can understand.

When I became a single parent 8 years ago I felt a bit the same, with all of the financial responsibility on my shoulders.

Whilst I understand the financial argument for saving instead of paying down mortgage with those exchange rates, in terms of long-term financial security I think that there is a huge benefit from aiming to get mortgage free.

So, in your position I would do £500 a month into savings and £500 a month off the mortgage and then reassess once your child starts school, increasing those numbers if you don't need as much childcare.

With our mortgage you can adjust the overpayments online & then change back as & when without making it a permanent thing. Perhaps do that for the time being? For us it’s made a huge difference as we’ve managed to pay off a lot of the capital without overstretching ourselves so when the interest rates jumped up (we went from 1.75% to 4.5%) our mortgage only increased by £16 & we’ll have paid it off 8 years early. We have never overpaid by more than £85 a month either, it soon adds up, we’ve just consistently overpaid every month since the start of the term. Also look at how much you can overpay without incurring a charge, that will let you know your max overpayment per month. I wouldn’t worry about reducing the term as that will mean you’re tied into the overpayment

Your situation is not dire.

If you're even considering saving a £1000 a month then your position is better than most.

You have to be realistic.

It's not either/or. Build up a lump sum first of at least 3 x your monthly take home pay, preferably more, so you have a cushion against a 'rainy day'. Then start to overpay but there's no need to try to get the mortgage down to 20 years yet. As time goes on, you'll find the mortgage easier to afford and then you can step up the payments.

Before you make a decision- is the situation with your house fully resolved? Have you bought out your Ex partner , and are you certain there will be no claim on the property. There is no point in reducing the mortgage if someone else will share the benefit of increased equity.
Like others, I would save solidly for a year at least and then make a decison, although I might be tempted just to overpay by £100 per month, it still chips it down a bit, but make sure that the lenders undertands it is intended to reduce the term.

Yeah this. Best of both worlds.

Don’t overpay the mortgage especially not now. Invest somewhere with a decent return.

Me too. Belt AND Braces.

When you've built up a comfortable savings pot you can always pay off more of mortgage for a while.

Don't overpay while your rate is 3%. Ours is 2.2% for 8 more years and we have put £10k in an ISA earning about 5.5% (not 100% sure what savings rates are doing now but they are more than 3%). We'll chuck that at the mortgage when we get the interest, if we don't need it for a boiler or something.

I know what you mean about the scary term, OP. I don't think people realise how many are borrowing to age 75 now. Most people won't keep the term that length but some will and will have some choices to make at state pension age.

In your situation I'd build a savings pot of 6 months outgoings, then start overpaying my mortgage. However, after bills etc I can save around 50pcm. If there is a problem with the car, washing machine etc. that whole savings pot vanishes. Your situation is hardly dire.

Your financial situation is not dire. But you need to overpay.

I think this is what I would do- at least for as many months as I feasibly could.

You have £1k spare per month? That is absolutely not "dire". How ridiculous.

if you have a £1000 spare

then £500 off the mortgage each month and

£500 into extra pension from wages each month
by paying £500 into a pension from your company/wages you would potentially save £150 per month - so although you'd pay £500 into your wages, they'd only reduce by £350

therefore you'd still have £150 left over you could top up your overpayment to £650 each month

you can pay extra into a pension in 12 month blocks, so your not committed for a long term payment and if things change in 12 months you can change the amounts

the thing is at 36 you need to be thinking about your pension and not leaving this until your mortgage is paid off, as its too late ny them to make a considerable difference - you need the years on the pension. So splitting the amount is the more sensible plan

I was in the same situation - I over paid - my thought being if anything ever went wrong work wise I had bought myself a few months grace. Or peace of mind. In the end I paid my mortgage off years early.

OP, have you looked into saving into investment funds? There are some that have brought good returns in the past, and whilst there is no guarantee for the future mine continues to perform well. I have made 10pc over the past six months.

As your mortgage is at just 3pc, it would make sense to save into a stocks and shares isa, so any growth is tax free, just don't leave it in the bank at 2pc or less. When remortgaginging is due you might be able to pay a nice lump sum towards it and shorten the term that way? In the meantime you'd have these as savings to access.

I would save for a year first. The reason being, once that money’s on the mortgage it’s gone and if you have a few unexpected expenses you’ll be panicking. You’re fine - you’ve got 1k spare a month…it isn’t dire although I understand because I panic far earlier than a lot of people. You’re being sensible but no need to panic.

Overpaying the mortgage for a year is going to make little difference and in a year you’ll still be panicking. But if you have 17k in the bank after a year you’ll be more relaxed. You’ll get £70 a month in interest too, even with an instant access account.

Normal guidance is 3 to 6 months salary as an emergency fund incase you lose your job. So once you have that amount switch to paying off your mortgage, assuming you have no other plans or a credit card balance at a higher rate.
If you over pay your mortgage can you draw that money back off? That may be possible so worth asking as it means that you could save less than 6 months of your salary knowing you can take back those overpayment from your mortgage account. I wouldn't worry too much about the term of the mortgage as you will probably sell and move to a cheaper house when your child leaves home. However if you pay it off earlier you will save lots of interest. Good luck whatever you decide.

I would overpay £500 and save £500, but only after having put aside a reasonable amount in case of emergency (up to you how much you think you would need).

OP how many more years to do have fixed on 3% for your mortgage?

This is crucial information.

Also, is your current place too big for you size wise, now that you're single?

Overpay every single time. Maybe pay £400 extra per month thus keeping some for savings. Most mortgages allow you to pay off 10 percent per annum without penalty but you'd need to check your mortgage. I took years off my mortgage just by keeping paying the same amount when the rates went down low in 2009. It's all paid off now.

This you should be able to find an account with 4.7 interest and pay off each year some money in a lump sum.

I'd save that nest egg for a year then start over paying