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.

What term mortgage did you take out?

If you can find a savings account for more than the rate of interest you're paying on your mortgage, then saving for a year and paying a lump sum might be better.

But generally, it'll probably be better to pay down the mortgage.

I don't know why you're thinking this is 'dire' when you are able to save £1000 a month?!

If this is dire, I clearly have used that word wrong all my life.

Your rates are low. Save the money until the fix is over.

Look at the interest rates on savings vs interest you are paying on your mortgage.

You might well receive more interest though money you save than you would pay in your mortgage - therefore saving would be a better choice.

Having said that, the profit might be negligible, so it depends if you'd rather have the weight of the mortgage off your chest sooner.

Firstly, just to be clear I assume it is an interest only mortgage?

Generally, your income goes up by a little more than inflation every year but your mortgage stays at 290k, so in 10 years time your income will be say 50% more than it is now giving you more available cash to pay the mortgage off.

I know this hasn't been the case for many public sector workers and NHS staff in recent years but that situation cannot continue for ever.

Overpay when your child has left home. Save the money, dip into it if you need it and pay it off when you have more money if not.

The only problem with overpaying on the mortgage is you can’t get it back if you need it . I would be putting into a cash isa and another high savings account . Then if you feel your able to pay a lump sum off once a year do that . Over the long term your house value will probably go up and at your age it’s great to save and reduce the debt but don’t stretch yourself too much .

I would absolutely overpay. I got a mortgage and paid extra 1000 for a product that allowed me to overpay whatever I could. I look at it as saving a lot. 20 years off your mortgage is a huge amount of money.

your situation is fine. I understand your panic but you’re actually ok.

keep the 5k emergency savings and get the rest paying for you.

Your single now OP but who’s to say down the line you won’t be with someone who you’d want to maybe sell your house and get a joint mortgage with? Just because your income is that now, it doesn’t mean it won’t increase? I’m sure financially you won’t be in this situation forever, although it really doesn’t sound as bad as you think - you’re very sensible to be thinking about it now though which is half the battle!

What???? You have a "spare" 1k a month? Don't think you have much to worry about, tbh!!!

One young child now, another later??
Borrowing at 3% is fairly cheap money.
My plan would be to build up savings while you can. Enjoy life as well.
We had a special holiday when DD was 4. She does not remember it. Save for when child is older and it means something.
If you do build savings you can always transfer some to pay off the capital.

If your interest rate is 3 % you’d get more in savings at the moment. Save it for now and review once you renew your mortgage. You can then pay a lump sum off and start to overpay on the mortgage when you pay more in mortgage interest than savings.

You need a bigger emergency fund. Save 6 months income and after this start overpaying on the mortgage.

Do you have any other debt?

You could also downsize at some point? Now or when your child grows up and leaves home?

How is having £1000 a Month left over for savings + your own home "a dire situation" ????

Just pay the fully grand onto the mortgage & re-draw if it allows you too in an emergency

As long as you have sufficient cash saved for emergencies, overpaying on your mortgage is one of the best returns for your money that you can get. If the average interest rate over the lifetime of the mortgage is 3% versus 2% on a savings account, you are locking in 1% extra for every year left on the mortgage for the overpayment amount, in one go, today. That's a lot.

Remember, the money that you have overpaid is still yours, it's just harder to get at quickly. But if something truly major arises you can still get at your equity, either by remortgaging or if needs be by selling the house.

Also, it will show the bank that you are a financially serious customer, and they like those. If you have been overpaying, your bank may look more favourably on the idea of some kind of payment holiday if you can't make the full monthly payment for a while.

Save until you have 6 months expenditure in an ‘emergency pot’. This is how much is usually recommended to keep you afloat should something go wrong. Best to have it in something cash/instant access.

What is more important is protection for your mortgage and your income should you become ill. You may have those through work. You can take these out privately which is usually not expensive at your age or take out additional policies to top up anything your employer provides. Bear these benefits in mind if you move jobs.

In terms of paying overpaying a mortgage,
there are usually limits on how much you can overpay in a year but it is usually the case that you can cancel the overpayment at anytime. If you used your emergency pot, you could stop the payments temporarily to top it back up.

Making additional pension payments has a similar benefits to over paying your mortgage in that paying in more now makes you much much better off in future. This is because of the investment growth in the long term.

Other things to consider are that you may receive lump sums in the future, inheritance or lump sums from your pension which can be used to pay off lumps from your mortgage. Money paid into your pension isn’t accessible until your 60’s, whereas you could always remortgage to access some of your mortgage overpayments if you need to.

Also, interest rates may decrease over the next few years whereas the tax relief on pension contributions is 20 or 40% which is high. In some cases your employer will match some of the additional contribution you make.

Also, ask if your employer has free financial advice available. It may also be prudent to check what type of pension you have and if it is invested the best way for you. People often forget this and put money in and don’t understand how it’s actually invested ie low risk/high risk.

Generally - the rule of thumb for priority is…

1. emergency pot/cash (6months)
2. protection
3. mortgage

and/or pension (maybe pay 50/50 from what’s left of your £1000).

Make sure you have a Will in place and update any letter of wishes for pensions and life insurance with your employer.

Review your plan in few years or if something major changes in your life.

3%?? Don't need to overpay that mortgage at that rate, put your money into a high interest savings account so it earns you instead of costing you. You can always pay off a lump sum when you come to remortgage with the money you saved and that has been earning interest, and shorten your mortgage term that way.

How big is the house? Remember circumstances change- if it's a large house you may want to downsize when your child is grown, or you may meet someone new etc etc. Sounds like a good idea to save and maybe pay a bit extra on the mortgage if you won't be penalised

Absolutely not dire! I’m a single mum too and have a quite a bit less left “spare” at the end of the month, but a much shorter and cheaper mortgage. Swings and roundabouts. I’d work out what you need to overpay to get it finished by age 60/65 (depending on how long you plan to work). Anything else split between a LISA and whatever other savings you pay into, in whatever proportions suit you. 5k is a nice amount to have as back up for unexpected expenses/ car trouble/ boiler repairs etc.

Sounds like you’re in a really strong financial position to me and you must be pretty financially competent to even ask the question. You’ll be fine! 💪💪💪

You need around 6 months salary in savings as an emergency fund first. Only then would I overpay the mortgage. Because once you overpay the mortgage you can't get that money back out! Keep it in a high interest savings account instead.

I'd overpay if you also have savings for emergencies. You don't want to be paying a mortgage in your 70's assuming you could even still work. I paid mine off at 55 and that was starting over in my very late 30's. Best thing I ever did.

Threads like this make me realise how out of touch people are. You have a thousand pounds spare a month you can either over pay your mortgage or save or do 50/50.

I have 40 pence until pay day. Which is in 10 days and I have no idea what I’m going to do. I’ve already gone without food today.

So no, your financial situation is not fucking dire. You are very much in a privileged position.

You can access it but it incurs some penalties. I have one that I pay into monthly as well as an “easy access” savings account. I think the LISA is definitely a good idea as OP may well be absolutely fine and not need to dip in, but if she does it isn’t totally inaccessible. 😊

Generally loans have higher interest rates than savings accounts, the difference is how the lenders make their money. At the moment you have a good deal with a low interest rate of 3% on your mortgage, take a look around and see what the highest savings rate is for an account that suits your needs, so check that you can pay in after the initial deposit and check what the withdrawal arrangements are. If you can find something suitable that pays more than 3% then it would be best to save than to pay off the mortgage. If in the future the mortgage rate rises to above the savings rate then you can use some of the savings to pay off a lump sum then, checking that no extra charges will be made by your mortgage lender.