Live frugally to overpay mortgage 5yrs

[ElleDeeCB]

My DH and I are (hopefully) about to take on a mortgage as first time buyers. We have been renting and are quite old for this first step, being age 50 and 42. We have a 13yr old kid.
I’ve looked at our expected repayment figures and we will start off with paying £2.2k per month. This represents 30% of our combined monthly take home salary.
I’m wondering about massively over paying in the first 5yrs of the mortgage to 60% of our take home income, which would mean that after 5-yrs we could remortgage and our monthly payments would be much lower. It would mean that I could comfortably cover the monthly payments from just my own small salary, instead of relying on DH in a high paying but less stable field of work.
At the moment our outgoings are very low, and it seems this would be a good way to get ourselves in a much more financially secure position. But it would mean living very frugally for these years, and it would be interesting to have people’s opinions on this approach.
Besides mortgage our outgoings would be:
350 food
180 Council tax
70 water
200 electric (no gas)
100 dental
250 SIPP (we also have workplace pensions)
150 kids Uni fund
= £1300

Taking the above into account, and going up to 60% income as mortgage would leave £1,000 per month which DH would share between us for other costs and for personal spends.

We wouldn’t be saving much during this time, but DH usually gets a bonus around £5k per year which could go into savings instead of the SIPP for a few years, so that we have more of a cushion. Or spend on holidays.

Is this a daft idea, or does it sound sensible? I feel like a huge mortgage will be more stressful (psychologically and financially) in the longer term and am keen to pay it down whilst we have a pretty decent income and low outgoings.

Thanks for your help.

Thank you @Nopenousername you raise some helpful points. I should have mentioned that the mortgage payment includes buildings insurance. I should have mentioned that before, not helpful I know. Yes that’s right our food shop is £350/month as we are given a (big) lunch at our workplace during the week and we don’t eat meat. I had anticipated that some of the costs you list would be coming out of the £1,000 we have leftover each month split between me and DH (now looking like £1,300-£1,400 pm as my DH will be moving to FT) but you are right that I should look at this in more detail.

I hear what people are saying about not living frugally whilst the kid is at home, but I’m concerned that we will probably need to give him more support when he (potentially) goes off to Uni. With the timeline I have in mind we will be much freer financially when he reaches Yr13. Also, I think we have lots of bad habits about frittering money away pointlessly, and living ‘frugally’ might be a bad way to describe things given the amount of spending money we would have leftover (eg still have enough for some holidays, and around £650/month each for DH and I for everyday spends). It think it will be interesting to try for a while anyway.

why not take things month on month & just over pay what you can. It doesn't need to be set in stone.

plus. As others have said,you don't want to ruin the last few years you have of having DS at home, a child.

it's all a balance of doing the best for your future, but also living, not just existing in the meantime.

We look at it at every 6 months. We have a ten year mortgage which is repayment and a relatively low amount. We can over pay by 10% max so we put aside 10% a year and pay it off by lump sum. We keep this in our savings and pay it off about a month before it is the end of the financial mortgage year. This way it will actually be fully paid off in about 5 years and not 10 years.

struggling to see your insurance in that outgoing - buildings and contents and life insurance

I vote that you go for it. Even if you don’t manage to achieve all of it (eg Xmas) you’ll make massive headroads into it. I say this as someone who has paid off their mortgage using savings and is replenishing the savings by the time the kids are 18, conscious that life might get more expensive after that.

I would rather go on holiday than overly restrict myself. You'll only have so many years with your child at home.

Have you done the MSE overpayment calculator to compare to saving?

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

My DS is doing this. He nabbed a good rate on his mortgage so is investing £1500 a month in a cash ISA at 4.25.

He can repay 18k a year but this way he can check its affordable to do as once its in the mortgage its gone and he's new to this so doesn't want to get the affordability calculation wrong especially as he's got the utilities to pay which add up too.

You can still have holidays. Try camping for a few days. That sort of thing.

The thought of living frugally for years would make me so miserable. Hard no from me. Life is for living.

We have opted not to overpay our mortgage in favour of paying into our SIPPs, LISAs and ISAs. The SIPPs have the advantage of getting tax relief, and we invest in high risk assets so the returns are volatile but have ended up being far higher than the interest rate on our mortgage. LISAs and ISAs are invested in S&S and in the same investments. That will allow us to draw that portion tax-free and ahead of state pension age, and with a small bonus for the LISA funds (you would be too old to benefit from LISAs though unless you already opened one before age 40).

I would create a spreadsheet modelling the impact of mortgage overpayments and comparing it to SIPP/ISA contributions invested in S&S, taking into account tax relief. I would be surprised if the overpayments worked out to be mathematically higher.

I would try to do a much fuller budget (maybe using the MSE budget planner). You seem to be leaving a lot of stuff to be covered by the spare £1000 which really would be better to account for properly. Little things add up and make a big difference when money is tight- @Nopenousername has listed some but there are many more.

I’d also ensure you have money budgeted (again, not just in the magic spare £1000) for holidays, both family and school trips

I’d also want a healthy emergency fund if your husbands work is up and down. That should come before the mortgage overpayments. And check whether you can count overpayments against future due payments (we had a mortgage like this once- if you overpaid and then circumstances changed, you could opt for the overpayments to be treated as prepayments of your normal payments schedule (even if you’d initially asked for them to reduce the term - which you should) but I don’t know whether that’s standard.)

All that said, it’s not a bad idea. And if you try it and everyone is miserable, you can rethink.

Thank you @frenalstene yes I think I need a good spreadsheet to work this out! 🤓 📊
I do have a LISA but with only about £10 in it as I opened it just before my 40th birthday just in case.

OK I’m going to look at the MSE budget planner and work out how many things I’ve forgotten to include!