I have a 235k mortgage and since last year I'm only paying the interest as I my wife had a baby and my salary couldn't cover all the expenditures we had make various sacrifices and cuts. My wife has no immediate plans to return to work.
I'm finding thinks a bit difficult and also worried when I will get this mortgage paid as I'm in my mid-forties.
I could find another 50 (100 possibly) a month although this is a very misley amount, do you think it's worth to put this towards paying off of my capital. It would give me some sort of peace of mind that I'm trying to pay off my mortgage is this worth it? Or wait until I can afford to put down larger payments.
I would be very grateful for your opinion in this matter.
(a) Always pay off the debt with the highest interest first - if paying down the capital of the mortgage is at the expense of fully paying off credit cards & loans then don't do it - use it to pay down the loans/credit card bills instead.
(b) If at all possible, build up a financial cushion - say, 9 months mortgage payments + normal daily expenditure. This should see you through to the point when the state will step in and pay your mortgage interest for you should you lose your job. It's also good for the stress levels to know you have these savings to fall on should the worst happen.
(c) If you're free to do so, consider whether the interest rate on your loan can be reduced by remortgaging. a 1% reduction in annual interest will save you over £2000 annually. However, based on the info you've provided above I suspect that this might not be an option due to excessive incume multiples. However, you'd be surprised what *some* lenders are prepared to do to bend the rules - maybe yur current lender has a better deal that they can move you to without the hassle/cost of a remortgage.
(d) Only once you've ensured that all of the above are dealt with can you then sensibly consider paying down your mortgage with any spare cash that you have.
Of course, if you can do (c) by moving to a current account mortgage with your current lender that is also cheaper than your current deal (I wouldn't recommend it if it increases your interest payments) then you can effectively do (b) and (d) at the same time i.e. you won't have to make a choice between building up a savings safety net and reducing the balance on your mortgage as your savings will offset your mortgage balance while remaining accessible in case of emergencies.
The more stretched Nick is the more sense it makes to get some insurance against unemployment and sickness. Goodfellows (a Which? magazine best buy) offers unemployment and illness protection for £3.95 per £100 of cover.
I was thinking the same thing. Its a very difficult step to take psychologically but downsizing your home and outgoings is guaranteed to get you the financial breather you need to get back in control.
- Although it's not easy to find an hour or two in the day when looking after a small baby, it might be worth your wife considering some home-based work that is flexible enough to fit around childcare commitments. Even helping local businesses to stuff envelopes in support of their marketing efforts for a couple of hours a day could yield the couple of hundred pounds a month that would make all the difference.
- If you think you can afford your mortgage for the foreseeable future, the longer you delay selling up, the more equity you're likely to have in the property. Given the size of your mortgage, you're likely to be getting quite high leverage on your capital as property prices continue to increase (they still seem to be holding up quite well in general, although it's probably not a great time to sell) Also, it looks as if interest rates may come down over the course of the next year, which will help.
- In support of another comment, if you are currently paying Standard Variable Rate on your mortgage, it will be well worth looking at some of the discount offers around. Although it would cost you about £1500 (all in) to remortgage with the Abbey (currently good deal at 4.44% for
2 years and no lock-in beyond the discount period) the amount you would save each month compared with a SVR of, say, 6% would be substantial. £862 vs £1175 - which would quickly repay the £1500 outlay - in just
5 months in fact - then you're quids in for the next 19 months. Remortgaging is way cheaper than moving house, given the penal rates of stamp duty currently in force when buying. It's a pain, but far less hassle than moving, plus you could probably do with the space for the little one.
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