I have written before about our mortgage plans and how they tie into our ultimate dream plan of retiring early. The thought of not having a mortgage payment every month spurs us on too; not having to have that fixed outgoing every month will mean that overall expenses are lower and so our retirement plans come forward that much more.
However, since taking out our mortgage at the end of 2012 and started mortgage payments in 2013, our plans have continuously shifted and changed. In the first year of having the mortgage, we overpaid an average of £700 a month, which, combined with our own mortgage payment, meant that £1,300 a month was being sent to the mortgage. Over the course of the year, we managed to reduce our mortgage from £123,000 to £113,000 which was fantastic (remember that interest is added each month too).
At the beginning of 2014 we decided to shift our focus slightly, so that our overpayments weren’t quite as big, but still made a dent into the original loan. We set our target amount for an overpayment each month at £350, which paid off the interest added each month plus around £60, give or take. So, again, with the mortgage payment and then the overpayment, our mortgage was still heading downwards quite nicely. Half way through the year, we decided to change our plans (yet again!) so that our money could be used in different ways. For the second half of 2014, we decided we’d overpay the interest added each month and that was it. So, our principal mortgage payment was all being used to reduce the amount.
However, we’ve changed our minds again! You can blame all of the finance blogs I read, as 99% say that investing/saving and using the compound interest to our advantage is the best way to go to achieve early retirement. But, as being mortgage free is part of our long term plan, we don’t want to do away with overpayments completely. However, they need to be receded so that we can start to ramp up our savings and look at our long term plans more seriously. So, as I shared on our March Review and April Aims, our new target for overpayments is £120 a month. This will still mean that our mortgage is going down, but we can re-direct our money to other avenues as well. At this stage, I didn’t want to stop our overpayments completely, as we are still aiming to be mortgage free, but this will mean that we can get other aspects of our long term aims off the ground.
I’ve also been playing with some figures, and it looks like we’ve already reduced our mortgage term by 4 years, which is fantastic! We have only been paying our mortgage off for two years, and yet we have doubled the amount paid off so far. Imagine how much interest that has saved us already! That alone makes me want to continue with overpayments, even if they are small.
Hopefully in the future, if I can get any side hustles up and running, any income from those will be split between long term financial/retirement planning and overpayments. So, watch this space!
Related post: Why We’re (sort of) Paying Off Our Mortgage Early
Related post: The Ultimate Dream
Do you overpay your mortgage? If not, why not?