My Journey So Far from the UK

[TerrierTown]

Hi all,

I'm a relatively new Mustachian from the UK. Nice to meet you; I'm Craig, a 31 year old scientist.

I've always been pretty tight with money; I hate spending money on alcohol or anything that retains no value like expensive cars.

I come from a relatively working class family who were unable to educate me on investing or the like. I have a mortgage 60% on a home (the rest is owned by a housing association but I can purchase the rest when I have the money). I rent out a room (£600 per month) but I also have to pay rent on the 40% of the house I don't own (£266 per month). The house is worth £275,000, my share is £165,000 and remaining on the mortgage is £120,000.

Through taking in a lot of useful information on the site and following your inspiring journeys I decided to get a bike and cycle to work rather than drive and I invested in the Vanguard US total index fund (the first time I invested in shares) yesterday. I only invested £20 but I will now be committing £400 a month.

Including the lodger and my job my income per month is £2430 and my outgoings/month are:

£420 mortgage (1.99% interest, 2 year fixed)
£266 rent (for 40% share I don't own)
£35 Gas and electric
£30 internet
£6 phone contract
£17 water bill
£155 council tax
£200 food and fun

This leaves me with around £1300 to invest/pay the mortgage. I have been concentrating on trying to buy more shares in the house to reduce the rent, until I started reading this blog.

Advice please: Would you concentrate on the stocks, overpaying the mortgage in order to use this as leverage to buy more shares and reduce the rent or a mixture of both?

Many thanks in advance and keep up the good work!

[ItsALongStory]

Can you refi into a fixed rate mortgage? Your rate is awesome but if it's only locked for 2 years it is risky.

It also sounds like you have the money now to purchase the remaining share of the house so you could do that.

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[TerrierTown]

Can you refi into a fixed rate mortgage? Your rate is awesome but if it's only locked for 2 years it is risky.

It also sounds like you have the money now to purchase the remaining share of the house so you could do that.

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My fixed rate will be up in October 2020. I will probably start looking at fixing again 6 months before this and get an agreement in place.

To be clear I have no cash savings whatsoever. So far I have overpayed my mortgage by around £3000 and I am unable to borrow any more mortgage as the bank does not class lodger money (renting out a room in my house) as income.

[marty998]

Can you refi into a fixed rate mortgage? Your rate is awesome but if it's only locked for 2 years it is risky.

It also sounds like you have the money now to purchase the remaining share of the house so you could do that.

Only in the US can you get a 30 year fixed rate loan :)

Over here in Aus the norm is variable rates.

[reeshau]

Are you incurring a prepayment penalty while in the fixed period?  Here in Ireland, that trick isn't so attractive an option because of prepayment penalties.

Also, is your goal full purchase of your house (i.e. to reduce the rent to 0) or are you just looking to make some level of uncertain progress?

[TerrierTown]

Are you incurring a prepayment penalty while in the fixed period?  Here in Ireland, that trick isn't so attractive an option because of prepayment penalties.

Also, is your goal full purchase of your house (i.e. to reduce the rent to 0) or are you just looking to make some level of uncertain progress?

My aim is to purchase 100% for 2 reasons:

1. Have zero to pay in rent
2. Until I have 100% on mortgage I cannot rent the house out - I have to live there. It's a good location to rent out
3. I can make £12,000 overpayments per year without incurring overpayment fees

Having done a bit of research on stock investing through the recommendations on this site, I'm now unsure. My current thinking is invest around £800 per month in stocks and £400 in overpayments but unsure

[reeshau]

The house is worth £275,000, my share is £165,000 and remaining on the mortgage is £120,000.

Am I reading this correctly, that you have £110,000 to pay off to reach 100% interest?  What happens as the house value rises?  In the end, does the association's nominal dollar value interest increase proportionately with house value, or is it fixed?

Assuming no changes and that you want to avoid prepayment penalties, this means it would take a minimum of 9 years to pay this off, and would take 33 years to pay off at your proposed £400/month.  While you always need to start somewhere, going through this kind of commitment to get to a point where you can rent it does not excite me.

I think this is a case where you are just starting off, so "big" diversification is really just watering down your impact, rather than doing you a lot of good.  Put it all in stocks for now; give your portfolio some time to grow, and your paycheck as well, and you can look at biting off your mortgage as a whole item once you have a good foundation.

Conversely, if your heart is in real estate and renting, you could concentrate there; if you found a way to accelerate your payoff, it might be worth taking the risk of a floating rate to get out from under the prepayment penalty cap.

[TerrierTown]

The house is worth £275,000, my share is £165,000 and remaining on the mortgage is £120,000.

Am I reading this correctly, that you have £110,000 to pay off to reach 100% interest?  What happens as the house value rises?  In the end, does the association's nominal dollar value interest increase proportionately with house value, or is it fixed?

Assuming no changes and that you want to avoid prepayment penalties, this means it would take a minimum of 9 years to pay this off, and would take 33 years to pay off at your proposed £400/month.  While you always need to start somewhere, going through this kind of commitment to get to a point where you can rent it does not excite me.

I think this is a case where you are just starting off, so "big" diversification is really just watering down your impact, rather than doing you a lot of good.  Put it all in stocks for now; give your portfolio some time to grow, and your paycheck as well, and you can look at biting off your mortgage as a whole item once you have a good foundation.

Conversely, if your heart is in real estate and renting, you could concentrate there; if you found a way to accelerate your payoff, it might be worth taking the risk of a floating rate to get out from under the prepayment penalty cap.

That's correct. £110k mortgage required to get the rest from the housing association. I've just managed to buy an extra 10% through having overpaid since I bought the 50% in October. I think you're probably right with the shares and then perhaps re-assess if the interest increases to above 4%?

If the house price rises, the cost of the share rises too and the rent can increase by a maximum of interest rate change + 0.5%

[efree]

The first thing you should do is find out everything you can about ISAs and start using one (I'm assuming you don't have one yet because I didn't see it mentioned).

You should also establish an emergency fund.

I would advocate buying stocks with all your money and stop prepaying the mortgage entirely. The difference in interest rates is just too big.

[TerrierTown]

The first thing you should do is find out everything you can about ISAs and start using one (I'm assuming you don't have one yet because I didn't see it mentioned).

You should also establish an emergency fund.

I would advocate buying stocks with all your money and stop prepaying the mortgage entirely. The difference in interest rates is just too big.

I agree; I missed that information out. I currently have two ISAs: One for peer to peer lending and one stocks and shares ISA. I plan to mostly use the S&S ISA and I have this with vanguard.

[TerrierTown]

Today has been really frustrating; woke up with a flat tyre unexpectedly. Sorted that, then didn't put the gears back on the wheel, sorted that. Then my bike pump broke and so I still can't ride it. So frustrating! I was in the process of taking pictures of my car to sell it... second thoughts now. I'm probably being dramatic haha