Buying their first home last year wiped out Rob and Anna Petre's savings. They now have little more than £100 left in a Cheltenham & Gloucester building society savings account. Both are keen to get back on the savings track, with an eye on moving again in around six years.
The Petres bought their two-bed Gloucestershire home for £125,000 with a £112,000 two-year fixed repayment deal from Nationwide at 4.89 per cent. This ends in January.
They are wondering whether they should now opt for a mortgage that allows them to overpay without penalty, as an alternative to putting all their spare cash in a savings account.
"When we remortgage in a few months, we aren't sure what type of loan to go for. Is a flexible deal best for repaying extra capital when we can?" asks Rob. Their home is now worth £170,000.
They have £112,000 of life insurance (including critical illness cover) from Scottish Provident but wonder whether they could get a cheaper deal.
The couple have a Scottish Widows equity individual savings account (ISA) that Anna describes as medium risk. She invested a £1,000 lump sum in 1999 and has since paid £50 a month into the ISA. However, she has no idea of its current value and is unsure whether to cash it in or keep it.
Both have recently changed jobs within the public sector and begun paying into new final salary pension schemes. Rob puts in £120 each month, Anna £90.
Rob has an old final salary pension that is now worth £4,279 a year with a retirement grant of £12,838. Anna also has a previous final salary plan but is uncertain of its value.
Interview by Sam Dunn
Robert, 37, and Anna Petre, 29, from Charfield in Gloucestershire.
Jobs: both are officers in the heritage industry.
Joint income: up to £46,000.
Savings: £110 in a building society account.
Investments: around £4,500 in a stocks and shares individual savings account.
Goal: to save enough to move in 2010 or clear their current mortgage more quickly.
A move to a flexible mortgage will help the Petres achieve their goal, says Jon Willis of independent financial adviser (IFA) Unity Independent.
In their case, a savings discipline of regular monthly mortgage overpayments would be the best option, adds Daniel Clayden of IFA Clayden Associates.
Anna should also consider switching her ISA, advises Warren Perry of IFA Churchill Investments.
A flexible mortgage "is advisable as this would have the effect of providing a larger deposit for their future house purchase", says Mr Willis.
They can take out a flexible loan on a fixed, discounted variable, or tracker rate.
And, depending on the amount they plan to overpay each month, they may not have to look too far for a deal. Nationwide, their current lender, usually lets borrowers overpay by up to £500 a month on all mortgage products without penalty, says David Hollingworth at broker London & Country.
If they remortgage with a different lender, they should check to see what inducements are on offer, advises Mr Willis.
Although remortgaging usually incurs administration, legal and valuation fees, "some lenders give you free legal advice and valuations", he adds.
If they are overpaying on their home, Rob and Anna may find it hard to address their lack of savings, but this is something they should try to do.
As "rainy day" cash, Mr Perry suggests the couple aim to build up a fund of up to £10,000 - the equivalent of three months' combined pay. Each could invest up to £3,000 in a mini cash ISA with Nationwide, earning 4.85 per cent, he says. Mr Clayden recommends Abbey's postal ISA, which pays 5.35 per cent.
If Anna's equity ISA is a "maxi" (allowing an investment of up to £7,000 in any one tax year), she will have to wait until 6 April before she can invest in a mini ISA.
First, she should call Scottish Widows to find out what fund she is invested in. If it is a straightforward unit trust ISA, Mr Perry recommends switching to the Framlington Equity income fund. If Anna decides to invest in a mini cash and mini equity ISA from next April, she must tell her equity fund manager.
Alternatively, suggests Mr Clayden, she could stop paying the monthly £50 into her Scottish Widows ISA and use the money to overpay on the mortgage instead.
Anna and Rob are fortunate to be in final salary schemes, but "neither is contributing significant sums at present", warns Mr Perry. They could check to see if higher contributions are possible.
Scottish Provident tends to be "middle of the road" for cost, says Mr Perry, but looking for a cheaper policy needs to be approached with care.
Their life policy includes critical illness cover, and this might not be easy (or cheap) to find in a replacement policy, warns Mr Clayden. It's also worth checking what benefits their employer offers in the case of serious illness, he adds; good benefits will push any need for income protection lower down their priority list.
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