Rationalising mortgage options
Discussion
I'm due to remortgage shortly, I haven't chosen a product, still undecided on fixed or tracker products. But for the purposes of comparison I'm working with what Halifax have offered, 4.42% fixed for 5 years.
I have a fair bit of cash savings from a property sale.
Mortgage £250k
Cash savings £145k
Currently paying £1250/month at 1.56%
Higher rate tax payer so can only earn £500 interest before 40% tax hits it, unless in PB's or ISAs. Current house meets all our needs and have no inclination to move.
I've been looking at my options as follows:
Option 1 - continue mortgage as it is 250k @ 4.42% over 22 years is around £1417/month. Invest cash / lock 80k away in ISAs at around 4%. Potential issues with taxable income and cgt on investments.
Option 2 - pay 10% off current balance. 225k @ 4.42 over 22 years is exactly what the monthlies are at the moment, £1250/month.
Option 3 - pay off lump sum, reduce term. 120k @ 4.42 over 15 years is around £913/month. This leaves 15k rainy day fund (I do have some stocks and shares if s
t really hit the fan). Will allow us to save £300/month more and bolster cash savings again.
Option 4 - somewhere in between?
Acutely aware kids may be on the cards in the next couple of years, which will obviously hit finances and household income., hence Option 3 to reduce the monthly outgoings
Not looking for advice, more opinions or potentially other options to consider.
I have a fair bit of cash savings from a property sale.
Mortgage £250k
Cash savings £145k
Currently paying £1250/month at 1.56%
Higher rate tax payer so can only earn £500 interest before 40% tax hits it, unless in PB's or ISAs. Current house meets all our needs and have no inclination to move.
I've been looking at my options as follows:
Option 1 - continue mortgage as it is 250k @ 4.42% over 22 years is around £1417/month. Invest cash / lock 80k away in ISAs at around 4%. Potential issues with taxable income and cgt on investments.
Option 2 - pay 10% off current balance. 225k @ 4.42 over 22 years is exactly what the monthlies are at the moment, £1250/month.
Option 3 - pay off lump sum, reduce term. 120k @ 4.42 over 15 years is around £913/month. This leaves 15k rainy day fund (I do have some stocks and shares if s
t really hit the fan). Will allow us to save £300/month more and bolster cash savings again.Option 4 - somewhere in between?
Acutely aware kids may be on the cards in the next couple of years, which will obviously hit finances and household income., hence Option 3 to reduce the monthly outgoings
Not looking for advice, more opinions or potentially other options to consider.
Bluequay said:
Offset mortgage?
I'd do this if it were me, personally. Why? Effectively you earn your mortgage rate as tax free interest on the cash savings, which is nice as higher rate tax payer.
You reduce your monthly outgoings immediately.
You still have your entire rainy day fund available, and can dip in and out as necessary.
As savings continue to grow, you reduce your payment more.
If you do want to buy something fun, you effectively have an instant loan at your mortgage rate.
And this is why this forum is great.
If my thinking is correct, offset mortgages do look favourable, regardless to the rate. Any further savings will be at the mortgage rate ie. 4.75%, which is certainly preferable. Plus the more cash we save the greater the savings are on the mortgage costs, seems a bit of a win win.
As you say I can keep liquity without the expense of getting shafted on tax. Quick online calculators indicate after around 12 years the cash balance will be equal to the mortgage value.
More research into these products is required, still open to other ideas, but this has certainly changed my train of thought.
If my thinking is correct, offset mortgages do look favourable, regardless to the rate. Any further savings will be at the mortgage rate ie. 4.75%, which is certainly preferable. Plus the more cash we save the greater the savings are on the mortgage costs, seems a bit of a win win.
As you say I can keep liquity without the expense of getting shafted on tax. Quick online calculators indicate after around 12 years the cash balance will be equal to the mortgage value.
More research into these products is required, still open to other ideas, but this has certainly changed my train of thought.
Edited by Rob_125 on Tuesday 20th December 11:35
Do you think you will need that money in the near term? Kids aren't actually that expensive initially, few grand here or there on crap but it isn't dramatic, the real cost of children depends on what your wife earns, the terms of her mat policy, and what she plans to do after that ends. Nursery will obliterate most mother salaries given the way women are paid vs men in many cases.
For me, I'd be thinking about how that 150k could actually be something vast if invested and compounding does its work over a longer period (think pension mk2), something you'd never be able to save and would be life changing.
I don't know what you mean by higher rate tax payer as that could be 50 odd or 120k, vastly different. If nearer the latter then £1k per month or so on a mortgage doesn't really seem like it matters all that much and certainly wouldn't be where a huge chunk of cash I'd struggle to save again would be going. My wife bangs on about being mortgage free and I ask her how we would live differently with that money in our pockets "save more I guess" is what I've heard back, hardly inspiring stuff.
For me, I'd be thinking about how that 150k could actually be something vast if invested and compounding does its work over a longer period (think pension mk2), something you'd never be able to save and would be life changing.
I don't know what you mean by higher rate tax payer as that could be 50 odd or 120k, vastly different. If nearer the latter then £1k per month or so on a mortgage doesn't really seem like it matters all that much and certainly wouldn't be where a huge chunk of cash I'd struggle to save again would be going. My wife bangs on about being mortgage free and I ask her how we would live differently with that money in our pockets "save more I guess" is what I've heard back, hardly inspiring stuff.
This is the dilemma. We don't need the cash savings at all, in terms of big outgoings in the near term. Worst case the Mrs's 12 year old fabia bites the dust and we spend 5k on a new car for her. I don't 'need' either of my vehicles as I commute by bicycle to work, in the event one or both were off the road. House is only 8 years old, so that's good for another few years.
To confirm, £50k earning rate. So 40% tax on earnings above this and interest earnings amounts over £500.
Partner is on mid 30s salary wise, but obviously that will change massively with children and reduced working hours.
Currently we are comfortable with our outgoings. No desire to spend loads of cash, though we have what we want, neither of us are particularly frivolous.
I currently save into a company share scheme (£1800/ yr), drip feed £400/month into a S&S isa and have a few punts on individual stocks on Hargreaves Landsdown. Current investment portfolio is worth just under £40k. Additionally to this I save between 500 and 1000 a month.
23% salary into pension (personal and company contributions), which is worth just over 100k currently, with plenty of time to grow - I'm currently 31. So I'm content with pension provision. However making investment to retire at 55 would be the dream, although that's kind of what the HL investments are.
We are in a very fortunate position, but it's getting that ~140k working for us in the best way is the dilemma I guess.
To confirm, £50k earning rate. So 40% tax on earnings above this and interest earnings amounts over £500.
Partner is on mid 30s salary wise, but obviously that will change massively with children and reduced working hours.
Currently we are comfortable with our outgoings. No desire to spend loads of cash, though we have what we want, neither of us are particularly frivolous.
I currently save into a company share scheme (£1800/ yr), drip feed £400/month into a S&S isa and have a few punts on individual stocks on Hargreaves Landsdown. Current investment portfolio is worth just under £40k. Additionally to this I save between 500 and 1000 a month.
23% salary into pension (personal and company contributions), which is worth just over 100k currently, with plenty of time to grow - I'm currently 31. So I'm content with pension provision. However making investment to retire at 55 would be the dream, although that's kind of what the HL investments are.
We are in a very fortunate position, but it's getting that ~140k working for us in the best way is the dilemma I guess.
Edited by Rob_125 on Tuesday 20th December 13:35
Similar quandary but smaller figures
I owe around 90k 9yrs left, paying around 1100mnth currently.
With rates 3x what they were I’m going to pay the lot off in March using savings and investments I’ve cashed in (prior to capital gains tax changes) when my current deal ends.
Then going forward the mortgage payment becomes avc payments, 42% tax relief at source and will allow me to retire at 57 with the security of owning my own house nearly a decade earlier than planned.
I owe around 90k 9yrs left, paying around 1100mnth currently.
With rates 3x what they were I’m going to pay the lot off in March using savings and investments I’ve cashed in (prior to capital gains tax changes) when my current deal ends.
Then going forward the mortgage payment becomes avc payments, 42% tax relief at source and will allow me to retire at 57 with the security of owning my own house nearly a decade earlier than planned.
Option 4 - pay off lump sum, reduce term. 120k @ 4.42 over 15 years is around £913/month. Then make overpayments to continue payments at £1250 and pay it off earlier.
But then if you need the extra cashflow should ‘life happen’ as it does, just pause the overpayment.
Firm believer that there’s no better feeling than knowing your homes paid down and secure no matter what happens.
But then if you need the extra cashflow should ‘life happen’ as it does, just pause the overpayment.
Firm believer that there’s no better feeling than knowing your homes paid down and secure no matter what happens.
Edited by Edible Roadkill on Tuesday 20th December 16:24
Edible Roadkill said:
Option 4 - pay off lump sum, reduce term. 120k @ 4.42 over 15 years is around £913/month. Then make overpayments to continue payments at £1250 and pay it off earlier.
No better feeling knowing your homes paid down and secure no matter what happens.
I see a lot of the last statement, when you have investments and savings that almost/cover cover the mortgage, who cares whether you have one or not?No better feeling knowing your homes paid down and secure no matter what happens.
For me, the 140k into Isa’s over the next 36 months and then using the monthly saving to overpay the mortgage makes more long term sense. £200k compounding tax free for 22 years with a pension on the side looking healthy is far greater than the prospect of getting rid of a relatively small mortgage and then trying to get to the same place with small monthly contributions.
You could double your salary in the next 5 years, meaning those overpayments could become even larger Saving £140k and having those 5 years in market (in theory but your pension is doing the same anyway) are way more valuable than a bit of saved mortgage interest.
That all said, you’d want some money not in investments for a buffer. But you get the drift.
okgo said:
Edible Roadkill said:
Option 4 - pay off lump sum, reduce term. 120k @ 4.42 over 15 years is around £913/month. Then make overpayments to continue payments at £1250 and pay it off earlier.
No better feeling knowing your homes paid down and secure no matter what happens.
I see a lot of the last statement, when you have investments and savings that almost/cover cover the mortgage, who cares whether you have one or not?No better feeling knowing your homes paid down and secure no matter what happens.
Plus as pointed out the mortgage payment can go into pension, 40-42% up immediately. Personally my legal and general AVC’s have performed steadily, much more safe than picks on s&s isa’s.
Each to their own though.
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