Mortgage advice

[Japveesix]

Hi all,

Looking for some mortgage/savings advice and I'll preface it by saying that I'm st with finances, mortgages, pensions etc. Sadly my wife and I are far too alike and being efficient with money isn't our strong point.

We are however but cheapskates and save fairly well, considering our very modest salaries.

Anyway. We want to know if we should pay off our mortgage or if there's something better to do.

We have:

~£53k mortgage, 21 years left
~£60k in the bank between various accounts

We're both early forties, two kids age 2 and 5, both in secure but fairly low paid jobs. Earning around £55+k between us.

At some point within a few years we want to move house, or possibly extend where we are (not the best area though and the local secondary school is crap). Either of these options is likely to be around £100k, perhaps a bit less for the extension, maybe a touch more to move somewhere worthwhile.

We're thinking the sensible thing to do based on current mortgage rates is to pay off the mortgage fully. Start putting more into our pensions (which are both rubbish currently), whilst also saving a little extra. Then wait a year ot two and see if rates come down before taking out a new mortgage to extend or move.

We won't be flat broke if we pay it off, there will still be a small pot there for car/house repairs etc. if we're honest we also have parents who are getting old and have some money so would likely help us out if we got desperate.

Is there a downside to paying off the mortgage now? Our current amazing rate of 1.4% will be long gone when we renew mortgage next year in September anyway, so is it best to just make that saving now and then worry about the future plans further down the line.

Any useful thoughts appreciated. This isn't my strong point (not sure what is) so advice will be willingly taken. We may well see a mortgage advisor soon anyway to get a better idea of how much we could take out if we do want to move.

Thanks

[Stevemr]

If you are currently on a rate of 1.4% you would be better off keeping your savings, 1 year fixed rate isa each, would get you over 4% tax free on £40000 of your savings. The rest can go into isa in April.
Then pay mortgage off when rate ends.

[OutInTheShed]

1) Where will you be in 10, 15 etc years time?
2) As someone who has dabbled in self employment, business, freelancing etc, I have a strong affinity for having a wodge of savings I can access, without having to ask someone. I prefer to not have to worry if there's no work or something goes wrong.
3) Pensions are good, but it ties money up until you are old. There's value in having choice and control.


I would consider stashing some in an ISA, paying off some mortgage and putting some into pension.

It's a question of how you think, what you worry about, your dreams and fears, as much as a clinical 'finance' question.

[Japveesix]

Stevemr said:

If you are currently on a rate of 1.4% you would be better off keeping your savings, 1 year fixed rate isa each, would get you over 4% tax free on £40000 of your savings. The rest can go into isa in April.
Then pay mortgage off when rate ends.

We were just questioning this sort of route actually.

Obviously we should already have much of that savings in an ISA (we don't because we're crap at finances and have two young tricky kids so we barely even talk about it).

The problem now is that if we put money into ISA the interest we made there would surely be negated by the additional cost of taking out a new higher interest mortgage in Sept? Although I suppose in theory we could take all of the money out come Dec (if we got on with this now) and pay it off then having only had a few months on a higher payment...

[Japveesix]

OutInTheShed said:

1)


I would consider stashing some in an ISA, paying off some mortgage and putting some into pension.

It's a question of how you think, what you worry about, your dreams and fears, as much as a clinical 'finance' question.

Neither of us are ever going to earn Pistonheads levels of money, so we've always felt better having plenty in the bank for emergencies, to cover (very infrequent) car buying and so on.

In 10-15 years we'll have older children with less childcare costs, but then perhaps similar horrifying university costs. We'll likely have slightly better but not extraordinary jobs and we'll live in the same area in a mildly nicer house (perhaps our last).

ISA, some mortgage - we're thinking £5k before the year is out and then an additional 10% next year might be sensible at least. I'd certainly start to feel happier if I was paying more into my pension long-term. The posts on here scare me with people worrying about 'only' getting ~£40k a year when they retire, or similar 1st world issues.

[skyebear]

Nationwide, and probably others, have a calculator which will show you the difference overpaying your mortgage will make. Even if you cleared it at the moment would it make a significant difference to your cashflow; what's the monthly repayment ~£230?

No harm in waiting to see what the interest rates do between now and the end of your deal.

I was also looking for financial advice on here and found a few threads where MeaningfulMoney website and YouTube channel was recommended as a starting point.

Edited by skyebear on Sunday 1st December 23:02

[Boringvolvodriver]

skyebear said:

Nationwide, and probably others, have a calculator which will show you the difference overpaying your mortgage will make. Even if you cleared it at the moment would it make a significant difference to your cashflow; what's the monthly repayment ~£230?

No harm in waiting to see what the interest rates do between now and the end of your deal.

Given that your current deal is 1.4%, and your monthly repayment isnt causing any financial pressure, then I would be inclined to keep the mortgage going until closer to the time that the deal expires.

As mentioned, you can get more interest than that on an ISA without tying it up - either a notice account or one with so many withdrawals per annum - look at the non high street providers - I have money with Aldermore Bank who have pretty decent rates for flexible accounts.

Depending on what’s is around in September, then my view would probably to do a mix and match in terms of reducing the mortgage and keeping the savings along with putting the surplus into pensions.

[Edible Roadkill]

Bung the money in NS&I premium bonds as a short term solution and then pay off the mortgage in 10 months time.

[mikeiow]

Edible Roadkill said:

Bung the money in NS&I premium bonds as a short term solution and then pay off the mortgage in 10 months time.

I’d be inclined to get some of it into ISA for the possible tax benefits (if Jap kept it there.

I personally prefer S&S ISA, but since he might want access very soon, take a look at https://www.moneysavingexpert.com/savings/best-cas... for sensible up to date advice - right now, looking at that, I would stick 20k each into the Trading212 cash ISA (4.9% from Dec, a bit more now).

Then I would likely pop the rest of those savings into PBs as you suggest - you can get access within about 3 working days to that money.

[RizzoTheRat]

If you don't already have one, start with a cash ISA. They can be as easy to access as a bank account, pays 4-5% interest, and you can each put up to 20k in per year (year end in April so you can do another 20k each then). Then as it's already in and ISA you can transfer some in to a Stocks and Shares ISA in the future if you decide you have enough readily available savings.

[Edible Roadkill]

There will be penalties for taking the amount out a cash isa before the yr anniversary as the op wishes to pay the mortgage down in sept 25.

I also wouldn’t be looking towards stocks and shares if wishing to liquidate within 10 months.

[mikeiow]

Edible Roadkill said:

There will be penalties for taking the amount out a cash isa before the yr anniversary as the op wishes to pay the mortgage down in sept 25.

I also wouldn’t be looking towards stocks and shares if wishing to liquidate within 10 months.

Penalties?
That will depend on which one you have….hence my posting the MSE link to allow OP to compare.
https://www.trading212.com/terms/cash-isa looks good for him - no penalties on withdrawals there.

Defo agree with not going S&S if this is to be accessed in the near future. I would set that at perhaps 4-5 years….

[RizzoTheRat]

Only if it's a fixed rate ISA, Easy Access ones don't pay as good interest as fixed rate though.

For example Marcus pay the interest monthly with no withdrawal penalties. Some others allow a number (often 3) of penalty free withdrawals per year.

[Japveesix]

skyebear said:

Nationwide, and probably others, have a calculator which will show you the difference overpaying your mortgage will make. Even if you cleared it at the moment would it make a significant difference to your cashflow; what's the monthly repayment ~£230?
e]

£530

And we have fairly high childcare costs currently plus relatively low salaries so it would certainly make a difference. Could both put an extra percentage into pension, plus save another ~£200 or whatever for house stuff or cars.

I'll have a look at a calculator as I can't work out whether it's worth it either, at least not until our mortgage rates shoots up.

[Ultuous]

Japveesix said:

skyebear said:

Nationwide, and probably others, have a calculator which will show you the difference overpaying your mortgage will make. Even if you cleared it at the moment would it make a significant difference to your cashflow; what's the monthly repayment ~£230?
e]

£530

And we have fairly high childcare costs currently plus relatively low salaries so it would certainly make a difference. Could both put an extra percentage into pension, plus save another ~£200 or whatever for house stuff or cars.

I'll have a look at a calculator as I can't work out whether it's worth it either, at least not until our mortgage rates shoots up.

Something seems a little odd here - borrowing 53k over 21 years at 1.4% (AER) should be around £230-240 per month by my calcs!

[Japveesix]

Ultuous said:

Something seems a little odd here - borrowing 53k over 21 years at 1.4% (AER) should be around £230-240 per month by my calcs!

We borrowed a lot more than that originally, but we then paid a couple of big chunks off after getting some inheritance over the last few years but kept our payments the same. They don't automatically change, or maybe they asked us and we said to carry on (can't quite remember).

[skyebear]

Japveesix said:

Ultuous said:

Something seems a little odd here - borrowing 53k over 21 years at 1.4% (AER) should be around £230-240 per month by my calcs!

We borrowed a lot more than that originally, but we then paid a couple of big chunks off after getting some inheritance over the last few years but kept our payments the same. They don't automatically change, or maybe they asked us and we said to carry on (can't quite remember).

Ok so in that case it's unlikely you have 21 years remaining. On your figures it would be more like 8!

Check your current mortgage product for any early repayment charges. If you do go down that road it might be worth waiting for your deal to end in September and then pay it off.

Edited by skyebear on Monday 2nd December 23:09

[PlywoodPascal]

given that you say you want to move house or extend within a year or two, and given you are on a low mortgage rate of 1.4 % at the moment, what I would do is:

- stick the savings in ISA ASAP and just get 4-5% interest in an easy access account until your mortgage deal ends. You will be better off doing that than overpaying the current mortgage.
- when you need to remortgage, I think I'd put about half of the savings in as extra equity...

thinking:

- for now, your savings earn more interest than the mortgage costs you. think of this as you are paying 1.4% to "borrow" your 50k savings, which you can put in an account and earn ~4% interest on...
- you want to use the savings for a bigger or embiggening your current house soon, so anything other than cash savings is too risky
- when you do remortgage, your mortgage will be smaller so you can start to pay into pension from income...
- not putting all your savings into mortgage gives you some options if you need a chunk of cash.

Edited by PlywoodPascal on Monday 2nd December 23:19

[Spare tyre]

OP, you are not awful at money. Most folk have fk all savings, well done

Always take a long term view which is what you are doing

[Juan B]

Japveesix said:

We're both early forties, two kids age 2 and 5, both in secure but fairly low paid jobs.

Good savings, and I'm even more impressed by the kids having secure jobs at 2 and 5.