No hurry to pay off the mortgage
Discussion
Downward said:
How can you calculate the most financial savvy thing to do when comparing overpayments to investments ?
I have overpayed the last 2 years to get my mortgage to 75% ltv.
Currently overpay around 15% of monthly payments.
Other spare cash is invested in Franklin uk managers focus fund s which I started investing in last month.
Interest rate of mortgage is 1.74%
Pretty easy I have overpayed the last 2 years to get my mortgage to 75% ltv.
Currently overpay around 15% of monthly payments.
Other spare cash is invested in Franklin uk managers focus fund s which I started investing in last month.
Interest rate of mortgage is 1.74%
If x>Y then it's better
Robertj21a said:
SkinnyPete said:
Took a 35 year mortgage out 5 years ago, sounds like an awful idea on paper but while mortgages are so cheap and I'm in my prime I thought id keep the payments down and enjoy the cash in the here and now.
Plus I can always pay more, I can never pay less.
As soon as rates increase I'll make paying it off more of a priority.
Anyone else?
What happens if, later on, you're taken ill and can't work ?Plus I can always pay more, I can never pay less.
As soon as rates increase I'll make paying it off more of a priority.
Anyone else?
Anyway my car is worth 50% of my outstanding mortgage and paid for in full, so worse case I could always sell and the funds raised would pay my mortgage for 11 years.
I'm personally working to pay off the mortgage as soon as possible, for two main reasons:
- Interest rates will have to go up (although nobody knows when or how quickly), I think 7% mortgage rates are going to catch people out when it does come.
- When fully paid off the mortgage payment can go towards investments, holidays, etc rather than paying the interest on the debt. Also when I move up the ladder the LTV will be lower resulting in better interest rates and more opportunities.
You might be able to invest and get a better return than the mortgage rate, however that's does carry some risk so I think a balanced approach with overpaying the mortgage and some investing is advised. If I had the time to devote to getting large investment gains this might be different.
- Interest rates will have to go up (although nobody knows when or how quickly), I think 7% mortgage rates are going to catch people out when it does come.
- When fully paid off the mortgage payment can go towards investments, holidays, etc rather than paying the interest on the debt. Also when I move up the ladder the LTV will be lower resulting in better interest rates and more opportunities.
You might be able to invest and get a better return than the mortgage rate, however that's does carry some risk so I think a balanced approach with overpaying the mortgage and some investing is advised. If I had the time to devote to getting large investment gains this might be different.
My advice to anyone would be to pay off the mortgage as soon as you can. The amount of freedom you get once your house belongs to you 100% is huge.
Its the most liberating thing you will ever do.
Also given that the mortgage is probably the single biggest monthly bill you pay, its amazing how cheaply you can live when you are mortgage free.
In my 30's I was probably over leveraged but I did have the new Alfa on the drive of the big 4 bed house ( for just me and the Mrs) , she had the new Beemer, I had the Jaguar classic car in the garage, the speedboat down the side of the garage, three foreign holidays a year and a nice business as a sideline to our normal jobs.
The divorce wiped all that out.
So at 34 I started again. However I promised myself I would not borrow again apart from the mortgage and 16 years later I was mortgage free. We have our perfect house ( for us) and no buggar can turf us out of it.
I have a lifestyle business ( ie I do what I want, when I want) and the Mrs is retiring early. We have no stress, all our money is really for spending on ourselves and we are having a blast.
If we still had a mortgage we would be chained to work.
Choose freedom, get that morgage paid off asap.
Cheers,
Tony
Its the most liberating thing you will ever do.
Also given that the mortgage is probably the single biggest monthly bill you pay, its amazing how cheaply you can live when you are mortgage free.
In my 30's I was probably over leveraged but I did have the new Alfa on the drive of the big 4 bed house ( for just me and the Mrs) , she had the new Beemer, I had the Jaguar classic car in the garage, the speedboat down the side of the garage, three foreign holidays a year and a nice business as a sideline to our normal jobs.
The divorce wiped all that out.
So at 34 I started again. However I promised myself I would not borrow again apart from the mortgage and 16 years later I was mortgage free. We have our perfect house ( for us) and no buggar can turf us out of it.
I have a lifestyle business ( ie I do what I want, when I want) and the Mrs is retiring early. We have no stress, all our money is really for spending on ourselves and we are having a blast.
If we still had a mortgage we would be chained to work.
Choose freedom, get that morgage paid off asap.
Cheers,
Tony
colin86 said:
Everyone has there own views but personally a think that being mortgage free is a good thing that's why we are over paying the now while rates are low. If you lose your job or anything comes up at least the house is paid.
Totally agree. In uncertain times there's nothing as reassuring as knowing that you own that roof over your head.One of my lads aged 28 has just got married and bought a nice house, he was going to take out a 25 year mortgage, but opted to pay more, because he could afford to, without too much pressure, he will now own it in twelve years aged 40.
It's always better to pay more (if you can), but it's not nice scrimping and saving and living on beans and toast.
As always, it depends on your personal circumstances.
I feel sorry for anyone young living in London.
Another son rents a quarter share in an ordinary smallish terraced house on an ordinary street in Highgate, and there isn't house worth less than a million pounds, they usually sell in four or five days.
He is paying around £1500pm for his quarter share. Dead money, Crazy.
However he is planning to move to Amsterdam soon and buy something.
It's always better to pay more (if you can), but it's not nice scrimping and saving and living on beans and toast.
As always, it depends on your personal circumstances.
I feel sorry for anyone young living in London.
Another son rents a quarter share in an ordinary smallish terraced house on an ordinary street in Highgate, and there isn't house worth less than a million pounds, they usually sell in four or five days.
He is paying around £1500pm for his quarter share. Dead money, Crazy.
However he is planning to move to Amsterdam soon and buy something.
For me its a game.
In 2010 i was a ftb and had managed to save a 20% deposit for our first 265k house. This was taken on a 35yr mortgage. I didn't over pay but what i did was to massively improve the house.
Factor in the increased value of the work done and the natural house price rises we were this year able to buy a 600k house with a 30% deposit on a 29yr term.
We were able to keep back pretty much enough money to renovate the house, we believe we bought this one for a good price. Once the work is done i fail to see how it won't be worth 700, possibly more. So in a year we will have gone from 30% equity to 42% when we factor in our payment, this is requiring the house prices to stay stable.ii am also over paying 300 a month, if things stay as they are it brings our term down to 23 years. I have looked at paying more and may well do so when the works all done.
So in 8 years we have gone from that 20% deposit to having 300k if we sold up and decided to live elsewhere.
My plan is to build as much equity as possible, move maybe 1 or 2 more times and then downsize when older. We are lucky that the mrs has a decent job and pension.
That said we may stay here a good 10 years, i believe the town we live in will have some major house price rises coming, the addition of a planned 1000 homes can only have a knock on effect to others, once countryside starts building smaller houses on smaller plots than ours for 850k thats going to help a lot.
People talk about the mortgage being a chain around their neck etc and i do get that, however for us the other monthly bills are equal or more than the mortgage. I also imagine the vast majority of us wouldn't choose to 'invest' the mortgage payment but rather spunk it up the wall on takeaways, beer, clothes and other s
t thats not really necessary. I suppose it all depends on age, occupation and how you feel about actually owing the money. Like i say for us the mrs has a decent job with benefits, I've got critical illness cover and have been fortunate enough to always be busy enough to afford the mortgage payments.
In 2010 i was a ftb and had managed to save a 20% deposit for our first 265k house. This was taken on a 35yr mortgage. I didn't over pay but what i did was to massively improve the house.
Factor in the increased value of the work done and the natural house price rises we were this year able to buy a 600k house with a 30% deposit on a 29yr term.
We were able to keep back pretty much enough money to renovate the house, we believe we bought this one for a good price. Once the work is done i fail to see how it won't be worth 700, possibly more. So in a year we will have gone from 30% equity to 42% when we factor in our payment, this is requiring the house prices to stay stable.ii am also over paying 300 a month, if things stay as they are it brings our term down to 23 years. I have looked at paying more and may well do so when the works all done.
So in 8 years we have gone from that 20% deposit to having 300k if we sold up and decided to live elsewhere.
My plan is to build as much equity as possible, move maybe 1 or 2 more times and then downsize when older. We are lucky that the mrs has a decent job and pension.
That said we may stay here a good 10 years, i believe the town we live in will have some major house price rises coming, the addition of a planned 1000 homes can only have a knock on effect to others, once countryside starts building smaller houses on smaller plots than ours for 850k thats going to help a lot.
People talk about the mortgage being a chain around their neck etc and i do get that, however for us the other monthly bills are equal or more than the mortgage. I also imagine the vast majority of us wouldn't choose to 'invest' the mortgage payment but rather spunk it up the wall on takeaways, beer, clothes and other s
t thats not really necessary. I suppose it all depends on age, occupation and how you feel about actually owing the money. Like i say for us the mrs has a decent job with benefits, I've got critical illness cover and have been fortunate enough to always be busy enough to afford the mortgage payments.I would suggest that people posting in this thread are not exactly the majority of the UK population...
Most people at <30 are struggling to buy a house in the first place, let alone looking to overpay and have it owned by 40 years old.
Personally Im in no hurry. I overpay a little bit, because I have no intention of still paying for it in 35 years time, but would rather have the holidays, the boat, the nice car and the meals out than scrimp and save just to say I own the house in 10 years. Life is for living, and you may as well enjoy the money while you're young than sit on it when you're old.
Most people at <30 are struggling to buy a house in the first place, let alone looking to overpay and have it owned by 40 years old.
Personally Im in no hurry. I overpay a little bit, because I have no intention of still paying for it in 35 years time, but would rather have the holidays, the boat, the nice car and the meals out than scrimp and save just to say I own the house in 10 years. Life is for living, and you may as well enjoy the money while you're young than sit on it when you're old.
Wacky Racer said:
One of my lads aged 28 has just got married and bought a nice house, he was going to take out a 25 year mortgage, but opted to pay more, because he could afford to, without too much pressure, he will now own it in twelve years aged 40.
It's always better to pay more (if you can), but it's not nice scrimping and saving and living on beans and toast.
As always, it depends on your personal circumstances.
I feel sorry for anyone young living in London.
Another son rents a quarter share in an ordinary smallish terraced house on an ordinary street in Highgate, and there isn't house worth less than a million pounds, they usually sell in four or five days.
He is paying around £1500pm for his quarter share. Dead money, Crazy.
However he is planning to move to Amsterdam soon and buy something.
I think one thing to say about clearing it by 40 (and then you don't go on again and restart) is that most will have a family and very young kids. So as the mortgage cost goes it's replaced by child or multiple costs -- having both plus losing a salary for good makes it even harder It's always better to pay more (if you can), but it's not nice scrimping and saving and living on beans and toast.
As always, it depends on your personal circumstances.
I feel sorry for anyone young living in London.
Another son rents a quarter share in an ordinary smallish terraced house on an ordinary street in Highgate, and there isn't house worth less than a million pounds, they usually sell in four or five days.
He is paying around £1500pm for his quarter share. Dead money, Crazy.
However he is planning to move to Amsterdam soon and buy something.
We took ours out over 35 years too to enable us to pay as little as possible due to baby on the way and maternity leave initially.
We have around £70-80k equity at the moment, and will be able to remortgage to a shorter term in a few years when back to work and with the benefit of an improved LTV (pending no crashes!)
We have fully stripped and refurbed the house from top to bottom, but also want to save to do further work down the line
We have around £70-80k equity at the moment, and will be able to remortgage to a shorter term in a few years when back to work and with the benefit of an improved LTV (pending no crashes!)
We have fully stripped and refurbed the house from top to bottom, but also want to save to do further work down the line
mangos said:
We took ours out over 35 years too to enable us to pay as little as possible due to baby on the way and maternity leave initially.
We have around £70-80k equity at the moment, and will be able to remortgage to a shorter term in a few years when back to work and with the benefit of an improved LTV (pending no crashes!)
We have fully stripped and refurbed the house from top to bottom, but also want to save to do further work down the line
One thing you should check the current deal you have you might be able to overpay on it as is whecervyou like or a max of 10% a year or whatever - maybe not possible but by making direct overpayments the term simply dropsWe have around £70-80k equity at the moment, and will be able to remortgage to a shorter term in a few years when back to work and with the benefit of an improved LTV (pending no crashes!)
We have fully stripped and refurbed the house from top to bottom, but also want to save to do further work down the line
I was looking at paying off asap however pension also needs consideration. Better returns on pension investment and better longer term gains.
The other thing that I need to weigh up is the lifetime ISA. At 35 I could get a return 125k in on a 100k investment (4k\max allowed\year) before any interest. A30 year mortgage I could cut my payments and use the ISA to pay off. I need to look into this more but if your hitting 60 and still have a mortgage it may be an option.
The other thing that I need to weigh up is the lifetime ISA. At 35 I could get a return 125k in on a 100k investment (4k\max allowed\year) before any interest. A30 year mortgage I could cut my payments and use the ISA to pay off. I need to look into this more but if your hitting 60 and still have a mortgage it may be an option.
I pay triple what I have to pay on our home, not worth much and using it as a savings pot for a "family" home that I am looking to buy in 2 years time, probably a renovation job so we can make a few quid when / if we ever need to sell it.
So happy to be up North, even a nice semi / detached in Chester city centre will see change from £500k, head to where my parents live and I don't think there is a house for sale over £350k! (5 bed detached).
So happy to be up North, even a nice semi / detached in Chester city centre will see change from £500k, head to where my parents live and I don't think there is a house for sale over £350k! (5 bed detached).
Everyone's circumstances are different, and age, lifestyle, other commitments, investing in adding value to a home etc are considerations, but whilst interest rates are so low relative to low-risk returns available to almost everybody most people would benefit from:
1. pension contributions as tax relief and compounded tax-free gains on pre-tax investment are likely to exceed returns on mortgage interest (and it may be possible to use a tax-free lump sum to pay a mortgage down), then
2. investment in ISA as compound tax-free gains on post-tax investment are likely to exceed mortgage interest, then
3. overpay a mortgage then
4. taxable investments, unless post-tax investment return exceeds mortgage interest.
1. pension contributions as tax relief and compounded tax-free gains on pre-tax investment are likely to exceed returns on mortgage interest (and it may be possible to use a tax-free lump sum to pay a mortgage down), then
2. investment in ISA as compound tax-free gains on post-tax investment are likely to exceed mortgage interest, then
3. overpay a mortgage then
4. taxable investments, unless post-tax investment return exceeds mortgage interest.
Haven't got one yet but will do in the next 12 months, plan is to get it over a 30 year term but over pay as much as possible to get it down.
Once paid off then the toys can start coming in, not sure I agree with just paying the minimum. Yes it is nice to have money now & be able to do things but with so much uncertainty going on at the moment I'd rather have the lesser life style for a while in order to have a house paid off that nobody can take.
Question for those who have paid it off so quickly, aside from earning a high salary, what tips do you have in order to pay it off quickly?
Once paid off then the toys can start coming in, not sure I agree with just paying the minimum. Yes it is nice to have money now & be able to do things but with so much uncertainty going on at the moment I'd rather have the lesser life style for a while in order to have a house paid off that nobody can take.
Question for those who have paid it off so quickly, aside from earning a high salary, what tips do you have in order to pay it off quickly?
Edited by bobski1 on Friday 9th June 13:21
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