No hurry to pay off the mortgage
Discussion
Being able to overpay is a nice problem to have. But the best thing to do might not be the 'rational' answer - it all depends on your situation and preferences. There are a lot of moving pieces but suggest 2 important considerations:
1) Risk appetite: Servicing debt is cheap right now. You would reasonably expect to have >3% returns from equity investments (for example putting it with Nutmeg or another lost-cost investment manager). So if you're ok with the risk, investing like this would be *expected* to leave you wealthier in the longer term than paying off a very low-interest loan.
2) Option Value: Irrationally, there's something special about knowing that your mortgage debt is going down - an opinion a bunch of people have expressed here. Paying off the mortgage (like paying into pensions) ties up capital though. For some people that's a bad thing - they would not have accessible cash on hand for that new business idea, or second home deposit. For others, who cannot trust themselves not to incinerate extra cash on <insert fun stuff here>, mortgage overpayments might be a good shout to encourage good behaviour.
So it's up to you. What's generally not true is that shorter-termed mortgages are the way to go. Unless you have extremely punitive early repayment charges, it's best to take a longer-term mortgage and retain the option to overpay (the term will automatically be shortened when you do this) rather than be forced to pay more each month.
1) Risk appetite: Servicing debt is cheap right now. You would reasonably expect to have >3% returns from equity investments (for example putting it with Nutmeg or another lost-cost investment manager). So if you're ok with the risk, investing like this would be *expected* to leave you wealthier in the longer term than paying off a very low-interest loan.
2) Option Value: Irrationally, there's something special about knowing that your mortgage debt is going down - an opinion a bunch of people have expressed here. Paying off the mortgage (like paying into pensions) ties up capital though. For some people that's a bad thing - they would not have accessible cash on hand for that new business idea, or second home deposit. For others, who cannot trust themselves not to incinerate extra cash on <insert fun stuff here>, mortgage overpayments might be a good shout to encourage good behaviour.
So it's up to you. What's generally not true is that shorter-termed mortgages are the way to go. Unless you have extremely punitive early repayment charges, it's best to take a longer-term mortgage and retain the option to overpay (the term will automatically be shortened when you do this) rather than be forced to pay more each month.
chriso9 said:
What's generally not true is that shorter-termed mortgages are the way to go. Unless you have extremely punitive early repayment charges, it's best to take a longer-term mortgage and retain the option to overpay (the term will automatically be shortened when you do this) rather than be forced to pay more each month.
Definitely agree. I've left mine at the original 25 year term, regardless of the amount being overpaid.My theory is to overpay some now to get the debt down, then if/when rates go up you can put money in to investment rather than paying down the increased debt.
I overpay by 50%, which doesn't mean I'm on bread and water but obviously helps reduce the debt quite a bit. I should be paying double really. I don't think you want to compromise everything else to pay a mortgage off.
I think being mortgage free gives some peace of mind and I think I'm fairly close to that.
I'm sure some would say in my position I should be looking to move up the ladder a bit, but I'm not really willing to take on the debt to do that (it'd be significant).
I overpay by 50%, which doesn't mean I'm on bread and water but obviously helps reduce the debt quite a bit. I should be paying double really. I don't think you want to compromise everything else to pay a mortgage off.
I think being mortgage free gives some peace of mind and I think I'm fairly close to that.
I'm sure some would say in my position I should be looking to move up the ladder a bit, but I'm not really willing to take on the debt to do that (it'd be significant).
I am overpaying my mortgage when able to as obviously easier to pay off at lower interest rates rather than waiting till interest rates go up
originally was given choice of reducing monthly amount or reducing time on mortgage,up until 3-4 yrs ago chose time but now when offered choice if I choose time I have to get my whole mortgage looked at as "I" am altering the length of mortgage so for £250 just decrease monthly payment
originally was given choice of reducing monthly amount or reducing time on mortgage,up until 3-4 yrs ago chose time but now when offered choice if I choose time I have to get my whole mortgage looked at as "I" am altering the length of mortgage so for £250 just decrease monthly payment
We have had an offset mortgage for years, and have been lucky enough to have more in savings than we owe.
We have paid no interest for several years now.
we currently pay £1800 a month and work on the basis that whether we pay it off now or later it doesn't matter. If we pay it off now we lose the lump sum and the security that it brings.
If we pay it off over the next 4 years we still have the lump sum at the end.
As the debt reduces we use the excess savings to fund a a couple of btl.
Clearly with higher interest rates this makes more sense, but it works for us.
We have paid no interest for several years now.
we currently pay £1800 a month and work on the basis that whether we pay it off now or later it doesn't matter. If we pay it off now we lose the lump sum and the security that it brings.
If we pay it off over the next 4 years we still have the lump sum at the end.
As the debt reduces we use the excess savings to fund a a couple of btl.
Clearly with higher interest rates this makes more sense, but it works for us.
bobski1 said:
What are the disadvantages of running with an offset mortgage? Had a brief read & it seems a good way to put savings to good use & helps pay off a bit quicker.
The rates on an offset mortgage can be higher than non-offset ones.Plus you have no savings which could be put in an account and the interest used to offset a non-offset mortgage instead.
KTF said:
Plus you have no savings which could be put in an account and the interest used to offset a non-offset mortgage instead.
There are not that many savings accounts that will pay higher interest rates than you pay on a mortgage, especially adjusting for the unequal income tax treatment. If there were, it would be quite hard for banks to make money.KTF said:
There are a few high interest current accounts that could be used to stash the overpayments in but even with the low mortgage rates available the returns will not be huge.
A lot of those I think you are capped out at relatively low £ amounts / the high rate only applies for a teaser period.Jesus. There are plenty of assumptions made by some on this thread.
Okgo hit the nail on the head - there are some (one at least being a financial planner, terrifyingly) who can't understand that not everyone goes for the most expensive house they can get their hands on. Comments like "the only way to do that will be investment returns etc". What rubbish.
That may be true for you, but others may have substantially higher salaries than you, or substantially less mortgage debt vs income. I own in the Dales, a beautiful little cottage. I could have leveraged the s
t out myself, but this is all my wife and I need for a holiday home - and it's 80% less than what we could have bought, so we paid cash. My other place is mortgaged, and again, I do what I can to over pay.
As others have said, budget is key. You can only plug the leaks if you know where they are. You may be surprised at where multiple seemingly inconsequential amounts are leaking out. I certainly was. Starbucks, work lunches etc. These are usually pretty easy to reign in when you're aware of them. As for phone/gym/Netflix/club membership etc, you need to be realistic about how far you can slash.
You need some balance, as you're a long time dead. I ditched a few things that I literally never used (gym), hunted for a better phone contract, modified my TV package, but kept a club membership, because I enjoy it. My wife is great on the food & grocery budget - she plans meals a few days out, and manages to draw up a menu for the week with lots of common ingredients. These are all budget items that everyone will have, regardless of whether they're high earners. Like Jimmy Nail said on a Tesco advert - every little helps, and even moreso on a smaller mortgage, as these things will provide a greater percentage overpayment.
Also, I don't see much willy-waving - people have merely told their story of how they beat down their mortgage. This happens across the financial spectrum.
For me, I'm not a wise-guy who assumes he can make more by investing than overpaying debt. So, for security purposes alone, I'm a big proponent of doing what you can (within reason) to own your place outright. I appreciate some can use debt to make money, and more power to them. For me, I take piece in owning outright, because I know if my circumstances tumble, I will need only a very modest income to get by.
A little goes a long way, as they say. You'll appreciate your financial comfort more than your Starbucks or 6 quid sandwiches when you're at work.
Okgo hit the nail on the head - there are some (one at least being a financial planner, terrifyingly) who can't understand that not everyone goes for the most expensive house they can get their hands on. Comments like "the only way to do that will be investment returns etc". What rubbish.
That may be true for you, but others may have substantially higher salaries than you, or substantially less mortgage debt vs income. I own in the Dales, a beautiful little cottage. I could have leveraged the s
t out myself, but this is all my wife and I need for a holiday home - and it's 80% less than what we could have bought, so we paid cash. My other place is mortgaged, and again, I do what I can to over pay. As others have said, budget is key. You can only plug the leaks if you know where they are. You may be surprised at where multiple seemingly inconsequential amounts are leaking out. I certainly was. Starbucks, work lunches etc. These are usually pretty easy to reign in when you're aware of them. As for phone/gym/Netflix/club membership etc, you need to be realistic about how far you can slash.
You need some balance, as you're a long time dead. I ditched a few things that I literally never used (gym), hunted for a better phone contract, modified my TV package, but kept a club membership, because I enjoy it. My wife is great on the food & grocery budget - she plans meals a few days out, and manages to draw up a menu for the week with lots of common ingredients. These are all budget items that everyone will have, regardless of whether they're high earners. Like Jimmy Nail said on a Tesco advert - every little helps, and even moreso on a smaller mortgage, as these things will provide a greater percentage overpayment.
Also, I don't see much willy-waving - people have merely told their story of how they beat down their mortgage. This happens across the financial spectrum.
For me, I'm not a wise-guy who assumes he can make more by investing than overpaying debt. So, for security purposes alone, I'm a big proponent of doing what you can (within reason) to own your place outright. I appreciate some can use debt to make money, and more power to them. For me, I take piece in owning outright, because I know if my circumstances tumble, I will need only a very modest income to get by.
A little goes a long way, as they say. You'll appreciate your financial comfort more than your Starbucks or 6 quid sandwiches when you're at work.
p1stonhead said:
bobski1 said:
What are the disadvantages of running with an offset mortgage? Had a brief read & it seems a good way to put savings to good use & helps pay off a bit quicker.
Opportunity loss from being able to put the savings into investments.I do this all the time with the offset cash.
The 2 biggest drawbacks as I see versus overpaying the mortgage are:
1. Mortgage rates tend to be a little higher with offsets
2. The cash in the offset account will count as savings if you needed to claim certain benefits.
The other drawback would be if you were rubbish at resisting the temptation to spend the cash. But if that's the case, you'd probably not even think of an offset in the first place.
anonymous said:
[redacted]
But why the need to overpay in an offset?You could have just kept Mortgage minus £1 in the offset account for the final 12 years of the mortgage. Financially speaking you would have paid the mortgage off, but you'd still have a pot of cash if you needed or wanted it for something else.
oyster said:
anonymous said:
[redacted]
But why the need to overpay in an offset?You could have just kept Mortgage minus £1 in the offset account for the final 12 years of the mortgage. Financially speaking you would have paid the mortgage off, but you'd still have a pot of cash if you needed or wanted it for something else.
There is no right or wrong answer as to whether you should pay off your mortgage early by way of overpayments and everyone's circumstances are different.
I have a mortgage of which £170,000 is an offset mortgage. I inherited £175,000 in the last year and could have paid off my mortgage but instead invested it in a number of funds instead.
The investment has grown by c25%+ in the last year compared to the interest rate I am paying on my mortgage of 1.50%. It would therefore be illogical for me to pay off the mortgage at this stage whilst I can get the sort of returns on the capital that I can, which still leaves me with 20%+ after paying the 1.50% mortgage interest.
I have a mortgage of which £170,000 is an offset mortgage. I inherited £175,000 in the last year and could have paid off my mortgage but instead invested it in a number of funds instead.
The investment has grown by c25%+ in the last year compared to the interest rate I am paying on my mortgage of 1.50%. It would therefore be illogical for me to pay off the mortgage at this stage whilst I can get the sort of returns on the capital that I can, which still leaves me with 20%+ after paying the 1.50% mortgage interest.
But your investment could have gone down. Although I'm with you, because if you look at past performance, your money is far more likely to grow. But still a risk.
If I was you, i would cream off that 25% profit and pay toward the mortgage though. Rinse and repeat with your initial 175k.
If I was you, i would cream off that 25% profit and pay toward the mortgage though. Rinse and repeat with your initial 175k.
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