Savings question
Discussion
lets call this a hypothetical situation, which has some basis in reality.....
I think I know what our hypothetical person should do, but I am very interested to hear what a wider audience would come up with as ideas.
Obviously posting in the Finance section so I don't get loads of answers like - buy a LAMBO
(although still welcome some answers like that)
Imagine the following scenario - i'm going to try and mention everything I think relevant:
1. late 30s chap, not married, no children
2. Currently in a position (which may be temporary, defo a year, but could last longer) - where, they can save 5k per month
3. This 5k a month is calculated after all taxes paid, rent (18k a year) paid and mortgage on a house that is rented out (but rent not meeting mortgage, 200 pcm shortfall, owned house in neg equity)
4. Renting - due to work, and hence the extra money - but wouldn't want to buy in the area where renting (probably)
5. 'Owns' a nice car, with finance on it - and only has space for one car
6. Has minor debts, under 8k credit card, overdraft etc (plus car finance on top of this)
7. Paying into pension payments (but only for a year), and continues
8. Maxing out an ISA each year (not part of the 5k 'spare')
9. Has a six month contingency fund in a accessible account, so could lose job and will have 6 months to find another
My thoughts for this chap - obviously are pay off the short term stuff, like CC, O/D
I guess the question is, what else would you do with the excess from a sensible perspective. Paying the car finance off, yes would save some interest, but there would be penalties
Paying off the NeG equity is painful, as property always a long term investment - and eventually it will catch up - not withstanding the fact that it is probably 3k a year down on that 'investment' with shortfall of rent and service charges.
is the answer to just pay off everything...........? Or is there something more intelligent/interesting hypothetical man can do with the extra money?
I think the only 'sacred' element to this is the 6 month contingency fund in case of job loss - that can't be touched.
Other than that over to the finance brains of PH
I think I know what our hypothetical person should do, but I am very interested to hear what a wider audience would come up with as ideas.
Obviously posting in the Finance section so I don't get loads of answers like - buy a LAMBO
(although still welcome some answers like that)Imagine the following scenario - i'm going to try and mention everything I think relevant:
1. late 30s chap, not married, no children
2. Currently in a position (which may be temporary, defo a year, but could last longer) - where, they can save 5k per month
3. This 5k a month is calculated after all taxes paid, rent (18k a year) paid and mortgage on a house that is rented out (but rent not meeting mortgage, 200 pcm shortfall, owned house in neg equity)
4. Renting - due to work, and hence the extra money - but wouldn't want to buy in the area where renting (probably)
5. 'Owns' a nice car, with finance on it - and only has space for one car
6. Has minor debts, under 8k credit card, overdraft etc (plus car finance on top of this)
7. Paying into pension payments (but only for a year), and continues
8. Maxing out an ISA each year (not part of the 5k 'spare')
9. Has a six month contingency fund in a accessible account, so could lose job and will have 6 months to find another
My thoughts for this chap - obviously are pay off the short term stuff, like CC, O/D
I guess the question is, what else would you do with the excess from a sensible perspective. Paying the car finance off, yes would save some interest, but there would be penalties
Paying off the NeG equity is painful, as property always a long term investment - and eventually it will catch up - not withstanding the fact that it is probably 3k a year down on that 'investment' with shortfall of rent and service charges.
is the answer to just pay off everything...........? Or is there something more intelligent/interesting hypothetical man can do with the extra money?
I think the only 'sacred' element to this is the 6 month contingency fund in case of job loss - that can't be touched.
Other than that over to the finance brains of PH
Edited by RacerMDR on Friday 10th August 11:23
Personally I can't believe you are renting something and not covering the mortgage.
You must be paying a heinous spread over BoEBR.
I would be looking to sort that asap.
Remortgaging down to a decent interest rate will save you megabucks.
Either that or put the rent up!!
In summary - I agree - pay off CC and OD first.
Then take a damn hard look at that property.
Can you sell it and cover the neg equity?
What deposit do you need to remortgage?
Either way start making as much penalty free overpayments as you can.
Remember that the interest rate you save on the mortgage is effectively TAX FREE.
In other words paying off a 7% mortgage gives you full benefit of the 7% rate no matter what but a 7% interest income on savings will always be subject to some tax (outside an ISA/pension) and in your case presumably LOTS of tax!
You must be paying a heinous spread over BoEBR.
I would be looking to sort that asap.
Remortgaging down to a decent interest rate will save you megabucks.
Either that or put the rent up!!
In summary - I agree - pay off CC and OD first.
Then take a damn hard look at that property.
Can you sell it and cover the neg equity?
What deposit do you need to remortgage?
Either way start making as much penalty free overpayments as you can.
Remember that the interest rate you save on the mortgage is effectively TAX FREE.
In other words paying off a 7% mortgage gives you full benefit of the 7% rate no matter what but a 7% interest income on savings will always be subject to some tax (outside an ISA/pension) and in your case presumably LOTS of tax!
walm said:
Personally I can't believe you are renting something and not covering the mortgage.
You must be paying a heinous spread over BoEBR.
I would be looking to sort that asap.
Remortgaging down to a decent interest rate will save you megabucks.
Either that or put the rent up!!
In summary - I agree - pay off CC and OD first.
Then take a damn hard look at that property.
Can you sell it and cover the neg equity?
What deposit do you need to remortgage?
Either way start making as much penalty free overpayments as you can.
Remember that the interest rate you save on the mortgage is effectively TAX FREE.
In other words paying off a 7% mortgage gives you full benefit of the 7% rate no matter what but a 7% interest income on savings will always be subject to some tax (outside an ISA/pension) and in your case presumably LOTS of tax!
ok thanks WalmYou must be paying a heinous spread over BoEBR.
I would be looking to sort that asap.
Remortgaging down to a decent interest rate will save you megabucks.
Either that or put the rent up!!
In summary - I agree - pay off CC and OD first.
Then take a damn hard look at that property.
Can you sell it and cover the neg equity?
What deposit do you need to remortgage?
Either way start making as much penalty free overpayments as you can.
Remember that the interest rate you save on the mortgage is effectively TAX FREE.
In other words paying off a 7% mortgage gives you full benefit of the 7% rate no matter what but a 7% interest income on savings will always be subject to some tax (outside an ISA/pension) and in your case presumably LOTS of tax!
I have looked at the mortgage situation - and elected to not pay it off (which may be incorrect)
I have no choice but to rent due to working in central London (the house I own is in Somerset) - which is also why i can't put the rent up - market rate won't swallow it.
The mortgage is at approx 4.8% - and to remortgage it, I would need around 30k to get the LTV correct for a remortgage - and the rate would still not be that much better on a buy to let.........at least according to the advisor I spoke to. it would still be north of 4%
It just didn't feel like it was worth remortgaging it under those circumstances - rather than take the 2/3k hit a year until the prices rise
would you say I was wrong there?
I AM NOT AN IFA - for the amount you are talking about I would suggest finding one asap.
But here's what I would do:
4.8% isn't too bad at all.
And if you can't get much better remortgaging then the fees will quickly swallow any benefit.
Keep the mortgage but look to pay it down with SOME of the cash.
Are you really 200pcm underwater though? Are you including just the interest or repayments too?
If you include repayments then that's cheating.
I just find it hard to believe that anywhere really rents for much below a 5% yield.
I guess it is possible.
So you have 12x 5k = 60k.
8k goes on the CC+OD.
Leaving roughly 50k.
You are maxing ISAs - excellent.
I would be tempted to put another 10k of the 50 into your pension since that turns it into 14k/15k straight away.
20k into the mortgage since that is 4.8% RISK FREE WITH NO TAX. Try and find that in a high street savings rate!
Put the rest in non-European, non-UK equity trackers. Perhaps 50% US, 50% BRIC.
Lastly, can you sell the car and buy another one to get rid of that finance?
Car transaction costs are nearly zero other than personal hassle.
But here's what I would do:
4.8% isn't too bad at all.
And if you can't get much better remortgaging then the fees will quickly swallow any benefit.
Keep the mortgage but look to pay it down with SOME of the cash.
Are you really 200pcm underwater though? Are you including just the interest or repayments too?
If you include repayments then that's cheating.
I just find it hard to believe that anywhere really rents for much below a 5% yield.
I guess it is possible.
So you have 12x 5k = 60k.
8k goes on the CC+OD.
Leaving roughly 50k.
You are maxing ISAs - excellent.
I would be tempted to put another 10k of the 50 into your pension since that turns it into 14k/15k straight away.
20k into the mortgage since that is 4.8% RISK FREE WITH NO TAX. Try and find that in a high street savings rate!
Put the rest in non-European, non-UK equity trackers. Perhaps 50% US, 50% BRIC.
Lastly, can you sell the car and buy another one to get rid of that finance?
Car transaction costs are nearly zero other than personal hassle.
walm said:
I AM NOT AN IFA - for the amount you are talking about I would suggest finding one asap.
But here's what I would do:
4.8% isn't too bad at all.
And if you can't get much better remortgaging then the fees will quickly swallow any benefit.
Keep the mortgage but look to pay it down with SOME of the cash.
Are you really 200pcm underwater though? Are you including just the interest or repayments too?
If you include repayments then that's cheating.
I just find it hard to believe that anywhere really rents for much below a 5% yield.
I guess it is possible.
So you have 12x 5k = 60k.
8k goes on the CC+OD.
Leaving roughly 50k.
You are maxing ISAs - excellent.
I would be tempted to put another 10k of the 50 into your pension since that turns it into 14k/15k straight away.
20k into the mortgage since that is 4.8% RISK FREE WITH NO TAX. Try and find that in a high street savings rate!
Put the rest in non-European, non-UK equity trackers. Perhaps 50% US, 50% BRIC.
Lastly, can you sell the car and buy another one to get rid of that finance?
Car transaction costs are nearly zero other than personal hassle.
yeah thanks Walm - sorry - the 200 a month includes repayments, AND ground rent, service charges etc - was just giving all the facts to save asking But here's what I would do:
4.8% isn't too bad at all.
And if you can't get much better remortgaging then the fees will quickly swallow any benefit.
Keep the mortgage but look to pay it down with SOME of the cash.
Are you really 200pcm underwater though? Are you including just the interest or repayments too?
If you include repayments then that's cheating.
I just find it hard to believe that anywhere really rents for much below a 5% yield.
I guess it is possible.
So you have 12x 5k = 60k.
8k goes on the CC+OD.
Leaving roughly 50k.
You are maxing ISAs - excellent.
I would be tempted to put another 10k of the 50 into your pension since that turns it into 14k/15k straight away.
20k into the mortgage since that is 4.8% RISK FREE WITH NO TAX. Try and find that in a high street savings rate!
Put the rest in non-European, non-UK equity trackers. Perhaps 50% US, 50% BRIC.
Lastly, can you sell the car and buy another one to get rid of that finance?
Car transaction costs are nearly zero other than personal hassle.
and yeah i could sell the car - but i'm not in financial difficulty - and i like it
- so i'd rather, if i was going to do that, just pay off the finance and take the penalty (which might not be that bad)RacerMDR said:
PS - i don't know what this means
"You must be paying a heinous spread over BoEBR."
Just means a high interest rate."You must be paying a heinous spread over BoEBR."
Bank of England Base Rate - which is at an all time low.
So as above - to not cover the mortgage with rent in today's rate environment would be impressively bad!
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