Mortgage payments vs savings conundrum
Discussion
Ciao, so;
I had my house up for sale a few months back, I accepted an offer over asking, which put it to the most expensive house in the area, not a brag, the houses are cheap. The price put me at the areas ceiling price currently though, and I expect it to stay there.
I had to take the house down from sale, the area we would like to move too is just out of our reach with the monthly payments and I don’t fancy stretching myself to death.
I need more of a deposit then.
Given that my current house, and the houses I desire to move to are getting further and further apart in price difference, I’m questioning the best route forward. This may be a no brainer to you experienced folk, but I aren’t that savvy!
In short. Do I continue paying my mortgage and be on track with the current end of mortgage date (14 years left) which is roughly costing me £700/month now, and renew in April for a fixed term and keep paying what I’m paying. My house price maybe moves 5-10k in that period, at absolute best
Or
Do I increase the term of my mortgage to 30 years, take the reduced payments, pocket the difference and then some for a couple of years and stick it in a savings account/stocks & shares/other unknown place which you may enlighten me on.
Why? I’m thinking I could potentially earn more on my pocketed money than my house has the potential to increase by, a half arsed little mortgage calculator with current rates looked like I could save c~ £300/month by increasing my term, I wouldn’t mind stretching another £150/month to put away somewhere in the hopes it has a better return rate to my current gaff.
Is this absolute nonsense and I’m way off the mark or is there something to it?
I will be chatting with my mortgage advisor closer to my renewal date, but it’s good to have some knowledge before these talks happen in the new year!
Thanks in advance!
I had my house up for sale a few months back, I accepted an offer over asking, which put it to the most expensive house in the area, not a brag, the houses are cheap. The price put me at the areas ceiling price currently though, and I expect it to stay there.
I had to take the house down from sale, the area we would like to move too is just out of our reach with the monthly payments and I don’t fancy stretching myself to death.
I need more of a deposit then.
Given that my current house, and the houses I desire to move to are getting further and further apart in price difference, I’m questioning the best route forward. This may be a no brainer to you experienced folk, but I aren’t that savvy!
In short. Do I continue paying my mortgage and be on track with the current end of mortgage date (14 years left) which is roughly costing me £700/month now, and renew in April for a fixed term and keep paying what I’m paying. My house price maybe moves 5-10k in that period, at absolute best
Or
Do I increase the term of my mortgage to 30 years, take the reduced payments, pocket the difference and then some for a couple of years and stick it in a savings account/stocks & shares/other unknown place which you may enlighten me on.
Why? I’m thinking I could potentially earn more on my pocketed money than my house has the potential to increase by, a half arsed little mortgage calculator with current rates looked like I could save c~ £300/month by increasing my term, I wouldn’t mind stretching another £150/month to put away somewhere in the hopes it has a better return rate to my current gaff.
Is this absolute nonsense and I’m way off the mark or is there something to it?
I will be chatting with my mortgage advisor closer to my renewal date, but it’s good to have some knowledge before these talks happen in the new year!
Thanks in advance!
Whether to pay down a mortgage or put the money elsewhere is discussed on a near daily basis in here.
There is no correct answer but I will say that mathematically you’re making the wrong comparison - the change in value of your house is irrelevant, you need to compare the cost of the debt vs what you think you could earn elsewhere.
You should factor in risk and your appetite for it too, and your circumstances.
If your mortgage rate is 4%, then paying that down is a risk-free 4% return. Can you get a risk-free savings account that returns more? The stock market should return more over the long term but not without risk.
Is your pension where you want it to be? Maybe it’s a better use of “spare” money to stick more in there and benefit from tax relief and compounding, while inflation erodes your mortgage debt, depending on how far your are from retirement.
There is no correct answer but I will say that mathematically you’re making the wrong comparison - the change in value of your house is irrelevant, you need to compare the cost of the debt vs what you think you could earn elsewhere.
You should factor in risk and your appetite for it too, and your circumstances.
If your mortgage rate is 4%, then paying that down is a risk-free 4% return. Can you get a risk-free savings account that returns more? The stock market should return more over the long term but not without risk.
Is your pension where you want it to be? Maybe it’s a better use of “spare” money to stick more in there and benefit from tax relief and compounding, while inflation erodes your mortgage debt, depending on how far your are from retirement.
Jambo85 said:
Is your pension where you want it to be? Maybe it s a better use of spare money to stick more in there and benefit from tax relief and compounding, while inflation erodes your mortgage debt, depending on how far your are from retirement.
I’m not sure if the numbers stack up for a basic rate tax payer but for 40/45% it’s a very viable option. I’m a big fan of an interest free mortgage with the difference between IO and repayment being ploughed into the pension. Not only is the mortgage debt being rapidly eroded by inflation but a larger, better house should increase in value more than a smaller one.
That being said, I’m only comfortable with this because if it all went tits up the equity in my house would still be sufficient to buy somewhere nice.
There are a number of points here…you say you can’t stretch to a mortgage in your desired location;
Is this a case that you wouldn’t get a mortgage or that you don’t feel comfortable with the monthlies ?
If it’s the 2nd, could you take a 30 year mortgage in your desired location and as you earn more, you feel more comfortable. As you say, if the gap between right now and desired location continues, how will you close that gap.
We extended ourselves 10 years ago for our desired house and location and it feels very affordable now, so much that it will be paid in 2 years, hence my comment above about right now verse future.
Crumpet makes a good point, and one often overlooked is the tax you pay on interest.
As a 20% tax payer, any interest above £1K PA is taxed, 40% tax payers it’s £500, and 45% is zero.
So if you are 40 or 45 tax payer, an ISA makes more sense, even a cash ISA makes sense.
Something to think about if you go down the save rather than over pay option.
We actually over paid for a few years but when the mortgage renewed 5 years ago, we remortgaged at 1.49% fixed for 5 years and started putting the cash we overpaid into a joint account and now into ISA’s to avoid tax, and the power of compound interest really kicks in after a couple of years, but you need to be disciplined and not be tempted to spend some of that money elsewhere.
See what your mortgage advisor suggests around products and lengths of mortgages and if any of these options get you into your desired location…you will become comfortable with the monthlies if you do step up now.
If the mortgage affordability is the barrier, then as you say, you need more funds so saving is the answer.
Is this a case that you wouldn’t get a mortgage or that you don’t feel comfortable with the monthlies ?
If it’s the 2nd, could you take a 30 year mortgage in your desired location and as you earn more, you feel more comfortable. As you say, if the gap between right now and desired location continues, how will you close that gap.
We extended ourselves 10 years ago for our desired house and location and it feels very affordable now, so much that it will be paid in 2 years, hence my comment above about right now verse future.
Crumpet makes a good point, and one often overlooked is the tax you pay on interest.
As a 20% tax payer, any interest above £1K PA is taxed, 40% tax payers it’s £500, and 45% is zero.
So if you are 40 or 45 tax payer, an ISA makes more sense, even a cash ISA makes sense.
Something to think about if you go down the save rather than over pay option.
We actually over paid for a few years but when the mortgage renewed 5 years ago, we remortgaged at 1.49% fixed for 5 years and started putting the cash we overpaid into a joint account and now into ISA’s to avoid tax, and the power of compound interest really kicks in after a couple of years, but you need to be disciplined and not be tempted to spend some of that money elsewhere.
See what your mortgage advisor suggests around products and lengths of mortgages and if any of these options get you into your desired location…you will become comfortable with the monthlies if you do step up now.
If the mortgage affordability is the barrier, then as you say, you need more funds so saving is the answer.
Panamax said:
90CHPAXL said:
I accepted an offer over asking
I had to take the house down from sale, the area we would like to move too is just out of our reach
Utter p.i.t.a when a seller accepts an offer and then changes their mind for a reason that should have been obvious before they started.I had to take the house down from sale, the area we would like to move too is just out of our reach
I only put mine for sale for a major renovation project that I had an offer accepted on.
The sellers of the Reno decided to sell it to a cash buyer last minute which completely blindsided us. The purchaser of our property and the estate agent (used in both) was aware of the situation.
Anyway,
Some solid comments here for me for now, will read into them more this evening, so thank you.
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