Mortgage Rate Rises
- Thread starter glenimp617
- Start date
Put a portin a sipp, you'll benefit from tax savings in retirement then
See with this info what Matt says is even more applicable.
If you could basically pay off your mortgage (ie if rates changed so much that it was worth it). You could.
There's literally no reason to overpay. Because at the end of the term you could pay it off. If you had to.
So you may as well save/invest. Especially if you have that much security investing is even more appealing.
But I understand for you it is feeling. It's a personal relationship with money that you feel overpaying gives you an intangible mental benefit. Again. Not a criticism. Because mental health is more valuable than a few percent here or there. But this is what it is.
Our circumstances
187k mortgage (joint)
80k stocks, 10k cash (isa)
Pension? Probably about the same, and needs work.
I use my regular savers for yearly holidays
I'm actually stopping adding to my isa now as its generally for mid term cash mainly. Ie if the boiler failed. I'd put that on a credit card and pay it off from isa. I like my isa at I like being active with my money.
No overpaying of the mortgage because I'm secure enough (like you) to not need to. It's dead money too. Really, it's more dead (ie further away) than the pension for accessibility
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Overpaying your mortgage is probably not the most financial savvy thing to do - agreed. But we overpaid a smallish sum every month and paid off our mortgage in 17yrs instead of the 25yrs.
Granted we were on 0.84% rates, so a bit of interest saved, but with the rates now much higher, that would be a fair chunk of £££'s saved.
MSE overpayment calc was an eyeopener for me and other half.
Granted we were on 0.84% rates, so a bit of interest saved, but with the rates now much higher, that would be a fair chunk of £££'s saved.
MSE overpayment calc was an eyeopener for me and other half.
Firstly.. your base salary is not £65k if you are including on call, overtime and bonuses.
This is what I personally do… and I’ve said this many times before. I believe it’s the most tax efficient.
Anything above the basic tax rate goes straight into my pension, this is tax free.. and rather than getting taxed at 40% now, it will be taxed at 20% when I take it out.
This includes lump summing my bonuses.
If your work shares doesn’t offer salary sacrifices, then use a person SIPP.
As for shares, the only single company shares I buy at the moment that’s not a short term, is my work shares. £50 pounds per month.. as work gives matching shares up to £600 pounds a year. That’s another £600 pounds off my taxable income and £600 pounds free after 3 years. Yes I’ve built myself a shares ladder. So effectively I have +40% and doubled my money there of the shares move sideways.. but they are currently 75% up YTD. Those are tax free after 5 years and get sold, cash moved to a stocks and shares ISA.
I have 3 sets of 3 years share options that was taken out, one ending each year.. I’m only putting £50 pounds per month but upping this to £100 pounds per month per share in the next 3 years. Options are at 1/3 discount.. so if the shares move side ways I make 33% if they tank.. I don’t take the option, losing out on possible gains.
At the end of the 3 years if I take the option, the shares get moved to a stocks and shares isa, sold and then the cash is used to invest in market trackers. All tax free.
As for this actual thread… paying off the mortgage. There is no period of time in history where paying off the mortgage gives a better return than investing in the stock market on a tracker.
It is just the feel good factor that you get. There are good reasons why you should never pay off your mortgage, as your mortgage lender will intervene and help out on legal issues with the house and it’s easier to liquidate by taking out a (second) mortgage if you already have one.
It all depends on your long term goal. If you want to retire early, which is what I want to do. Paying off your mortgage before or at retirement is a must.
You need to have stocks and shares ISA to hold you between when you want to retire and when you can have access to your pension pots. Your maths needs to be correct in the amount you can withdraw from your pension pots to see you through to the end or beyond; if you want to leave an estate.
Saving in cash ISAs or saving account should only be for short terms holdings. Inflation will out pace the interest gain.
Having said that, it is possible to setup a bond ladder to ensure the rate of returns for set fixed periods, but I don’t believe this will out pace the rate of a mortgage, but if you want to hold cash, it’s really the only way of ensuring a rate of return.
What I do is…
A set amount to vanguard and t212 for my s/s investments (17.5%)
A set amount to my regular savers and high interest account. (15%)
A set amount to overpaying my mortgage. (12.5%)
The rest is used for my normal mortgage payment and bills.
I’m fully aware that I “should” get better returns not saving and overpaying my mortgage. But life isn’t just a maths sum, I want the free good factor.
Once I pay off my mortgage in about 8-10 years time, the mortgage money will be used to invest in my stocks and shares ISA, till I take early retirement or switch to a noddy role to see me though to my official retirement.
If I was in your situation… I would wait until the mortgage runs out so you don’t have a fine to pay. Then lump sum a payment to have the mortgage down to an amount that you are happy with, then look at taking a mortgage to pay it off the rest in either one 10 year mortgage or 2 five year ones.
In the meantime max out your isa contributions in case the government changes the rules.
There’s really no need to have more than 6 months of emergency funds, if you remain fit, healthy and able to work. If you been with your current employer for 2 or more years and not the type of person to do something stupid, redundancy pay should be factor into your emergency funds but it all depends on the type of person you are..
How much would you want to spend on a replacement car?
How much would you want to spend on refurbishing your kitchen? Or have an extension put on your house?
Those are the most expensive “emergencies” or reasons to save.
Broadly agree.
I was glad to not need to rush back to work after I lost my job. I had 12 months of cash available and used 6.
Cash isa is for immediate emergcies. Or planned future big spends (like an extension or a car).
Stocks isa is either long term or for big emergcies. Ideally long term but you have more flex than a pension if you REALLY need it.
My base salary IS £65k, that excludes on call overtime and bonus. However the £65k is the gross amount, not net
Cheers thats some lengthy advice, good to hear how other people approach things , gives me some food for thought
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Just pay for a session or two with a financial advisor, it could save you £1000s in the long run..
But do take their advisor else it will just be wasted money.
The sooner you start investing; start small... the sooner you will get desensitised.
Soldato
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just caught up on all the posts, £124k in savings, wow you have nothing to fret about. I've got about 2% of that in savings. pray for me !
Keep 6-12 months spending in cash and put the rest in a global tracker fund. For the tracker, use whatever you can from your ISA and whatever over that in a GIA for now. Sell some of the GIA each year to hit the 20k ISA limit if needed. If one day paying off the mortgage early becomes important, sell some of your GIA. Try not to sell what's in your ISA.
Well it was hard work getting here
I also need to do a shed load of work to my house, to which i bet people will end up charging me £20k for or £30k for in the current climate
When you are single, and your friends all have kids and never come out anymore, there is limited stuff to do
I guess an added bonus is things like travelling etc has been quite good over the last couple of years i have managed to travel through work so i have managed to visit some countries without spending anything.
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Soldato
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Arguably an easy access account would be easier, or a slightly less easy access account with a better rate, plus a credit card to bridge the time it takes to get the cash out.
So, whose considering a 10 year on renewal in the next 6 months or so? I just can't see how we get out of the mess this country is in, other than the establishment deliberately trying to inflate the debt away and stoking inflation significantly.
She is right as well.
We've been in a comparable "mess" (ie state) for decades.
Its not just people with kids.
Its so hard to get people to do anything now.
I'm sure it's since covid. It seemed to validate staying at home as a normal.
No issue with people staying at home but I do wonder how many people just stay at home watching crap on TV
Associate
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You should try doing it on your own money - luxury travel is so much fun.
A mortgage is one of the cheapest if not the cheapest ways to borrow cash against an appreciating asset, I don't understand the fascination with paying them off early. I get the 'head' side of it, but apart from that it makes very little financial sense.
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For me personally, it's peace of mind should I lose my job that I'll aways have a roof over my head that I no longer am indebted to anyone for. And also, that any savings I have will also last longer should I be out of work for any extended period of time as it wont have to cover a mortgage payment, just the essential bills.