I got my final annual mortgage statement and I'm like this...
- Thread starter Angilion
- Start date
Rates are really low at the moment, so I've been advised to invest instead of overpaying - but different situations / people have different goals. Not suggesting I'm right or that the approach I've been put on is the right one, even if I overpay I'm not saving a huge amount because of the low interest rates, I'm getting more from my investments (at least I have been over the last 5 or so years.)
Anyway, I didn't mean to detract the thread, it's good to celebrate being debt free
Passive investing, i.e. investing in diversified trackers / ETFs which follow the wider stock market trends, typically give returns of 5-7% per year on average. Obviously there are dips during recessions but long term the market vakues will increase. Hence generally you would be better investing vs overpaying, especially up until recently when interest rates were low.
If you're interested Expat Millionaire provides more information on this type of passive investing (worth a read).
Soldato
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- 2 Feb 2010
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Paid mine off last June! Was a nice feeling when I got the letter thorough the door
Congrats
Yep, it's a nice feeling for sure. I remember paying off my previous house. Only a year later I sold it, upgraded and have another mortgage.
Associate
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- 19 May 2010
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It is tempting to pay the mortgage off at an accelerated rate. I think if I stuffed absolutely every penny into it I could whack off 15 years (as I could basically pay double) 28.
200k mortgage, 800ppm a month with 500ppm of that 800 being debt reduction 28 years left.
Paying an extra 800 would actually reduce pay back As would be 1300 rather than 500.
This would feel very real but in my logical head I know that if I invest semi safe max out my work pension match I could withdraw all that investing (stocks etc) and pay off the total debt quicker.
But I don't blame people for going for the mortgage. It's guaranteed like a savings account. And probably better than a savings account 99 percent of the time.
My real. Life example.
I believe this is working currently (as dLockers said its easy right now)
I went down to 2k savings (across crypto, s&s and cash) in 2020 after house buy.
Now up to 25k which is definitely more than putting every last penny into the mortgage for 2 years.
200k mortgage, 800ppm a month with 500ppm of that 800 being debt reduction 28 years left.
Paying an extra 800 would actually reduce pay back As would be 1300 rather than 500.
This would feel very real but in my logical head I know that if I invest semi safe max out my work pension match I could withdraw all that investing (stocks etc) and pay off the total debt quicker.
But I don't blame people for going for the mortgage. It's guaranteed like a savings account. And probably better than a savings account 99 percent of the time.
My real. Life example.
I believe this is working currently (as dLockers said its easy right now)
I went down to 2k savings (across crypto, s&s and cash) in 2020 after house buy.
Now up to 25k which is definitely more than putting every last penny into the mortgage for 2 years.
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not many picked up on this as probably doesn't apply to them
I was on a low wage but as (we) were frugal paid mortgage off in 9 years (Yorkshire house, bought this one with proceeds) ,if that excess had gone to savings ,my tax bill would have been massively higher by losing tax credits
this isn't benefit manipulation in my view as on a low wage ,just wasn't going to be punished for been frugal ,also wanted our name not the banks on the deeds
I was on a low wage but as (we) were frugal paid mortgage off in 9 years (Yorkshire house, bought this one with proceeds) ,if that excess had gone to savings ,my tax bill would have been massively higher by losing tax credits
- The first £6,000 of it is ignored.
- The remaining £1,000 is counted as giving you a monthly income of £17.40
this isn't benefit manipulation in my view as on a low wage ,just wasn't going to be punished for been frugal ,also wanted our name not the banks on the deeds
I'm certainly going to look into what you've been talking about here. Even though I'm arguing for paying off a mortgage quicker whilst rates are low, I've always planned to start a more 'risky' saving strategy now that I'm not saving for the aforementioned house deposit.
However, we're currently on a very low fixed rate for our mortgage. I'm not saying we couldn't afford it, but when our 5yrs fixed is up, if rates have gone through the roof then there's a 'slight' worry that we'll end up paying a lot more when we come to get a new deal. Which would suck. So part of me is thinking, try to hit the mortgage as hard as possible to ease that potential pain. I can't see anything but rates going up now, and I don't want to be in the position of finding a new mortgage deal that is for example paying double what we currently do.
Soldato
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- Crowmarsh
It's definitely my opinion that you should overpay as much as possible while the going is good. Also, it safeguards the roof over your head, which is one of the most important things you can do. You never know what is around the corner in life. Even though my interest rate is low and fixed for another 3.5 years, I'm making the maximum overpayments each year. I don't care if there are better ways of investment at this moment in time.
We've been chipping away at ours, due to finish in 2030 but have been overpaying and at the current rate will be paid off in two years. Being on a tracker has been great, unlimited overpayments and the ability to take back the overpayments if you need to borrow it back again.
Deleted member 651465
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Deleted member 651465
Slow down there chap, or you’ll have to loosen that Gucci belt a notch or two.Couldn't care less about my mortgage just now. 1.7% is comical.
Could pay it off tomorrow if I wanted.
Benefits of living in the area end of nowhere
Should/could have bought my house in cash lol
What's the difference? If it's taken off the interest of the following months payment, then the overpayment would just be a month behind?
If you're mortgage was 1000 a month and the interest on that 1000 was 300 a month, then only 700 is used to reduce the current amount owed.
If you up that to 1500 a month via overpayment, the interest stays the same @300 a month, so now you've got 1200 used to reduce the current amount owed.
Deleted member 651465
D
Deleted member 651465
Compound interest.
All the advice I've seen is to specify you're paying off the principle and not the interest.
Why would you choose to pay money against the interest when you could hit the bigger value and reduce all subsequent interest payments? Compound interest is bad.. you're throwing money away trying to hit the interest itself.
Maybe it's me but i'm still failing to grasp where the difference lies. (Note - i can't see anything on my statements that say my overpayment is going towards capital or interest).
My overpayment is combined with my normal monthly payment. That comes out of the account on X date, and then Y date the lender works out the interest due based on the current balance. That current balance has been reduced both with the normal payment and the overpayment.
If there was an option to offset the overpayment against the capital, the compound interest calculated for each month would be exactly the same wouldn't they?
As a new mortgagee (?) I assumed any overpayments would go towards the capital, I didn't even know about overpaying towards interest alone
Also, I wonder if the people saying 'invest instead of overpaying' are the type to suggest an interest-only mortgage. (Do they still exist)? Afterall, if the rate is so low why not invest 90% of your income rather than 50%? Maybe? Dunno..
When I make an overpayment, it sits in a seperate "overpayment" account the bank has. I can see the balance remaining on my mortgage on my online account and it's the net difference between whats left and what I've overpaid, but until I apply that overpayment against the capital remaining then the interest charged is still on the full balance remaining.
ie :
Mortgage - 20k
Overpayments - 5k
Remaining balance shown - 15k
Interest charged on - 20k
This doesn't make sense?
Each month I pay 500 in capital and 300 in interest. the net effect of 800ppm
It's not like the two are different. They are completely connected.
Each day interest is added. Let's say 300 today on my balance of 200'000
If I pay off 800 it reduces by 800. (300 was added, so 500 Off the 200k)
The next day slightly less interest is added as new balance is 219'500 (let's say 299 as the amount has gone down by 800.
This is repeated over and over again.
If I pay off an extra 500 that month I'm paying 1300.
300 is interest and 1000 is capital.
So interest next day is calced on 219000 rather than 219500
How else can it work?
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