Instead of paying off chunks you could probably have put that into something with a higher return and then used it towards end of mortgage term to make a bigger dent.
Mortgage Rate Rises
- Thread starter glenimp617
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Instead of paying off chunks you could probably have put that into something with a higher return and then used it towards end of mortgage term to make a bigger dent.
Totally agree paying off chunks of a mortgage that is at 1.45% is mental when you could put the funds in an instant access savings account and earn 4%. We fixed at 1.25% for 5 years just before the rates started going up and I haven’t put a penny into over payments it’s all gone into savings and will be paid off at the end of term!
All I can say, is don't judge other people's financial situation without knowing the facts..... I already have my full allowance of premium bonds, fully top up an investment ISA every year (On average is earning between 7-9%) and have over 50k in a savings account earning 5.8%, I also pay my full allowance (Employer contribution through an LTD company) into my SIPP every year, all without leaving myself short, if I have enough left over to pay 2 - 5k off my mortgage each year, then why not?..... I'd rather that than splurge on an un-needed Holiday or something depreciative.
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I think you've overestimated what I meant by "chunks", but also see my post above at #13,062 relating to my personal financial situation, I'm investing and saving on-top of this, these chunks aren't tens of thousands of pounds, it is a few thousand through the year, at best.
If you have 2-5k available to pay off a chunk of mortgage on a 1.x fixed percentage you would be better off putting that money into savings at 5.x percent and then paying it all off once the fixed rate in the mortgage expires it is really simple maths. The choice isn’t pay off the mortgage or splurge it is pay off a low interest debt or save at a higher rate and then pay off more of the debt in future for free. Even if it is only a few grand a year the interest over 4/5 years will mount up.
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Not necessarily. Your savings at 4% are still being eaten up by inflation and cost of living rises. All money in an ISA or ordinary savings account only match that, probably returning 0% over a year.
Whereas:
'Chunks' of cash into your mortgage account reduces the principal and the interest paid on that principal. That money is no longer 'live' in the economy and does not feature in the OP's budget.
We always worked towards paying down the principal where possible when we owned a mortgage or it owned us.
Mortgages are based on swap rates, these are down hence the reason we are seeing better deals atm rather than the Banks taking a loss/gamble. Base rate is a factor, unless you have a tracker which tracks the base rate then you'll be paying base rate + an agreed %.
Your mortgage debt is being eaten up by the same inflation, in real terms the value of the debt is decreasing (governments play this game continually) so that argument makes little sense to me. The value of both is shrinking continuously but the one with the higher interest rate shrinks more slowly. (Assuming both rates are below inflation!)
If the interest rates on savings are higher than the interest rate on the debt you will always be better off with the money in savings as you could at anytime pay off more of the debt as a result of the interest on the savings than you could if you paid of the debt with your capital today.
It boggles my Mind how people can't understand it.
Its not even complex. If the percent after tax is higher on savings than mortgage put it in savings.
And vice versa.
I get that people sometimes want to put it in mortgage because it feels better. But mathematically.. Its simple.
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The only exception I would make is if you know you are a person who can’t resist spending the money, in which case pay it off your mortgage as it is gone then along with the temptation!
Yes, I could easily put the 2 -5k into my existing savings accounts, although then due to my financial and working situation I would inadvertently lump myself with a high tax liability, so just for that alone it's not worth the additional hassle and accountancy.
Soldato
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I've never been one for savings accounts. It ties up your money. Also, the interest rates are only any good for the first year, then you have to faff about moving it around. I know it is more financially savvy to get my money in an ISA or something, but I want to feel my house is paid for and owned and that nobody can take it off me. I don't like having debt round my neck. The mortgage will hopefully be paid off this year though 
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That’s makes sense if you feel that way but if you’re on a cheap 5 year fix it’s still better to make use of regular saver accounts etc and then make a lump sum overpayment at the end of your fix.
Soldato
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I am on a cheap five year fix, but that comes to an end in 18 months. I want the mortgage done by then. I guess I could just save the money then pay it off at the end. Too much faff though, I just like to overpay when I have spare cash. Stops me being tempted to buy stuff too
Yeah it definitely takes a lot of discipline!I am on a cheap five year fix, but that comes to an end in 18 months. I want the mortgage done by then. I guess I could just save the money then pay it off at the end. Too much faff though, I just like to overpay when I have spare cash. Stops me being tempted to buy stuff too
Our mortgage is 1.09% for around another 2.5 years so I’ve been enjoying putting the money into various regular saver accounts at 8%, 6.25%, 5.25% etc. However, I’ve had to tell my wife that these are our mortgage overpayments and not to get tempted to spend the money
Big pot of money in a saving account vs shoes jacket bags and holidays. Hmmm….
I keep on getting notification weekly from L&C the best buy mortgage. The most recent one was 3.89% for 5yr fixed with £895 fee. That’s a very low rate under current climate.
I fullly expect long term rate to setting around 3-3.5% but didn’t expect the market leading rate to hit close to that value so fast considering BoE base rate is still at 5.25 and most trackers are 6.5%
I read in FT swap hit 3.9% or something
I keep on getting notification weekly from L&C the best buy mortgage. The most recent one was 3.89% for 5yr fixed with £895 fee. That’s a very low rate under current climate.
I fullly expect long term rate to setting around 3-3.5% but didn’t expect the market leading rate to hit close to that value so fast considering BoE base rate is still at 5.25 and most trackers are 6.5%
I read in FT swap hit 3.9% or something
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Fixed for 5 years in May 2023 at 4.02% as we were moving house and best rate available.
Still the best rate at the bank we went with but wondering if that's going to be closer to 3% in a years time.
I don't think we did too badly consider some of the rates at the time.
Still the best rate at the bank we went with but wondering if that's going to be closer to 3% in a years time.
I don't think we did too badly consider some of the rates at the time.
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I did say very simplistically, yes swap rates are down but they themselves are the banks gambling with each other betting interest rates will go down enough to make it profitable.
Soldato
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Mortgage books are huge as well, there is room in them for risk + they are a (very) long game.
A lot of people stick with their provider over the lifetime of their mortgage rather than finding a new deal with a different lender at each renewal as well.
A lot of people stick with their provider over the lifetime of their mortgage rather than finding a new deal with a different lender at each renewal as well.
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Is that true these days? We would 100% have looked elsewhere when we remortgaged if I wasn't self employed and my partner off on maternity.