Mortgage Rate Rises

dlockers said:
23 but about to extend to 30. Plan to overpay pension and then use 25% lump sum to clear it (maybe).
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Why would that be more beneficial financially than overpaying the mortgage asap and/or using high interest savings accounts to then lump some overpay towards the end of each fix period? I assume you've done the maths? I would think the money you put into pension would have to be significant for that to be more worthwhile with the tax savings?

Interested to hear. Not a criticism.
 
Hopefully a few years of pay rises later, your mortgages won't seem so big. On the other hand, the country seems to be on a difficult path for the foreseeable future.
 
jaybee said:
Why would that be more beneficial financially than overpaying the mortgage asap and/or using high interest savings accounts to then lump some overpay towards the end of each fix period? I assume you've done the maths? I would think the money you put into pension would have to be significant for that to be more worthwhile with the tax savings?

Interested to hear. Not a criticism.
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Pension contributions are tax-efficient, reducing income tax. Also they'd likely be higher returns on pension investments compared to mortgage interest savings.
 
EvilRob said:
The extra monthly payment might be £200, but the extra interest you are paying is ~£4500 a year (slightly less as you will pay off a small amount of the capital through the year). 1% of 450k is simple maths.

If the mortgage is £200 more a month and the interest is an extra is £4500 a year, guess what that means? It means you are paying less off the capital in the short term than you were on your old rate. Like I said, affordability is important but this would have a significant impact on net worth over the next few years (less paid off capital, so less equity + opportunity cost of not investing the £200).

The point I'm making is £200 extra a month might not sound like much, but that's not the full picture - 1% more of a 450k mortgage is a lot.
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Common issue I see with people looking at mortgage figures, too much focus on monthly payments and not enough on outstanding balance. It's like when people compare two different mortgage products, one with a lower rate but higher fee. They look at the cost over the initial fixed period to try and determine which is best, but that's only half the story, you also need to look at how much is left on the mortgage after the say 5 years or whatever, because you'll have paid off less capital on the mortgage with a higher rate.
 
jaybee said:
Why would that be more beneficial financially than overpaying the mortgage asap and/or using high interest savings accounts to then lump some overpay towards the end of each fix period? I assume you've done the maths? I would think the money you put into pension would have to be significant for that to be more worthwhile with the tax savings?

Interested to hear. Not a criticism.
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dlockers will likely be on 40 or 45% tax rate based on his headline gross income. Heck maybe even 60% effective marginal tax rate if he's in the awkward low six-figures territory. The savings on mortgage interest or high interest savings accounts are dwarfed by the tax savings from overpaying pension.

The issue most people have is they simply need money in the short term and can't really afford to lock it away in a pension. So this strategy isn't for everyone, if they have no disposable income, they can't really afford to put too much in the pension. But for high earners with financial stability, you're generally much better off with big pension contributions and a big mortgage than small pension contributions and a small mortgage, because the pension will grow a lot quicker than the mortgage due to the tax relief.

Of course, there's a possibility that the pension loses money on investments, but it's unlikely these losses outweigh the tax relief over the long term. Even a flat pension making 0% investment returns is very efficient because you get the extra cash thrown on top by the taxman.
 
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Yep...As HangTime said. I'm not fully convinced of the strategy just yet - I imagine the age will rise and the LTA will come back. We'll see! I have until March 22nd to sort out the first half of my mortgage.
 
Personally I don’t want to wait until I can access my pension before I pay off my mortgage..

mainly due to two reasons. I don’t see this house being my final house, in which case I don’t want to be paying two mortgages at the same time. The other thing is that I don’t see myself in full time work until retirement, I either want to take a year or two out, work part time or take a noddy job till retirement, just to keep the job centre off my back.
 
HangTime said:
Common issue I see with people looking at mortgage figures, too much focus on monthly payments and not enough on outstanding balance.
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If two mortgage deals having the same initial balance and same term.

The one with lower monthly payment is the better product, as it means lower interest and faster repayment. The interest is the variable which alters the principal remaining and monthly costs.

Product fee needs to be evaluated separately to the products. Ie if a 2yr deal is fixed at 4% vs a 5yr deal @ 4.1% but the 2yr has product fee of £1999 vs £999 then the 5yr is a winner. However it is more nuanced than that. Effectively 2yr products you have to pay the product fee 2.5x the 5yr so it maybe a situation the cost of borrowing is vastly different. So you really need to look at the deals across the same fixed term with some prediction.
 
I disagree (I think?) in that I don't think the lower monthly payment is always the better product and that the product fee doesn't need to be evaluated separately. To me, it all matters so you shouldn't look at those facets independently. I mean, you could have two products, same fixed term. One has lower rate and lower monthly payments. But it also has a huge fee, that outweighs the monthly savings and difference in outstanding balance at end of term.
In that scenario, the lower monthly payment product is worse, because when the fixed term is up you've paid out more in total than the sum of fees, monthly payments and outstanding balance on the other product. It's no good saving £1200 on mortgage payments and having £500 less outstanding balance, if you had to pay £2k for the privilege. That's why I don't think you should look at it separately, because deciding that the lower payment product is better is kind of a meaningless/flawed decisions if you aren't also thinking about the arrangement fees etc.

Of course, as you say it gets more complicated when comparing products with different fixed terms.
 
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Mercenary Keyboard Warrior said:
Careful in regards the lump sum approach for paying off the mortgage.
Generally withdrawing the lump sum results in less pension over the term.

You need specialist advice however since it can make sense for some.
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Ive seen some Youtube videos on this idea, i think its simply that if the pension fund growth is bigger than the mortgage interest rate (or what you can get in a savings account), then its better to put the extra in a pension. Even if you take the lump sum, this would still hold true as its 'extra' that you've put in, rather than overpaying the mortgage, so it would never have been part of your pension anyway.

Is it ok to have a pensions thread on these forums I wonder? I have some questions about mine and it may help others, but it could also be considered asking for financial advice which I don't know is allowed or not?
 
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danlightbulb said:
Ive seen some Youtube videos on this idea, i think its simply that if the pension fund growth is bigger than the mortgage interest rate (or what you can get in a savings account), then its better to put the extra in a pension. Even if you take the lump sum, this would still hold true as its 'extra' that you've put in, rather than overpaying the mortgage, so it would never have been part of your pension anyway.

Is it ok to have a pensions thread on these forums I wonder? I have some questions about mine and it may help others, but it could also be considered asking for financial advice which I don't know is allowed or not?
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There was a pensions thread but the title was a little odd

There are considerations in regards mortgage vs pension that go wider than simply the basic tax position,
such as what happens if the rules change in regards pensions, they have twice in recent times (clamping down on what people could put in, and the reversing that recently)
Talk of making it taxable up front, but non taxable when paid, Gov of course like this since it pulls tax forwards
If you have high LTV you can face more issues and higher rate in regards your ongoing mortgage, plus you could in theory be in a more difficult position should the market crash
What happens if you need to take a job for less money, or you cannot work full time?

Its basically risk vs reward.

There is a mid point thats kind of balancing the risk which is to use the ISA allowance and S&S investments. Should you need the capital its at least available even should you end up having to take it when the market is on a downer (which can happen with pensions as well depending how they are invested)
Your relying on the investments generating more than your interest rate.

But its very personal and situational this stuff so you really need advice to be able to find a reasonable risk vs reward profile for you individually.
 
Conanius said:
It's good to see rates are finally starting to come down a bit. I know rates are no where near record highs, but the comparisons to 30+ years ago are silly when you look at the scale of borrowing in total and house price:income.

I'm hopeful we see more progress before my deal is up in Jan 27 - 3% would be great. I noticed a significant jump in estimated value on Zoopla this month... back above previous peak - did anyone else?
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I'd also be happy with 3pc in 2027
Currently on 1.9 until mid 2027.

3pc would probably put the monthly amount same as 1.93.

If I'm even in the UK by then.
 
neocon said:
Colleague of mine bought a new build (Bedfordshire ) in 2019 for 600k and today Zoopla or whatever was saying it's valued at 780k. Where in earth do they pull there valuations from? How can it possibly have gone up 180k?
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That's about average tbh.
Ours was bought for 260 and valued at 320-340 now.

I reckon it's more towards 320.
House opposite is up for 340 and hasn't sold. But I Also think it's overpriced


I don't intend to overpay the mortgage. I am have shifted into the live for now approach.
A year ago I was thinking of accelerating the mortgage to 14 years after the 5 year term is up where it would have been 19.
But no longer see the point.
 
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