Mortgage Rate Rises

[pc-guy]

It’s also worth noting that while almost everyone economists or Joe Public don’t believe rates will return to 1% 2% etc which is almost 99.999% certainty. There is a high lieklihood that rates will be as low as we have seen in the last decade in the next economic cycle(s) if the stresses on global economy demand such action and especially if macro economics returns to historical average and the inflationary pressures have eased.

Central banks have done it in the last decade and half and we know they don’t really learn from their lessons.

And they are more or less two trick ponies. Rates/pump money

 

[ChrisD.]

You pay tax on that interest but in your case it’s still better than paying off the mortgage. Less so the case with new mortgages.

Without going into our individual tax affairs, we are not paying much tax at all as most is spread between S&S ISAs.

 

[delta0]

Without going into our individual tax affairs, we are not paying much tax at all as most is spread between S&S ISAs.

My preferred way of storing funds too. Global index funds in an S&S ISA.

 

[SaBBz]

2 years left on 1.54%, spare cash going into investments and seeing a >20% annual return in safe options, no way on earth I'd be overpaying my mortgage when even basic savings accounts are paying 5%.

Same here, with 2.5 years left on 1.09%. Will see what rates are when it comes to our next fix period and may just continue to ‘borrow’ at 3% or so to fund the S&S ISAs.

 

[Jono8]

"On Sunday, Mr Hunt said he had a "moral duty" to put more money back in workers’ pockets,"

Jeremy Hunt could raise business class air fares to fund spring Budget tax cuts

The chancellor is considering a range of options to fund tax cuts for workers after his headroom was slashed by the OBR

www.independent.co.uk

Wait what?

Wasn't the whole interest rate rises to curb inflation thing all about making sure people had LESS money to spend/in their pockets?


The economy is complete clown show.

 

[Dirk Diggler]

Exactly. Anyone on a sub 5pc fix could dump their savings in one of many 5pc ish savings accounts

Could you help with the man maths, please.

If I had £110,000 left on my mortgage, with a fixed rate of 3.89%, and I allocated 750 per month in overpayments, then I would pay the mortgage off 8yrs and 3mths early, making it a term of 6 yrs and 9mths and I would save 20,249 in interest.

Spoiler: Workings

If I saved £750 per month in an ISA returning 4.6% for the same term, 6yrs and 9mths then I would have £71,352 at the end of the term, which would be interest gained of £10,600.

Spoiler: Workings..

 

[Hagar]

"On Sunday, Mr Hunt said he had a "moral duty" to put more money back in workers’ pockets,"

Jeremy Hunt could raise business class air fares to fund spring Budget tax cuts

The chancellor is considering a range of options to fund tax cuts for workers after his headroom was slashed by the OBR

www.independent.co.uk

Wait what?

Wasn't the whole interest rate rises to curb inflation thing all about making sure people had LESS money to spend/in their pockets?


The economy is complete clown show.

It was to disincentivise credit and incentivise savings. Plus the stupid, stupid 1% interest rates were a real drag on business and growth.

 

[Hagar]

Could you help with the man maths, please.

If I had £110,000 left on my mortgage, with a fixed rate of 3.89%, and I allocated 750 per month in overpayments, then I would pay the mortgage off 8yrs and 3mths early, making it a term of 6 yrs and 9mths and I would save 20,249 in interest.

Spoiler: Workings

If I saved £750 per month in an ISA returning 4.6% for the same term, 6yrs and 9mths then I would have £71,352 at the end of the term, which would be interest gained of £10,600.

Spoiler: Workings..

Your workings assume zero tax on savings ihterest and you would also be paying your mortgage for longer at a higher repayment.

Having repaid your mortgage you can dump the £750 plus your mortgage payment into savings after it is paid off.


It is a more complex calculation than shown

 

[dlockers]

Could you help with the man maths, please.

If I had £110,000 left on my mortgage, with a fixed rate of 3.89%, and I allocated 750 per month in overpayments, then I would pay the mortgage off 8yrs and 3mths early, making it a term of 6 yrs and 9mths and I would save 20,249 in interest.

Spoiler: Workings

If I saved £750 per month in an ISA returning 4.6% for the same term, 6yrs and 9mths then I would have £71,352 at the end of the term, which would be interest gained of £10,600.

Spoiler: Workings..

I'm only half paying attention but in the top maths, the 20k is the saving basis the 8yrs 3mo of no interest (i.e. interest multiplied by term avoided) so it is a make belief number.

 

[Dirk Diggler]

Your workings assume zero tax on savings ihterest and you would also be paying your mortgage for longer at a higher repayment.

Having repaid your mortgage you can dump the £750 plus your mortgage payment into savings after it is paid off.


It is a more complex calculation than shown

Yea, zero interest as it would be ISA savings.
I've just run the figures in the spreadsheet and it does look like a ~£1k saving over the 5 years by using the savings versus overpayment.
Considering that the mortgage is fixed rate, if interest rates go up further then this is something for me to keep an eye on for sure.

This is a new problem, as historically savings interest rates have been at 0.25%!

 

[413x]

Yea, zero interest as it would be ISA savings.
I've just run the figures in the spreadsheet and it does look like a ~£1k saving over the 5 years by using the savings versus overpayment.
Considering that the mortgage is fixed rate, if interest rates go up further then this is something for me to keep an eye on for sure.

This is a new problem, as historically savings interest rates have been at 0.25%!

There are calculators for this.
This words it better.

4pc vs 5pc over 10 years with 500ppm over pay

 

[Guest2]

Do these calculations take into account compound interest?

Example..

I'm allowed to pay off 10k a year in overpayments with getting any ERCs.
Would I be better off dropping a 10k overpayment now or paying £833/month in overpayments for the year and putting the 10k into a savings account? If I drop the 10k into a single mortgage overpayment, the interest is going to be lower each month.

I could then put £833/month into savings (instead of overpayment)

 

[Mercenary Keyboard Warrior]

Its simple
The highest rate (after tax if applicable) wins.

If you can save at a higher rate than paying off the mortgage then thats better.
With one consideration, if you are capped in regards repayments then depending how much your talking about you may end up having been better off by overpaying even at a lower rate than you can achieve on savings, but this depends on amounts, length of fix etc. and is based on interest on mortgages being higher than savings long term.
They always will be long term, but individually you may win at that depending on when you fix, for how long, and how rates change.

 

[HangTime]

Could you help with the man maths, please.

If I had £110,000 left on my mortgage, with a fixed rate of 3.89%, and I allocated 750 per month in overpayments, then I would pay the mortgage off 8yrs and 3mths early, making it a term of 6 yrs and 9mths and I would save 20,249 in interest.

Spoiler: Workings

If I saved £750 per month in an ISA returning 4.6% for the same term, 6yrs and 9mths then I would have £71,352 at the end of the term, which would be interest gained of £10,600.

Spoiler: Workings..

The problem is you are comparing "interest saved" on the mortgage with the interest earned on the savings, the "interest saved" is irrelevant what you should care about is how much money you end up with at the end.
To be a valid comparison you'd need to compare savings pot minus debt at a point in time.
If you overpay the mortgage after 6 years 9 months you'd have zero savings and zero debt.
If you put the money in savings after 6 years 9 months you'd have more savings than debt, so be in comparative profit.

Obviously there will be nuances along the way i.e. changes in interest rates etc over time but in basic terms if net savings interest is higher than mortgage interest it's best to save. I kept my mortgage running much longer than I needed to because it was 1.09% interest, which I could beat during savings, I had the money to fully repay the mortgage early but chose not to because it would have lost me money.

 

[Guest2]

Its simple
The highest rate (after tax if applicable) wins.

If you can save at a higher rate than paying off the mortgage then thats better.
With one consideration, if you are capped in regards repayments then depending how much your talking about you may end up having been better off by overpaying even at a lower rate than you can achieve on savings, but this depends on amounts, length of fix etc. and is based on interest on mortgages being higher than savings long term.
They always will be long term, but individually you may win at that depending on when you fix, for how long, and how rates change.

Im locked in at 4.89% for 5 years (100k borrow)
ERC is as follows

5% First 2 years
3% second 2 years
1% final year

£10,000 each year max can be overpaid (no ERC)

All the banks offering 5% interest rate, i've never heard of in my life. Think I'll just overpay my mortgage and dump any savings into work private pension!

 

[tamzzy]

All the banks offering 5% interest rate, i've never heard of in my life. Think I'll just overpay my mortgage and dump any savings into work private pension!

someone definitely owns a gucci belt

 

[Guest2]

someone definitely owns a gucci belt

haha, I wish (well i do and i dont, id sell it)
I havent bought any new clothes in years as have been hammering away the mortgage. Well, boxers and socks and maybe 2 tshirts

 

[Dirk Diggler]

The problem is you are comparing "interest saved" on the mortgage with the interest earned on the savings, the "interest saved" is irrelevant what you should care about is how much money you end up with at the end.
To be a valid comparison you'd need to compare savings pot minus debt at a point in time.
If you overpay the mortgage after 6 years 9 months you'd have zero savings and zero debt.
If you put the money in savings after 6 years 9 months you'd have more savings than debt, so be in comparative profit.

Obviously there will be nuances along the way i.e. changes in interest rates etc over time but in basic terms if net savings interest is higher than mortgage interest it's best to save. I kept my mortgage running much longer than I needed to because it was 1.09% interest, which I could beat during savings, I had the money to fully repay the mortgage early but chose not to because it would have lost me money.

I agree, however having crunched some numbers I still think it's a bit complicated due to my relatively middling interest rate and relatively low outstanding balance.

Mortgage interest is 3.89% and savings interest is 4.7% so the gap isn't massive.

Correct me if I'm wrong, but the fact that only one of those interest rates is guaranteed for 5 years is significant. That's because the savings interest could plummet back to 0.25% after say 2 years, then I'm not only stuck with money making nothing, but I'm unable to drop it all into my mortgage due to ERC, plus I'll have lost the first 2 years reduction in the mortgage balance.

I don't think it's a clear cut no brainer in my situation.

 

[tamzzy]

Mortgage Overpayment Calculator: Pay off your debt early?...

Mortgage Overpayment Calculator shows how much you can save by paying off your mortgage early - if your mortgage allows overpayments.

www.moneysavingexpert.com

mortgage overpayment vs savings calculator

as @Mercenary Keyboard Warrior says, whichever is higher % wins

@Guest2 i'm also in the same boat and rather than overpaying, this is what i'm doing:
1) put money into regular savings account (higher % rate) up to my personal saving allowance https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/
2) rest goes into a ISA, rates are much lower than last summer though, i fixed at 5.45% for 2 years, YMMV nowadays https://www.moneysavingexpert.com/savings/best-cash-isa/

That's because the savings interest could plummet back to 0.25% after say 2 years, then I'm not only stuck with money making nothing, but I'm unable to drop it all into my mortgage due to ERC, plus I'll have lost the first 2 years reduction in the mortgage balance.

if the interest rates plummet, you can withdraw and then overpay as a lump sum?
i thought you can overpay 10% without charge...unless you're saving that much that you'd go over that 10%?

 

[413x]

It's really really simple. As said.

Highest rate wins.

People have real difficulty because the mortgage is big and savings is small. And start to try to calculate it.. And get confused.. Make Mistakes.

Trust the maths that's already been done for you.

All being equal the put into the bigger percentage.