Mortgage Rate Rises

[Guest2]

Definately no gucci belt this month. AEG ovens is knackered, that'll be a nice £500-£1000 to replace (hopefully it can be repaired by AEG)

 

[danlightbulb]

hope this makes more sense and able to follow

Where has the 5.05% easy access rate come from?

And why are you adding two lots of interest together (2.5% and 3.5%) on your drip fed £12k?

 

[tamzzy]

Where has the 5.05% easy access rate come from?

Top savings accounts

Find the best interest rate savings accounts & maximise your returns with Martin Lewis' guide.

www.moneysavingexpert.com

i could use a higher interest rate to make my numbers look even better if you really wanted

 

[danlightbulb]

Top savings accounts

Find the best interest rate savings accounts & maximise your returns with Martin Lewis' guide.

www.moneysavingexpert.com

i could use a higher interest rate to make my numbers look even better if you really wanted

Sorry mate still confused. If you can get 5% easy access why are you drip feeding regular savers at a lower 3.5% average rate?

 

[tamzzy]

If you can get 5% easy access why are you drip feeding regular savers at a lower 3.5% average rate?

it's an average rate because the money was never in the account right from day 1
it is still a higher rate though.

 

[tamzzy]

@danlightbulb

Regular savings accounts

Get the best regular savings accounts by ignoring normal best buy tables - you could earn up to 8% by reading our guide at Money Saving Expert

www.moneysavingexpert.com

While regular savings accounts can pay higher rates of interest, the problem with them is that it takes time to build up the amount of money you have in there. Yet if you have a lump sum of cash, and you want to maximise its earnings, you can still take advantage.

• Put the lump sum in the top-paying easy-access account.
  
  You'll then start earning interest on the full sum straightaway (see Top savings accounts).

• Then, pay in to the regular saver from the easy-access account each month.
  The key is to put as much as you can (up to the monthly limit) into the regular savings account to max the interest.
  This technique is called 'drip-feeding', as you're slowly moving your cash across, month by month. This means every penny you want to save is earning the most it can at any moment. Here's how it should work in practice...
  Let's say you have £3,000 in savings. If you start by putting this in the top easy-access account with unlimited withdrawals and moving £250 across to a top regular saver in the first month, you'll have £2,750 earning the easy-access rate (for example, 4.1%), and £250 earning the higher regular saver rate (for example, 6%).
  This way, you can keep getting interest on the lump sum while getting a higher rate on the money you pay in to the regular saver. After 12 monthly payments, the full amount will be in the regular saver. You can then move the whole lot to the top payer at the time and start the process again with a new regular saver (provided they're still around).
  To get the maximum gain, put as much in as possible in the early months, but always ensure you've enough left to keep up the minimum payments for the account's lifespan. Then you've got as much interest as possible, while meeting the account's terms and conditions.

 

[danlightbulb]

Ah ok I think I see what you've done, to get around the comparison of having the full 12k upfront you've assumed half sitting in easy access as it's drip fed across to the reg savers.

But as you said you'd not have that money up front so it doesn't work.

If you drip feed £1k per month into reg saver you'll get average of 3.5% on your £12k so £420 interest.

If you drip feed into bonds you'll get 5% return on each £1k but you're correct in saying that the later bonds will mature later.

So in effect after you've done the year of reg savers you will move that full £12,420 to your ISA (at what rate?) so will earn a further year interest on that full £12,420 at your ISA rate as the bonds continue to mature.

In the bonds scenario you'd be paying the returned amount (£1050 per bond) into your ISA on monthly intervals after they start maturing.

So bit of maths required to see what is better. I think it will depend what your ISA rate is.

 

[Mercenary Keyboard Warrior]

Sorry mate still confused. If you can get 5% easy access why are you drip feeding regular savers at a lower 3.5% average rate?

The rate is the rate what your doing is the common mistake for people who do not understand
With a regular saver the rate is correct, you halve the amount saved (broadly its more like 55%), ie in this case around 7% on £6k
The other £6k is in effect able to be invested elsewhere, say at 4% in another account.

Thats the only way to compare to a different rate invested at 5% for a whole year.

 

[jaybee]

I had a similar discussion in this very thread months ago. Even at 1.89% mortgage vs 5% savings I was convinced it would be close or better to pay off the mortgage due to compound interest on a very high outstanding balance.

I then created my own excel spreadsheet to literally "play out" every month into the future for years to see the results and prove it to myself. Yeah... the higher rate wins.

If savings is above mortgage rate, you are better off in savings. Anytime you try to calculate it over time, it does genuinely become complex. The first time I calculated it I did it wrong. Got corrected on here. Realised the mistake and then checked again. Savings won.

 

[tamzzy]

Ah ok I think I see what you've done, to get around the comparison of having the full 12k upfront you've assumed half sitting in easy access as it's drip fed across to the reg savers.

no, i've assumed the full 12k sitting in an easy access whilst it's being drip-fed into regular savers
as the regular savers increase by 1k monthly, the easy access reduces by 1k monthy
so at the start, 12k in easy access, 0 in regular savers...but at the end of the year...its 0 in easy access, 12k in regular savers
therefore the perceived easy access interest rate is also halved (2.5%)

yours = £600 interest
mine = (£12k x 2.5%) + (£12k x 3.5%) = £300+£420 = £720

reg savers you will move that full £12,420

no, i'd have £12,720 vs your £12,600

So bit of maths required to see what is better. I think it will depend what your ISA rate is.

doesn't really matter as your bonds would have matured at the same time as my regular savers, so we'd both have the same dilemma and hence cancelled out.
the only thing different is that i'd be £120 wealthier but had to spend an extra 30 mins or so setting up my regular savers at the start

 

[tamzzy]

I had a similar discussion in this very thread months ago.

yes i remember that lol. hard to convince people that bigger usually is better

 

[Mercenary Keyboard Warrior]

Its really simple if you understand maths and logic.

Its because the mortgage debt and even the length of term are irrelevant.

Its only the marginal payment or saving that is affected. Both will compound based on the same capital amount.

 

[danlightbulb]

no, i've assumed the full 12k sitting in an easy access whilst it's being drip-fed into regular savers

Yes, at half the rate which is where you got 2.5% from. Same thing as saying half the money at the full rate. Or half the time at the full rate.

really matter as your bonds would have matured at the same time as my regular savers, so we'd both have the same dilemma and hence cancelled out.
the only thing different is that i'd be £120 wealthier but had to spend an extra 30 mins or so setting up my regular savers at the start

I still think the higher rate would give the higher returns but I can't sit at a pc with spreadsheet to demonstrate.

But think in a steady state situation - let's say every month for many years you'd been saving £1k into reg savers at an average of 3.5% and then at year end paying that into your ISA, Vs every month saving £1k into bonds at 5% and then every month as your bond from 1 year ago matures, paying that into your ISA.

In a steady state scenario the higher average rate would give higher returns.

Like I said, can't demonstrate it as don't have access to spreadsheet or pc right now.

 

[tamzzy]

average of 3.5%

facepalm
the interest rate is not 3.5% though is it. it's perceived as 3.5% because the money isn't there. the interest rate is 7%.

Same thing as saying half the money at the full rate. Or half the time at the full rate.

apply what you said to the regular saver accounts

In a steady state scenario the higher average rate would give higher returns.

pretty sure 7% is higher than 5%

Like I said, can't demonstrate it as don't have access to spreadsheet or pc right now.

when you get a chance you can prove me right

 

[Mercenary Keyboard Warrior]

Yes, at half the rate which is where you got 2.5% from. Same thing as saying half the money at the full rate. Or half the time at the full rate.



I still think the higher rate would give the higher returns but I can't sit at a pc with spreadsheet to demonstrate.

But think in a steady state situation - let's say every month for many years you'd been saving £1k into reg savers at an average of 3.5% and then at year end paying that into your ISA, Vs every month saving £1k into bonds at 5% and then every month as your bond from 1 year ago matures, paying that into your ISA.

In a steady state scenario the higher average rate would give higher returns.

Like I said, can't demonstrate it as don't have access to spreadsheet or pc right now.

Your making the mistake of halving the regular savers rate again, the rate is the rate.

The interest gained is roughly half of the headline amount x the maximum capital invested, it is in fact 54%, but thats because in effect only 54% of the capital is invested in the regular saver.
Take 54% of the real rate x the maximum amount, take 46% of the alternative product the rest of the money will be in based on the whole amount and thats your interest.

Your hung up on halving the regular saver amount because those who get it correct often correct people who think they will gain interest based on the whole capital amount at the end which is wrong, but the interest rate IS the interest rate.

 

[danlightbulb]

He isn't getting the headline rate he's getting half the headline rate on average, then paying that bulk of cash into his ISA. Then he is starting over again with a new set of reg savers so will earn average of 3.5% again.

So he is continually getting an average rate of 3.5% before taking the money out and putting it elsewhere.

On bonds if run steady state he would be getting an average of 5% before putting the money elsewhere.

when you get a chance you can prove me right

Happy to be wrong, will see in a week when I'm back off holiday.

 

[tamzzy]

Happy to be wrong, will see in a week when I'm back off holiday.

yes please do

 

[danlightbulb]

Your making the mistake of halving the regular savers rate again, the rate is the rate.

The interest gained is roughly half of the headline amount x the maximum capital invested, it is in fact 54%, but thats because in effect only 54% of the capital is invested in the regular saver.
Take 54% of the real rate x the maximum amount, take 46% of the alternative product the rest of the money will be in based on the whole amount and thats your interest.

Your hung up on halving the regular saver amount because those who get it correct often correct people who think they will gain interest based on the whole capital amount at the end which is wrong, but the interest rate IS the interest rate.

Jesus Christ mkw it's just semantics.

Halving the headline rate is just a quick and easy way to do the maths on a reg saver account.

 

[El Jimben]

What's your LTV?

Around 79% but the tracker we're on is for 90% LTV. The one at 80% is actually more expensive but with less of a fee & even at 75%, it's only 0.1% cheaper that what we're on now.

That is really high. Isn't that like the peak of what fixes hit?

It looks like it's coming down slower than I thought/hoped

You say that but when we got the ball rolling 6 months, the rate we were quoted then was 6.12%!

The extra £580 a month is going to pinch in the short-term but fortunately there is light at the end of the tunnel An elderly relative of my partner's Nan passed away a couple of weeks ago and as the Nan has dementia & is no spring chicker herself, the other half is going to benefit massively from the estate. Basically we'll be able to pay off our current mortgage in full once his house is sold. Then we can look at sellling our current 3 bed terrace & look at moving into a much nicer 3/4 bed semi with us only needing to borrow £150-£200k

 

[Mercenary Keyboard Warrior]

Jesus Christ mkw it's just semantics.

Halving the headline rate is just a quick and easy way to do the maths on a reg saver account.

Its not semantics at all.

I told you above, its 54% of the regular saver interest and 46% of the alternate, which is because the regular saver starts the day you pay in, that amount sits there for 12 months, the next payment 11 months etc.
The alternate account has 11/12ths for 1 month, 10/12ths the next month etc

So you can setup an equation, 54/100a% + 46/100b% x full capital amount = interest from regular savers.
annual account or bond etc is a% x full capital amount.

Your confusing yourself by halving the rate, its sensible logic to calculate the interest, but its the interest for the full amount for that account only.

Here you go, £100 invested in bond at 5% or regular at 7%

Month	Invest	Bond @5%	Regular @7%
1​	100​	0.4​	0.6​
2​	100​	0.8​	1.2​
3​	100​	1.3​	1.8​
4​	100​	1.7​	2.3​
5​	100​	2.1​	2.9​
6​	100​	2.5​	3.5​
7​	100​	2.9​	4.1​
8​	100​	3.3​	4.7​
9​	100​	3.8​	5.3​
10​	100​	4.2​	5.8​
11​	100​	4.6​	6.4​
12​	100​	5.0​	7.0​
Year interest	.	32.5​	45.5​

Or £1200 being available at the start invested in regular at 7%, bond at 5% and instant access at 4% (should be able to beat 4% but using for comparison sake)
(Bond total interest £60, savings accounts total interest £67.44

Invest	Bond @ 5%	Regular at 7%	Instant at 4%
1200​	60​	45.36​	22.08​