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    • michaels
    • By michaels 21st Sep 11, 4:01 PM
    • 19,025 Posts
    • 87,311 Thanks
    michaels
    • #2
    • 21st Sep 11, 4:01 PM
    Too simplistic, Martin!
    • #2
    • 21st Sep 11, 4:01 PM
    I think their are two biggies not included in this basic model that should be highlighted:
    1) Tax credits
    If you are on tax credits and earn more than £300 interest per year (outside ISAs) then the interest will result in a withdrawal of tax credit at the rate of 41p in the £ on top of any tax on the interest so an effective rate of 61% for basic rate tax payers!!!
    2) Re-mortgaging
    Using savings to pay down a mortgage may allow a lower ltv band on re-mortgage which is likely to have a much greater impact on the mortgage rate and hence total interest cots than any earnings from savings interest.
    Cool heads and compromise
    • dimbo61
    • By dimbo61 21st Sep 11, 6:46 PM
    • 9,394 Posts
    • 5,094 Thanks
    dimbo61
    • #3
    • 21st Sep 11, 6:46 PM
    • #3
    • 21st Sep 11, 6:46 PM
    If you have no other expensive debts then yes PAY OFF THE MORTGAGE ASAP
    Only my opinion but I hang round the MF board alot Sad !!!
  • Kyser_Soze
    • #4
    • 21st Sep 11, 7:03 PM
    • #4
    • 21st Sep 11, 7:03 PM
    So....

    I have a flexible mortgage at base + 0.75%. Lots of headroom as I have had it for a while so there is spare cash if I want to play with it. Anything I do must be 100% secure and accessible so that if the rates rise I can get the money back.

    Have taken a gamble and bought £30,000 of Index Linked Savings Certificates, 5.2% inflation this month and tax free, can't think why they stopped issuing them.

    The next stage is to find the best ISA deal.

    What did catch my eye was the Santander Base Rate + 2.5% account. Can I take the risk though?

    I hadn't thought of the tax credit problem, I only get the basic amount anyway so there is not much to loose.

    This has got me thinking though. Those of us with older mortgages are still borrowing at less than inflation. This means the value of the loan is going down in real terms just by existing. How long before the banks find a way to stop this?
    • MSE Martin
    • By MSE Martin 21st Sep 11, 11:21 PM
    • 8,108 Posts
    • 42,239 Thanks
    MSE Martin
    • #5
    • 21st Sep 11, 11:21 PM
    • #5
    • 21st Sep 11, 11:21 PM
    I think their are two biggies not included in this basic model that should be highlighted:
    1) Tax credits
    If you are on tax credits and earn more than £300 interest per year (outside ISAs) then the interest will result in a withdrawal of tax credit at the rate of 41p in the £ on top of any tax on the interest so an effective rate of 61% for basic rate tax payers!!!
    2) Re-mortgaging
    Using savings to pay down a mortgage may allow a lower ltv band on re-mortgage which is likely to have a much greater impact on the mortgage rate and hence total interest cots than any earnings from savings interest.
    Originally posted by michaels

    I dont think its too simplistic, i think its a detailed piece with a lot of elements.

    You do make an interesting point on tax credits - i'll have a think about that and may add anote in the guide.

    As for remortgaging, there's a large section of the guide dedicated to this you may have missed it. In point 3 of the things to look at you'll see there's links, click each and it opens up a new section - there's a big one on just this point
    Martin Lewis, Money Saving Expert.
    Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.

    Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.

    Debt-Free Wannabee Official Nerd Club: (Honorary) Members number 000
    • ---lee---
    • By ---lee--- 22nd Sep 11, 12:03 AM
    • 890 Posts
    • 363 Thanks
    ---lee---
    • #6
    • 22nd Sep 11, 12:03 AM
    • #6
    • 22nd Sep 11, 12:03 AM
    Re the emergency fund.

    I have overpaid my mortgage considerably over the last few years - too the extent that at last check, I had over 2 years worth of overpayments.

    I am unable to withdraw any of the money from my overpayment fund (I was always aware of this) however, I am able to suspend my monthly contractual payments at any time and have these taken from the overpayment reserve until it's exausted - this is aside from other flexible arrangments such as payment holidays.

    I think it's worth people checking this out with their mortgage companies as it means you need a much smaller emergency fund leaving you with more money to put towards overpayments.
    • Sensible_Jess
    • By Sensible_Jess 23rd Sep 11, 8:48 AM
    • 254 Posts
    • 435 Thanks
    Sensible_Jess
    • #7
    • 23rd Sep 11, 8:48 AM
    Joint home owners
    • #7
    • 23rd Sep 11, 8:48 AM
    I'm surprised there wasn't even a mention about what Joint home owners should consider before one or the other makes mortgage overpayments.

    Sadly they should consider what the implications are if they break up.

    If you are married, then assets are out into a 'pot' to be split between the couple. If one of you has put a lump sum into the mortgage, this is considered as part of the 'joint assets' during the split and is not 'ring-fenced' or 'repaid' back to the person prior to the settlement.

    If you are unmarried, then a 'Declaration of Trust' should be drawn up with the aid of a solicitor, detailing what each would be entitled to in the event of a split. The couple should consider how overpayments to the mortgage should also be funded and split.
    e.g. if the house is owned 70:30 due to differing deposits, should any overpayment also be funded the same way i.e. 70:30?

    In the common case of only one partner being in the position to make an overpayment (e.g. due to an inheritance, windfall etc), then this must be detailed in the Trust document, or else, in the event of a split, that partner with the windfall risks losing 30% of the overpayment to the other partner (in the case of a 70:30 ownership).

    Of course, no-one wants to plan what to do if they break up. But I felt it was worth pointing out that if one person makes an overpayment, they should be clear on how that would be dealt with in the event of a split.
    • outofoakes
    • By outofoakes 23rd Sep 11, 1:08 PM
    • 18 Posts
    • 1 Thanks
    outofoakes
    • #8
    • 23rd Sep 11, 1:08 PM
    Should we clear entire mortgage
    • #8
    • 23rd Sep 11, 1:08 PM
    We are in a fixed deal at the moment which is at nearly 7%. The penalty fees halve on 1st October to around £300 and we are considering clearing the 26k owed at this point. We have been told that we would be better leaving a small amount still owing just in case we need to re mortgage for any reason thus doing away with valuation fees etc which a new mortgage would require. Is this advice correct?
  • Marksy
    • #9
    • 23rd Sep 11, 1:21 PM
    • #9
    • 23rd Sep 11, 1:21 PM
    I've heard the same too, outofoakes, but I'm not so sure it's the best way. Surely, if a mortgage company know you won't default (despite them not making much money on you), then they know you're a "good" client?
    • outofoakes
    • By outofoakes 23rd Sep 11, 1:38 PM
    • 18 Posts
    • 1 Thanks
    outofoakes
    We were considering buying my sons house which he is renting out at the moment and I thought we may be able to re mortgage ours to raise the money which shouldnt incur fees rather than start again with a buy to let mortgage which will incur £3k in fees before we start. If we dont go down that route there was the option to convert our loft space and as the newer mortage rates are better than personal loans we thought we would have the option to re mortgage to do these improvements. Or we clear the mortgage in full and just save the money we were spending each month on the mortgage till we have enough to do the improvements.
  • DMISER
    I have a part re-payment, part interest only mortgage on a fixed rate.

    If I were to pay off a lumpsum amount, which part of the mortgage would it be best to allocate it to ?

    Any advice gratefully received.
  • Elfie4
    Legal Fees - Paying Off Mortgage
    I understand that when the mortgage is finally paid off Santander asks that you get a lawyer to remove Santander's charge against the mortgage on the property's deeds or alternatively Santander will do it. How much do people expect to pay for this legal formality? I guess this is standard practice.
  • micko
    should i pay off my mortgage?
    My mortgage will be paid off in 18 months (£5000),the interest rate is 2.5%. I have £8000 in savings accounts that are now earning 0.1%. I have £35000 in a cash isa paying 3.26 % A.E.R. instant access. Advice would be greatly appreciated to maximise the return,
    thanks Micko,
    • pineapple
    • By pineapple 22nd Oct 11, 12:21 PM
    • 5,913 Posts
    • 27,796 Thanks
    pineapple
    I understand that when the mortgage is finally paid off Santander asks that you get a lawyer to remove Santander's charge against the mortgage on the property's deeds or alternatively Santander will do it. How much do people expect to pay for this legal formality? I guess this is standard practice.
    Originally posted by Elfie4
    I just paid off a mortgage with Alliance and Leicester which became Santander and know nothing about this. There was however an 'administration fee'. I was then informed by the Land Registry that they had received a request from Santander to remove the charge and I could have a copy of the register entry if I wanted. Next I got a big envelope from Santander with the house deeds!
    • pineapple
    • By pineapple 22nd Oct 11, 12:33 PM
    • 5,913 Posts
    • 27,796 Thanks
    pineapple
    My mortgage will be paid off in 18 months (£5000),the interest rate is 2.5%. I have £8000 in savings accounts that are now earning 0.1%. I have £35000 in a cash isa paying 3.26 % A.E.R. instant access. Advice would be greatly appreciated to maximise the return,
    thanks Micko,
    Originally posted by micko
    I was going to say I was in a similar financial situation to you but I misread the cash ISA as £3,500!
    You have to factor in any early payment/administration charge though I would think you would still be better paying it off (out of your general savings of course). I had a similar amount in a low interest account and it was a bit of a no brainer paying it off. My only concern was the hit on the capital ie should the car go belly up..
    Of course the other option would be to get another cash ISA if you have not used up this years allowance.
    The main thing which persuaded me to pay off my mortgage was the global financial uncertainty. I know our savings are guaranteed but...
    Also I was dipping into my savings for the occasional extravagance and I could see a time when I might not be able to pay off my mortgage.
    Last edited by pineapple; 22-10-2011 at 12:37 PM.
  • Retire
    I understand that when the mortgage is finally paid off Santander asks that you get a lawyer to remove Santander's charge against the mortgage on the property's deeds or alternatively Santander will do it. How much do people expect to pay for this legal formality?
    My solicitor charged me £60.

    Before I paid off my mortgage I was getting pension credit and therefore other benefits because of this.

    I paid off my mortgage and my pension credits stopped therefore council tax benefits are reduced, now I am paying an extra £140 per month council tax for the next 3 months.

    But it is still worth to be mortgage free.
    • dunstonh
    • By dunstonh 22nd Oct 11, 12:39 PM
    • 88,357 Posts
    • 53,576 Thanks
    dunstonh
    The article does include this but its at the bottom so some may miss it. You should also include using tax free allowances when making a decision.

    Things like ISAs are a use it or lose it allowance. Whilst one year in isolation isnt going to make a lot of difference, over time you can have hundreds of thousands of pounds in ISAs.

    £20,000 income in retirement from ISAs is tax free
    £20,000 income in retirement from taxable savings/investments would generate £4000 tax (above personal allowance).

    So you have to weigh up not just immediate needs and gains but future needs and gains as well.

    Personally, I have increased my pension contributions (significantly as volatile markets are great news for long term regular contributions), maxed out my ISAs and I am overpaying the mortgage. I dont see why you should limit yourself to any one thing but instead do a combination of things. If interest rates were higher, then my approach maybe more weighted to mortgage.

    I thought it was a good article.
    Last edited by dunstonh; 22-10-2011 at 12:41 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • benchm
    I might be wrong but I think there is a difference between the mortgage interest rate you think you are paying and the % interest you are actually paying month-by-month. I have about 9 years left on my 25 year mortgage and about £65k left to pay. I am fortunate to be on a rate of 1.7% and earning interest on my savings of around 3% net. At first glance you would think that the decision is obvious, namely don't pay off more of the mortgage than the monthly payments because I'm earning more on my savings (3%) than I'm paying on the mortgage interest rate (1.7%).
    But when I looked at the yearly statement and the monthly breakdown I found that of the total payments I'd made in the year - roughly £6500 - around 10% of it, not 1.7%, is interest charges. If I've read this right then the interest charges and rate are high to start with, decrease slowly through the life of the mortgage and only really hit a minimal level in the last couple of years. This suggests you're almost always better off in the current environment to pay off as much as you can.
    I'd be interested in Martin's views on this but unless I'm talking drivel the real comparison in deciding whether to pay down your mortgage is not between your savings rate and your mortgage rate but between your savings rate and the level of interest (%) that you're paying on your mortgage payments at the time. It also suggests that no online calculator such as the one on this website will help you because you need to do the calculations based on what's in your annual mortgage statement.

    What do you think Martin?
  • Jilly100
    Should we pay off our mortgage
    HELP !!! 12 months ago we downsized and bought a bungalow which required full modernisation before we could move in; we have a 12 year mortgage with an interest rate of 3.79% fixed for 3 years initially, and are now tied in for 2 years with a remaining penalty of £1,819.15 if we repay early, on an outstanding balance of £90,000. We have just sold our former house; should we repay the mortgage and pay the penalty - we can pay 10% off per year without penalty but have missed the first year - if the best interest rate we can get (before tax) is 4.0% and we are basic rate tax payers should we open a 2 year bond and pay off in 2 years, in addition to paying off 10% capital repayment this year and next year, or pay off now and pay the penalty and then save the £835 monthly mortgage payments?
    Last edited by Jilly100; 19-12-2011 at 12:22 PM. Reason: amended again!!
    • Sepa74
    • By Sepa74 23rd Dec 11, 2:13 PM
    • 953 Posts
    • 4,012 Thanks
    Sepa74
    Hi Jilly,

    the good news is you're in luck...there is an answer to your question, but the bad news is it will involve lots of maths!

    You need to work out how much interest you will earn (less tax) by putting the house sale price in the bank over the next two years, vs how much interest you will pay on the mortgage in the same period of time.

    If the difference between the two is greater than the payout fee, then pay your mortgage off. If the answer is less than the pay out fee, then you are best off saving your money and paying the mortgage off in two years when there is no penalty.

    I hope that helps!
    Borrowed £150,000 in an offset tracker mortgage in May 2007 - MFD May 2041 (67)

    Jan 2012 - £125,620.02 / 2,913.87 / Nov 2032 (58)
    Apr 2012 - £122,901.88 / 3,170.91 / Jul 2032 (58)
    Jul 2012 - £122, 589.02 / 3,507.99 / Sept 2032 (58)
    Oct 2012 - £120,476.31 / 3,889.42 / July 2032 (58)
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