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  • FIRST POST
    • JustAnotherSaver
    • By JustAnotherSaver 3rd Jan 18, 10:23 PM
    • 2,824Posts
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    JustAnotherSaver
    What to do with mortgage savings?
    • #1
    • 3rd Jan 18, 10:23 PM
    What to do with mortgage savings? 3rd Jan 18 at 10:23 PM
    Brief info:

    Wife & I are mid 30s.
    Our pension (private) pots are only around the £8k-£10k marker each, so not a lot. On top of that my workplace pension is currently about £2k and my wife's will be about £500.

    I earn around £21k, she's around £18k.


    Our 5 year fixed rate mortgage (3.19%) is up at the end of the year and we can move on 3 months before it's up.


    Looking at the rates we should end up paying less per month than what we currently do.

    Since we're spending that money anyway, we wont miss it. By that i mean if we're paying £450 right now and after renewal we pay £350 then we can afford to put £100 per month somewhere worthwhile rather than (for example) in our bellies, down a drain (doesn't paint a good picture of ourselves! lol, but you get the idea) etc.


    One thought would be to continue paying the exact same amount per month to the mortgage.

    Another thought would be (to take £100 saving as an example) put this £100 into our pension pots each month on top of what we already do. Sure £50 each isn't big money, nothing to get excited over but "owt is better than nowt".

    Or something else altogether. No not a holiday fund or anything like that but something 'worthwhile' if you get me?

    The 2 examples i gave of overpaying and retirement pots - i wouldn't mind either as at least it'd be helping towards something, just wondering what the knowledgeable folk here would consider to be the better option and why?

Page 1
    • Thrugelmir
    • By Thrugelmir 3rd Jan 18, 10:30 PM
    • 56,682 Posts
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    Thrugelmir
    • #2
    • 3rd Jan 18, 10:30 PM
    • #2
    • 3rd Jan 18, 10:30 PM
    There's no set answer to your question. Personally I'd save the your money 3 ways. Emergency Savings Pot (short term), Overpaying Mortgage (medium term) and pension saving (long term). Every little bit helps as they say. As the future unfolds you can then revise your plan accordingly.
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • JustAnotherSaver
    • By JustAnotherSaver 3rd Jan 18, 11:21 PM
    • 2,824 Posts
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    JustAnotherSaver
    • #3
    • 3rd Jan 18, 11:21 PM
    • #3
    • 3rd Jan 18, 11:21 PM
    Yeah i suppose there's a shout for not having eggs in one basket.

    Right now i've set up a SO and a term to put together an emergency savings pot. Sure i could get there quicker with more going in but i think i'm happy to ride that one out on the existing plan, at least for now.


    Rather than create a new thread for this question i did wonder about something today...
    I'm currently paying in £200pm to my SIPP. Ideally i'd like to go more but for now it's £200pm. The fund is VLS100.

    Now at £200pm, you're in the 5% regular saver bracket - so the thought was would you guys put that £200pm direct in to your pension with 12 deposits in the year or would you put it in to a regular saver for a guaranteed 5%, get the interest at the end of the 12 month term and then put the whole lot in to your SIPP in one?

    I know, if we had a crystal ball and it'd earn over 5% in the SIPP then you'd be losing out doing the regular saver but as i don't currently possess one i thought i'd turn to the next best thing - you guys

    • IanSt
    • By IanSt 4th Jan 18, 11:01 AM
    • 208 Posts
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    IanSt
    • #4
    • 4th Jan 18, 11:01 AM
    • #4
    • 4th Jan 18, 11:01 AM
    A regular saver is only going to pay just over half of the headline rate on the full sum, so if it were me then I'd just put the monthly £200 straight into the sipp. However I would use the regular saver to help in building up the cash savings.
    Last edited by IanSt; 04-01-2018 at 12:05 PM.
    • chockydavid1983
    • By chockydavid1983 4th Jan 18, 11:26 AM
    • 520 Posts
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    chockydavid1983
    • #5
    • 4th Jan 18, 11:26 AM
    • #5
    • 4th Jan 18, 11:26 AM
    If you're still building up your emergency fund, I'd use the regular saver and then at the end of the year, transfer any excess into your SIPP.
    • Eco Miser
    • By Eco Miser 4th Jan 18, 2:27 PM
    • 3,312 Posts
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    Eco Miser
    • #6
    • 4th Jan 18, 2:27 PM
    • #6
    • 4th Jan 18, 2:27 PM
    A regular saver is only going to pay just over half of the headline rate on the full sum, so if it were me then I'd just put the monthly £200 straight into the sipp. However I would use the regular saver to help in building up the cash savings.
    Originally posted by IanSt
    But it pays exactly the headline rate on the amount saved at any moment - just as the SIPP or an S&S ISA pays whatever effective rate they pay on the invested amount only, not the full savings for the year.

    In other words, you're suffering from a logical fallacy.
    Eco Miser
    Saving money for well over half a century
    • Lokolo
    • By Lokolo 4th Jan 18, 2:55 PM
    • 19,876 Posts
    • 14,965 Thanks
    Lokolo
    • #7
    • 4th Jan 18, 2:55 PM
    • #7
    • 4th Jan 18, 2:55 PM
    As you are not higher rate tax payers I would personally stop paying into the SIPP.

    If you and your wifes employer offers salary sacrifice, use this instead.

    If not, I would concentrate between emergency, S&S ISA (you can still go for VLS100)(you can always do Regular Saver than after 12 months deposit the matured amount in, this is what I do - 5% regular saver then after 12 months it matures and I stick it in S&S ISA, or spend it on house improvements) and overpaying the mortgage.
    • IanSt
    • By IanSt 4th Jan 18, 5:00 PM
    • 208 Posts
    • 160 Thanks
    IanSt
    • #8
    • 4th Jan 18, 5:00 PM
    • #8
    • 4th Jan 18, 5:00 PM
    But it pays exactly the headline rate on the amount saved at any moment - just as the SIPP or an S&S ISA pays whatever effective rate they pay on the invested amount only, not the full savings for the year.

    In other words, you're suffering from a logical fallacy.
    Originally posted by Eco Miser
    I was just trying to make sure that the OP wasn't misreading the 5% as being applied at the end of the year to the full £2400 and that they'd get £120 in interest - depending on the exact dates of putting money in then it's actually only going to be in the region of £65.

    Apologies to the OP if they knew that already, but if it were me and I'd made that mistake then I too might think about using the regular saver for that purpose - I wouldn't as I know it would only actually be £65 and I'd rather make use of pound cost averaging.
    Last edited by IanSt; 04-01-2018 at 5:12 PM.
    • Thrugelmir
    • By Thrugelmir 4th Jan 18, 6:33 PM
    • 56,682 Posts
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    Thrugelmir
    • #9
    • 4th Jan 18, 6:33 PM
    • #9
    • 4th Jan 18, 6:33 PM
    But it pays exactly the headline rate on the amount saved at any moment - just as the SIPP or an S&S ISA pays whatever effective rate they pay on the invested amount only, not the full savings for the year.

    In other words, you're suffering from a logical fallacy.
    Originally posted by Eco Miser
    There's no potential for capital growth with cash savings though. With the SIPP there's immediately a 25% uplift in capital value.
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • JustAnotherSaver
    • By JustAnotherSaver 4th Jan 18, 8:57 PM
    • 2,824 Posts
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    JustAnotherSaver
    Regards the interest on offer - thanks for going at it from different angles.
    Whether i pay in £200 per month to a SIPP or £200 per month to a regular saver and then switch it to the SIPP at the end, the SIPP would have to be hitting 5% to keep with the regular saver, right? I know it offers +25% but when i transfer it in as a lump deposit at the end of the 12 months it'll still get the 25%+.

    As you are not higher rate tax payers I would personally stop paying into the SIPP.

    If you and your wifes employer offers salary sacrifice, use this instead.

    If not, I would concentrate between emergency, S&S ISA (you can still go for VLS100)(you can always do Regular Saver than after 12 months deposit the matured amount in, this is what I do - 5% regular saver then after 12 months it matures and I stick it in S&S ISA, or spend it on house improvements) and overpaying the mortgage.
    Originally posted by Lokolo
    Can i ask why you'd opt against the SIPP?

    Our employers don't offer salary sacrifice. We've asked & it's a no.

    So take what you said - putting it in to a S&S ISA, if i put £1000 in to this then it's £1000. It's £1000 that will be hit with the pluses and negatives. I know there's an option to transfer it over to a SIPP at a later date (which i actually did last year).
    Yet if i put it in to a SIPP it immediately gets +25%, so that £1000 is now £1,250 and it's £1,250 that's hopefully getting hit with those same pluses.

    So why would you put it in to something that at the end of the working day has a lower base figure?

    The first IFA we spoke to wanted to do this. The reason he gave was in case we need to call on the money. He wouldn't listen no matter how many times i told him that this is retirement money and it wont be called on until such a day.

    So why do you say S&S ISA rather than SIPP? A LISA i could've understood a bit more if you'd said that but even still i would've thought SIPP to be better?

    • zolablue25
    • By zolablue25 5th Jan 18, 8:41 AM
    • 1,495 Posts
    • 443 Thanks
    zolablue25


    Yet if i put it in to a SIPP it immediately gets +25%, so that £1000 is now £1,250 and it's £1,250 that's hopefully getting hit with those same pluses.

    So why would you put it in to something that at the end of the working day has a lower base figure?

    The first IFA we spoke to wanted to do this. The reason he gave was in case we need to call on the money. He wouldn't listen no matter how many times i told him that this is retirement money and it wont be called on until such a day.

    So why do you say S&S ISA rather than SIPP? A LISA i could've understood a bit more if you'd said that but even still i would've thought SIPP to be better?
    Originally posted by JustAnotherSaver
    Just bear in mind that whilst the SIPP payment gains you the tax relief when you put the money in, you will pay income tax when you take the money out (assuming you will have income above the tax threshold).

    With an ISA you pay tax on the money when it goes in but its tax free when it comes out.

    I'm not saying one is better than the other and I don't know which is best for you as each person is different but it is important to know when tax is payable on both investment types.
    • IanSt
    • By IanSt 5th Jan 18, 11:50 AM
    • 208 Posts
    • 160 Thanks
    IanSt
    Regards the interest on offer - thanks for going at it from different angles.
    Whether i pay in £200 per month to a SIPP or £200 per month to a regular saver and then switch it to the SIPP at the end, the SIPP would have to be hitting 5% to keep with the regular saver, right?
    Originally posted by JustAnotherSaver
    On average that's probably not far off, but it does depend on how the market rises and falls over the year.

    It would never happen like this (well it would be very unlikely) but suppose that you started investing today and put in £200 extra each month. Now consider what happens if the price drops by 5% tomorrow but then doesn't change until one day before the year is up when it goes back up by 5% (or more accurately 5.26% to 2 decimal places) so that the price ends exactly where it began.

    During the first 11 months your original £200 is only worth £190 but you keep putting your money in so after the 12th contribution your total is now £2390.

    Then on the last day it increases by the 5% so suddenly the whole amount (even the last months contribution) goes up by 5%. I'm not going to do the maths to see what the % rate is, but you've made a lot more than you would from sticking it into a regular cash saver despite the market being at exactly at the same level as when you started!

    Similarly if instead of the above the price initially rises by 5% and then falls at the very end then you'd end up with less money then you initially put in.

    You'd also need to consider the impact of dividends and platform/fund costs on this.

    For instance the ftse all share is yielding something north of 3% so if that is where you are considering investing then the ftse itself would only need to raise by somewhere around 2% if you're on a low cost platform and low cost tracker.
    • Eco Miser
    • By Eco Miser 6th Jan 18, 4:02 PM
    • 3,312 Posts
    • 3,080 Thanks
    Eco Miser
    I was just trying to make sure that the OP wasn't misreading the 5% as being applied at the end of the year to the full £2400 and that they'd get £120 in interest - depending on the exact dates of putting money in then it's actually only going to be in the region of £65.
    Originally posted by IanSt
    But you expressed the warning in the form of a well known fallacy - that the interest rate is half of the true rate - rather than that the amount saved averages only half the final amount. That triggered my own warning.


    There's no potential for capital growth with cash savings though. With the SIPP there's immediately a 25% uplift in capital value.
    Originally posted by Thrugelmir
    Which happens whether the SIPP gets 12 small contributions or one big one.
    On market growth, there's opportunity for capital value to rise or fall.
    Last edited by Eco Miser; 06-01-2018 at 4:07 PM.
    Eco Miser
    Saving money for well over half a century
    • LeadFarmer
    • By LeadFarmer 6th Jan 18, 6:12 PM
    • 30 Posts
    • 16 Thanks
    LeadFarmer
    When my 5% mortgage interest rate dropped to 0.4% back in 2008 my £750/month mortgage dropped drastically, but I maintained the payments at £750. That was ten years ago and these overpayments have reduced my mortgage term from 25yrs to about 17yrs.

    Personally I would make overpayments to your mortgage by keeping your payments the same as they are now, or at least put the excess money into a pension. But you also have to consider if you will need that money if interest rates increase in the future.

    The main thing is to do something sensible with the money, and not to fritter it away on everyday spending. We paid off the mortgage to our previous house ten yrs ago, but instead of living mortgage free for the rest of our lives we bought a bigger house and started over agin with a new mortgage. By making my overpayments, when I retire in 4yrs time our mortgage will be very small indeed.

    One question to consider is whether investing any spare money elsewhere is a good thing if you currently have a debt your paying off, such as a mortgage. I like to consider paying off such debts before investing.
    Last edited by LeadFarmer; 06-01-2018 at 6:16 PM.
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