WOOHOO I overpayed by £22000

temba

Yes - but if the interest on my house is 3%, (potentially more in the near future) and my Isa is 3%, how can I be losing out? Maybe not gaining, but not losing out.Please explain.

Thanks,
T

dylansmum

Oh wow! Inspirational! WELL DONE!

RosieTiger

temba wrote: »

Yes - but if the interest on my house is 3%, (potentially more in the near future) and my Isa is 3%, how can I be losing out? Maybe not gaining, but not losing out.Please explain.

Thanks,
T

It's a personal decision, so if you are happy with the call you have made and happy with the level of savings you have behind you - that's all that matters.
Well done you !

Gorgeous_George

julieq wrote: »

Your ISAs will grow at 3% ish pa, the value of the money you just pumped into your house is dropping at 2% a month and you can't get it back easily.

I know it feels good to reduce mortgage debt, but in the current situation it maybe wasn't the optimum strategy financially, far better to hold offsetting savings in ISAs or in an offset mortgage.

You're not a financial adviser by any chance?

The value of the house would fall regardless. Paying off debt when it costs more than your savings earn is rule number one of commonsense.

GG

blakester

Well done Temba, wish I could do the same to get that sense of security that comes from reducing your mortgage (debt). Spot the odd one out post (hint below):rolleyes2

julieq wrote: »

Your ISAs will grow at 3% ish pa, the value of the money you just pumped into your house is dropping at 2% a month and you can't get it back easily.

I know it feels good to reduce mortgage debt, but in the current situation it maybe wasn't the optimum strategy financially, far better to hold offsetting savings in ISAs or in an offset mortgage.

temba

Thanks everyone! I've got to say that whatever the maths is, I feel wonderful since I saw my mortgage figure go down. My mortgage payment has now nearly halved since I came off my fixed rate and though I'll keep paying the same amount as I was before, it is very liberating to know that if times got tough workwise, I could always drop to paying the lower amount.

As RosieTiger said, it is a completely personal decision, and of course it might not be the right one for everyone.

Good luck everyone!

julieq

Gorgeous_George wrote: »

You're not a financial adviser by any chance?

The value of the house would fall regardless. Paying off debt when it costs more than your savings earn is rule number one of commonsense.

GG

Not really. Cash is worth a lot more if you can access it than if you put it into an illiquid asset. In fact you could have a differential between the mortgage rate and the savings rate and it'd still be worthwhile. Unless you've paid off the entire mortgage it's still a secured loan, so given that 4K or so will last only a few months of emergency it's a precarious position to be in, especially in a declining market. Worst case you are forced into a sale due to illness or unemployment and lose 20% of the 22K because of reduced value.

I paid off a mortgage, but only when I had about double the savings to the loan amount, and I built the capital up essentially via investment rather than saving. It was never difficult during that period to easily beat mortgage rates even on savings rates. Mortgage reduction is essentially a psychological thing, it's not necessarily wise financially speaking (where I would do it if I had a highish LTV and wanted to reduce the mortgage amount for a remortgage at a fixed rate in 12-18 months) given the risk of a reduced valuation.

No I'm not a financial advisor, lol.

StuartGMC

julieq wrote: »

Not really.Worst case you are forced into a sale due to illness or unemployment and lose 20% of the 22K because of reduced value.

If you have overpaid then your lender is going to be much more favourable to arranging reduced payments and they will find it much more difficult to repossess on this basis anyway. Plus, holding the savings you will not be allowed to make claims for income support based upon your finances as you must not deliberate reduce your assets so you can claim.... this is one risk of the offset (and we're on one).

If you haven't overpaid then you will still lose your savings against the mortgage debt owed as a repossessed property will probably only fetch 60% max of the present retail value.

It seems you are looking at the short-term expectation of continued reduction in asset value whereas the loan has not decreased irrespective of market forces?

Provided you have sufficient in pension, savings, investments and balance with mortgage then it is down to preference at the end of the day. That said, once the mortgage is gone then you can choose the risks for investments, spread of portfolio against desire to risk or be conservative, down-shft job etc etc which is not viable if you have to feed the mortgage repayments.