The maths behind aiming for mortgage-free

ScoobyLoot

getmore4less wrote: »

And again with an initial £10k savings pot

senario 1 yours :

£100k 4% pay £606pm.
mortgage paid off in 240 months
Save £394pm 2.5% for 240months with a £10k starting pot £139,036.74

senario 2 :

£90k 4% pay £1000pm
mortgage paid off in 108 months
Save £1kpm 2.5% for 132months £151,778.80

:T Woohoo! !!!!, I wish I'd known about that site beforehand hahaha! So that makes you £12.7K better off, which is nice and along the same kinda lines as I found (though my mortgage is larger). What I was driving at though was that you really need to squirrel away the whole lot once it's paid off to get that benefit. 12.7K benefit over 132 months roughly means if you spent £100 of your £1000 extra, you'd have the same pot as if you'd just paid the mortgage as-was. So yeah, overpaying does get you extra loot at the end of the 20years, but only if you behave like you're still paying a mortgage once it's paid. That was kinda my point really But you can end up better off if you're very careful and don't splash out too much once it's paid early.

ScoobyLoot

ailuro2 wrote: »

See my sig and you'll know why I get the feeling you're someone who signed up just to try and baffle the not-so-sure MFWannabees with a long winded post and some arithmetic.

hehehe, not quite. If anything I guess what you can take away from my vino-powered musings is that if you don't overpay your mortgage, don't fret, because someone who does will only be better off if they don't go and splash out once they're mortgage free. We'll all let you off on the holiday though :beer:

ailuro2 wrote: »

Much easier for those folk who prefer an old fashioned bit of paper to Microsoft Excel.;)

Pencils, paper and OpenOffice actually Depriving Bill Gates of as much of my money as possible is part of my financial planning :rotfl:

ailuro2 wrote: »

Some things you can't do arithmetic for, and peace of mind is one thing you didn't calculate for.;)

I don't know the equation for that one I found an interesting one on that site though - the "should I buy this" calculator, which came back with a resounding "NO!" when I punched in the details for a new car. We should all use bikes! :rotfl:

littlemrtinkle

The Op hurt my head reading all that lol

I prefer a combination of overpaying mortgage and saving. As i am limited on my mortgage to what i can overpay this makes sense to me. I overpay the max and put rest into savings. Hopefully Isas will pick up soon.

magicdogsbrain

I overpay - but only conceptually - into an offset pot. This account is earmarked either for paying off the mortgage - or eventually buying somewhere bigger (with the same mortgage) - or for an extreme unexpected emergency.

I still consider myself a MFW - because I want the pot to equal my outstanding debt. Even when I achieve that - I wont pay it off until they force me to hand it back at the end of the term (26 years left).

Floxxie

ScoobyLoot wrote: »

heheheh that is indeed the goal Floxxie. I just wanted to know what the effects of different approaches were, and thought others might be interested to know what it meant from a different angle. Little did I know it'd be like being Darwin confronting the religious beliefs of others :rolleyes: :rotfl:

:rotfl:well you can spot the long-termers as we have been confronted with 'anti' pay-off-your-mortgage thoughts many times before.

Just out of interest why do you think I would want to save? I'm going to blow it all before I am too old to enjoy it.

george_jetson

Floxxie wrote: »

Just out of interest why do you think I would want to save? I'm going to blow it all before I am too old to enjoy it.

That's the way to do it!

getmore4less

Gorgeous_George wrote: »

The key point for me is that overpaying when I am young makes me richer when I'm old. There is a balance to be had.

All the corpses in the graveyard are mortgage free.

Saving £10,000 in interest in years 16 to 25 is not worth £10,000 at today's rates due to inflation.

GG

The key is lifetime income requirements

Debt can get inflated away but you are still dependant on an income to service it/pay it off.

Saving can generate income, but it is variable(interest rates or dividends).

The more you save, the more you reduce debt, the lower you reduce your future earned income requirements.

I agree you cant take it with you but if you have a plan that requires income right upto late retirement you can come unstuck.

Over save/pay of debt and you get the chance to retire early or do a reduce income job, handy if it is forced upon you.


You need to build it up then spend it or be dependent on income if you spend it too soon.

(or be happy with the level of inome benifits will give you but that is another story and requires limited savingsbut you can have a big house).

getmore4less

ScoobyLoot wrote: »

heheheh that is indeed the goal Floxxie. I just wanted to know what the effects of different approaches were, and thought others might be interested to know what it meant from a different angle. Little did I know it'd be like being Darwin confronting the religious beliefs of others :rolleyes: :rotfl:

Darwin you are having a laugh :rolleyes::rotfl:

The basic arithmetic was wrong.

The premise of your argument was if you spend money you will be worse off.

ScoobyLoot

getmore4less wrote: »

The premise of your argument was if you spend money you will be worse off.

Actually, the premise of the "argument" was that if you spend more than a little of your new surplus loot once mortgage-free then you are worse off than if you just left the mortgage running its prescribed term, and that the margin between the two is smaller than you might think.

And the basic arithmetic wasn't wrong. Yes I did it by hand instead of using a website I didn't know existed, but that doesn't make it wrong. As examples provided from said website showed, and correlated what I said - YES you are better off if you overpay, but the margin that you have to play with once mortgage-free if you want to keep that advantage ISN'T large. Comprende?

If you want to be better off you have to continue living as if you're overpaying the mortgage once it's complete - i.e. by paying yourself instead and saving all that money.

Of course you'll be earning more by then, but you'd have that money to save or do whatever with anyway, and inflation will make the £12.7K difference in your examples equivalent to about 4.5K (based on inflation rates where I am anyway). So in your example you bust your nuts saving after paying your mortgage for 132 months (11 years!) for.... the equivalent of £4500, which with my basic bills and living expenses that I can't trim, would last about 6 months. The delights of being mortgage-free! Nice shootin', Tex! :rotfl: Synopsis: once you've got a mortgage, it really doesn't make much difference what you do.

ScoobyLoot

Floxxie wrote: »

Just out of interest why do you think I would want to save? I'm going to blow it all before I am too old to enjoy it.

:DThat's another strategy, yes. And I've love to get a new car. Doesn't do much for the kids' inheritance though, does it?