Two more building societies increase interest rates

Harry_Powell

Charterhouse wrote: »

Harry, why do you think anyone who overpays is bonkers?

I am a higher rate taxpayer, with a 4.89% fixed rate mortgage. By overpaying 10% I effectively earn 4.89/0.6 (0.5 next year) = 8.15% on my money. That's better than any asset class will return in 2010 in my opinion.

I hate to answer a question with another question, but in this case it's quite pertinent....

Why have you fixed your mortgage rate, and how long for?

p.s. I also think you've made a miscalculation on your interest rate return. 4.8% taxed at basic rate would return 3.91% and high rate returns 2.93%. So as a high rate taxpayer you'd lose 1.87% of the interest to HMRC (4.8% - 2.93%), so by putting your money into a tax free vehicle (such as an offset or ISA) you would need a 6.67% return on a taxed account to give you the same return as a tax free 4.8%.

Thrugelmir

Harry_Powell wrote: »

p.s. I also think you've made a miscalculation on your interest rate return. 4.8% taxed at basic rate would return 3.91% and high rate returns 2.93%. So as a high rate taxpayer you'd lose 1.87% of the interest to HMRC (4.8% - 2.93%), so by putting your money into a tax free vehicle (such as an offset or ISA) you would need a 6.67% return on a taxed account to give you the same return as a tax free 4.8%.

Maths isn't your strong point.;)

To net a 4.8% return not a gross return.

4.8 divide by 60 multiply by 100 = 8%

8% gross less 40% tax is the net return.

There are no guaranteed 8% gross returns.

Graham_Devon

Charterhouse wrote: »

Wow, what amazingly terrible advice.

It wasn't advice. I just said what I did.

chucky

Mr.Brown wrote: »

Lol. The problem with an offset is that you need something to actually like er do the offsetting bit, like some money... lol.

oohhh quick tell Cleaver!!!
he must be in all sorts of bother then!!

Cleaver wrote: »

I've not really kept up to date with fixed rate prices as we're happy on our offset base-rate plus something thingymabob, but I didn't realise that 5 year fixes were that expensive.

We got a five year fix in late 2003 that was 4.7%. Not sure what the base rate was then, but I think it was around 3.75% or something like that.

Mr.Brown wrote: »

Anyway I digress as usual.

correct :T

silvercar

Mr.Brown wrote: »

Lol. The problem with an offset is that you need something to actually like er do the offsetting bit, like some money... lol.

If you take more than you need, you give yourself rainy day/ future borrowing, money at a rate you could never get on a loan/ overdraft basis.

de1amo

i have been following an associated thread about skipton building society and its invoking a hike to rates and changing the terms of customers--those on fixed deals should follow this because as the svr rises their fixes might be blown away-
-i also agree this is a fundamental change tto the way the mortgage system works and may have a dire effect on the house prices- the sub prime lending has left a lot of people on svr and when the rates like this hike there will be no other place to go to!plus this hike is cutting the connection between the boe rate and the mortgage rates--could be dooms day all round!

Thrugelmir

de1amo wrote: »

i have been following an associated thread about skipton building society and its invoking a hike to rates and changing the terms of customers--those on fixed deals should follow this because as the svr rises their fixes might be blown away-
-i also agree this is a fundamental change tto the way the mortgage system works and may have a dire effect on the house prices- the sub prime lending has left a lot of people on svr and when the rates like this hike there will be no other place to go to!plus this hike is cutting the connection between the boe rate and the mortgage rates--could be dooms day all round!

Not a doomsday. Like everything in life you just have to adapt to changing circumstances and get on with it.

de1amo

well maybe not doomsday--but a seed change which doesnt look favourable for the lender--and consequently house prices??
Someone in this mess has to pay for the bank's problems-it wont be the share holder-it isnt the saver--who have i left out??

Harry_Powell

Thrugelmir wrote: »

Maths isn't your strong point.;)

To net a 4.8% return not a gross return.

4.8 divide by 60 multiply by 100 = 8%

8% gross less 40% tax is the net return.

There are no guaranteed 8% gross returns.

Quite right, sorry I was over complicating my calculations.

The trouble is that I could get a 7% fixed rate mortgage and tell myself that "I'll never beat that in savings, so I'm mad not to overpay the mortgage because there are no guaranteed 11.7% returns". Nope, I'm actually mad to fix at 7% on my mortgage.

And don't get me started on the fact that overpayment money is usually locked away once it's paid, especially if the overpayer loses his job - try asking for your overpayments back from the lender in those circumstances...

"Hi bank manager, I made £6k in overpayments last year and I'd like them back", you say. "Ok, Mr Thrugelmir. I'll arrange for a remortgage so you can borrow £6k. You'll have to borrow it at our new higher rates." he replies. "Actually, I just want my money back" you cry. "I'm afraid that it's the bank's money now, sonny" he laughs. "Oh, damn" you respond.

"So, we'll just go through the paperwork. You're still employed in the same job?" asked the lender. "Um, no, actually I just lost my job". "Goodness me, what a shame, but then how do you intend paying the money back?" he frowns. "Why, with the money you're loaning me" you reply. "Nice try, sonny! Goodbye Mr Thrugelmir" he replies, pushing you out of the door.

Thrugelmir

Harry_Powell wrote: »

Quite right, sorry I was over complicating my calculations.

The trouble is that I could get a 7% fixed rate mortgage and tell myself that "I'll never beat that in savings, so I'm mad not to overpay the mortgage because there are no guaranteed 11.7% returns". Nope, I'm actually mad to fix at 7% on my mortgage.

And don't get me started on the fact that overpayment money is usually locked away once it's paid, especially if the overpayer loses his job - try asking for your overpayments back from the lender in those circumstances...

"Hi bank manager, I made £6k in overpayments last year and I'd like them back", you say. "Ok, Mr Thrugelmir. I'll arrange for a remortgage so you can borrow £6k. You'll have to borrow it at our new higher rates." he replies. "Actually, I just want my money back" you cry. "I'm afraid that it's the bank's money now, sonny" he laughs. "Oh, damn" you respond.

"So, we'll just go through the paperwork. You're still employed in the same job?" asked the lender. "Um, no, actually I just lost my job". "Goodness me, what a shame, but then how do you intend paying the money back?" he frowns. "Why, with the money you're loaning me" you reply. "Nice try, sonny! Goodbye Mr Thrugelmir" he replies, pushing you out of the door.

No one would advocate just paying down a mortgage.

Six months salary has always been advisable as an emergency cash fund. Though many no longer adhere to this principle.