Why mortgage free?

doctor-dee

Engeroosi wrote: »

I like this question and point raised, I would like to know how much the OP has profited in shares and how much he risked losing? I could put 1k in my mortgage or put 1k on my football team winning at even odds, But I would rather know for a fact i still have my 1k plus the interest it saves me having to pay for the next 25 years than risk 1k to win 2k which I might lose on the next game.

Share based investing is higher risk than deposit based saving. It must be viewed as longer term (as a mortgage is). Over the past 2-3 years alone I have been 'saving' equivalent to a 2nd mortgage, so in the region of £1k per month. I have been making annualised gains of approximately 20%, partly due to the natural recovery of the markets, but also on careful stock selection. Compare this to overpaying a mortgage at 3.5% and I have made an additional 16.5% pa. Ok, my mortgage hasn't gone down faster, nor have I shaved years off it, but I still have the option of doing just that with the money saved (and gained), or I can leave it to build up to be used for all the reasons mentioned by other posters. Or choose to use it somewhere in between.

I just want to add that I'm not trying to say that one way is categorically right or wrong, just trying to understand the reasoning behind people's decisions.

nearlyrich

Being MF meant I could walk away from a job when my new manager was a lying conniving numpty means (now I have another decent job) I can pay the full allocation into an ISA each month and top up my works pension to ensure I can retire at 55, it also meant I could support my children through uni so they only had minimum loans to repay and they both have a decent chunk of gifted deposit to come.

doctor-dee

Originally I asked this question from a financial decision making point of view. I've quickly realised that for many it's not about the most cost effective way of paying down debt / saving (whichever way you view it), it runs much deeper than that. It's about each person's aspirations and future ambitions for themselves or their family.

This thread has turned into a bit of a message board for people to share these aspirations and goals and is quite motivating I have to say.

Let's keep it going, tell us what's really driving you to pay off the debt and be a 'mortgage free wannabe' and let it be inspiration for others.

gratefulforhelp_2

For me...fixed rate 5.59% plus the tax I have paid on the income I use to pay it...where can you better that as a savings rate? If you can tell me risk free, I would really love to know

*Jellie*

We are actually offsetting rather than OPing to have easy access should the worse happen. Our reasons for focusing on becoming MF
1. to have a better LTV ratio when our fixed ends to get the best deal for us at the time
2. to have enough money to cope for as long as possible since redundancy is a real fear
3. OH is retraining and we need to be in position for him to take a pay cut when he does
4. I have long term health problems and when we are MF I will have freedom to work part time which will benefit my health

We feel this is a no risk way to go and we hope to end up saving LOTs of interest. We couldn't get the same benefits from saving and wouldn't have time or want risks of some other investments. We haven't ruled it out but we're too busy to make it a priority at the moment. We continue to review the situation but fully expect MFW to be our focus in the next 4 years. We will re-evaluate our position when the fixed rate ends

Sepa74

If you have a high fixed rate mortgage or are a higher rate tax payer, putting extra money on the mortgage is a very attractive proposition as it's practically risk free. Even better if you have an offset or can take back over-payments as it's so flexible.

I think it is important to have other investments, though. My major one is my stakeholder pension which is invested in stocks and shares, and I really need to start thinking about ways of investing the cash in my business so it earns a better return. I'd love to put it in my offset as it would be an instant 3% return, but there are major tax implications, unfortunately.

It's difficult building up a truly diverse portfolio of investments. I invest in myself (training) and in property (my flat) and in stocks and shares.

I don't know if there are any other investments that would diversify the portfolio? Does anyone else know?

Jock_Tight

To the OP I think you'll find quite a few on here find a balance between savings/investments and overpaying the mortgage.

We have an offset mortgage and pay 0% interest however each month we make mortgage/over payments we take the same out the offset savings and deposit in our Lloyds Vantage accounts (4%) then yearly deposit into cash ISA's (fixed rate).

Next year when I am mortgage free I'll start looking into SAS ISA's for what would have been the mortgage payments.

TBagpuss

Another advantage of overpaying is that you can do it with very small amounts. When I first had a mortgage, I couldn't afford to overpay by much, but even topping it up by £25 a month made a bit of a difference.

With that first mortgage, I was on a variable rate and one of the reasons that I started to OP was that I felt it would also ease the transition if/when interest rates increased, so that I would not be faced with a sudden increase.

My current mortgage was on a 2 year fix - I was over paying a small amount, about £75 per month, even when it was fixed, then when I came to the end of that fix, the interest rate I was paying fell from 5.75% to 2.5% - I've continued to pay at the same level as I was before - I've never had that money to spend each moneth so it is a painless way of saving.

I don't like being in debt, which is another reason to over pay.

I don't want to stay in my current home longer than I have to, so I am aiming to build up equity to be able to move somewhere nicer within the next year to 18 months, and again, overpaying now means I am used to paying more each month so if I have to get a larger mortgage when I move, the change to the payments won't be such a shock.

As with others, I don't put everything into my mortgage - I also pay into a pension which is invested in stocks & shares, and have a SSISA, and a small number of shares.

drewwa

For me it's security and risk reduction. My house is a home for me, my wife and our two children. I've been made redundant 3 times in 20 years. Jobs are unreliable sources of income.

I've got an offset mortgage, so my strategy is to reduce the 'effective' mortgage, rather than the 'actual' one. With a bit of luck I'll be at an 'effective' mortgage of zero in a few years, which means I retain the advantage of 'cheap money', but could own my house in a matter of days if I so desired.

As a 40% taxpayer, it's very hard to beat the rate at which I'm saving on interest payments, not to mention the complete flexibility and liquidity I have from my offset savings, which allows me to take a holiday or deal with emergencies.

It's also very predictable within obvious parameters such as interest rates and inflation.

In my situation you'd be a numpty not to be paying off your mortgage. Needless to say I'm also funding a pension with a number of different funds as well. I don't think anyone's advocating paying off your mortgage to the exclusion of everything else.

Cheers,

Drew.

kiran83

OH and I are finally making op's on the mortagage because we took out a large mortagage on the house in 2007 -£213,000 and we want to move. The house is not in the area where we actually want to live long term, but at the time there wasn't much available in our budget!So we want to clear as much of the mortage as possible so when we move (hopefully in 5 years time) we will have paid off this mortagage and have saved some money enough to buy the next house outright... Its the long term benefits we are looking at as we are 28 and 29 years old... We want to be mortagage free so in the future when we have kids, I will be able to spend maximum time with them rather than having to work and pay for childcare. Each to their own I say!:j