The moral hazard of being kind to the indebted

julieq

Graham_Devon wrote: »

Certainly not.

But that goes back to my point that everyone is different. And different things work for different people.

There is no one way that is best. Unlike what we were being told. And we weren't just eing told the best way. We were being told we were financially illiterate if we didn't choose Julies way.

I don't actually disagree with that. I was calling Macaque financially illiterate (which incidentally is a generous assessment), but the point is very simply this: mortgage overpayment is not an intrinsically sensible thing to do for most people, and in fact it can be a positively bad thing if they hit financial problems which are typically life change related. Remember, Macaque was saying that paying down debt is the only rational course of action, and it patently isn't. You may not like or accept my arguments, but they're perfectly rational.

hallmark

julieq wrote: »

As usual, corner a bear and you'll get this sort of haughty nonsense. YOU don't like personal debt so you've removed it. Well done, but that's your choice, it doesn't make it a rational thing to do. You haven't engaged with any single point I was making about capital risk, you've just explained how everyone is so weak that unless they overpay their mortgage it'll never get paid off.

Why do you presume I'm a bear? And bearish on what exactly? Property? Sterling? Equities? Commodities?

You're points about capital risk weren't well enough argued to merit a response BTW. IIRC your analogy was that someone who'd paid down their mortgage to 50% equity & then encountered difficulties would be forced to sell at a loss, completely ignoring what they'd actually do which would be to remortgage.

We're also at slight cross-purposes since I'm talking about the real-world & you're arguing from a purely theoretical viewpoint about the most mathematically efficient way to handle money. In the real world people who strive to pay off their mortgage asap sometimes do so & those that don't don't, it's not complicated.

Lots of things that are good in theory are worthless in practice.

kabayiri

What about the following variation on the theme in this thread.

Imagine, you have an attractive low interest rate mortgage which supports overpayments, and you also have a private pension plan where you can make additional payments.

Now, in this position would you overpay to bring the mortgage down or top up the pension ? [let's choose a mid-term position on both to avoid extreme positions].

StevieJ

RenovationMan wrote: »

I tried a few years ago to borrow back some overpayments in order to get some building work done on our house. It was effectively a new mortgage application and the interest rate was at the new rates, not at my existing rates. Naturally, the new rates were higher.
.

In theory mine behave like an overdraft so I should be able to borrow it back on th same terms.

Kennyboy66

StevieJ wrote: »

I am on one of those mortgages where I can borrow it back but I couldn't be bothered, has anyone on the board actually borrowed the money back after paying off? I wonder if they would put obstacles in your way.

No obstacles here. Just a letter signed by me and wife and bank transfer done within 7 days.

This is what makes Julies argument so laughable - everyones circumstances are different.

My current priorities are;

SIPP pension
over payment of mortgage
savings.

We could just about scrabble enough together in savings / ISA to pay off existing mortgage making the 'forced sale argument' nonsensical.

In addition at any one time there is something like £50 billion on credit cards, and thrice that in other unsecured lending. Anyone not paying this debt off while they can afford to needs their head testing.

hallmark

kabayiri wrote: »

What about the following variation on the theme in this thread.

Imagine, you have an attractive low interest rate mortgage which supports overpayments, and you also have a private pension plan where you can make additional payments.

Now, in this position would you overpay to bring the mortgage down or top up the pension ? [let's choose a mid-term position on both to avoid extreme positions].

Paying down the mortgage by a country mile. You have no way of knowing what the future restrictions will be on your pension, how it will be taxed, what annuities will cost etc etc. Pensions have the sole advantage of tax concessions up front but apart from that they are a horrible investment in every way.

IMO!

silvercar

kabayiri wrote: »

What about the following variation on the theme in this thread.

Imagine, you have an attractive low interest rate mortgage which supports overpayments, and you also have a private pension plan where you can make additional payments.

Now, in this position would you overpay to bring the mortgage down or top up the pension ? [let's choose a mid-term position on both to avoid extreme positions].

In theory paying into your pension earlier is better because the pension pot then has longer to grow, plus the tax relief in contributions.

kabayiri

hallmark wrote: »

Paying down the mortgage by a country mile. You have no way of knowing what the future restrictions will be on your pension, how it will be taxed, what annuities will cost etc etc. Pensions have the sole advantage of tax concessions up front but apart from that they are a horrible investment in every way.

IMO!

It's a tricky one, because we don't know how the future will pan out.

I've a few longer term savings plans, like endowments and a private pension. Their performance has been pretty dire in truth.

I had the usual letters from the endowment provider about potential shortfall 4 or 5 years back. I did get a couple of quotes for topup product, but I chose to ignore this and offset the mortgage with savings money instead.

I dug these quotes out recently, and its striking how over optimistic these were, even as recent as 2005/2006.

I definitely have more confidence in bricks & mortar, even though this may fall in value in the near term.

StevieJ

silvercar wrote: »

In theory paying into your pension earlier is better because the pension pot then has longer to grow, plus the tax relief in contributions.

Plus they may cut the amount you can contribute to say £50k

vivatifosi

kabayiri wrote: »

What about the following variation on the theme in this thread.

Imagine, you have an attractive low interest rate mortgage which supports overpayments, and you also have a private pension plan where you can make additional payments.

Now, in this position would you overpay to bring the mortgage down or top up the pension ? [let's choose a mid-term position on both to avoid extreme positions].

Personally I'd overpay as my nightmare would be getting to mid-50s with a fair chunk to pay, losing jobs and finding getting a replacement hard. Objective therefore to have more or less paid off by then. Second step building up savings. Pensions come third, but would be AVC driven as paying in anyway. A lot of this is down to life stages and choices as my decisions would not necessarily have been the same when I was younger.