The moral hazard of being kind to the indebted

Graham_Devon

julieq wrote: »

But it really isn't that difficult to beat mortgage rates if that's what you decide you must do, and hasn't been for years, it just takes a bit more work. And yes shares can fall, which is why I said you need a balanced portfolio if that's the path you take. Shares are right at the far end of the risk continuum, there are places in between savings and shares which are safer.

I've already asked you once.

Where?

You don't wish to seem to answer this, but have spent time answering (or looking down on, at least) other posters.

Kennyboy66

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].

If paying higher rate tax then pay into the pension first - at least until your higher rate earnings are exhausted.

After that it would depend on a few factors (age, current pension provision, outstanding mortgage etc), but I'd probably still top up the pension first or maybe do 1/2 and 1/2.

Kennyboy66

Graham_Devon wrote: »

I've already asked you once.

Where?

You don't wish to seem to answer this, but have spent time answering (or looking down on, at least) other posters.

Its doubtful you will get an answer, as for the majority of people this is clearly impossible.

Everyone can't get a higher risk free savings rate than a borrowing rate - it would be financial alchemy if you could.

It's really limited to those on low rate trackers or variable rates and even then higher rate tax payers find it harder still once they exhaust an ISA or prefer to use their ISA for shares.

DervProf

StevieJ wrote: »

Oh BTW I paid most of my mortgage off in 2007 when mortgage rate was 6.5%, seemed sensible at the time, not so now when it is 1.45% 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.

I don't see why it wasn't sensible for you to pay off your mortgage back in 2007. Paying off your mortgage early will usually save you money, unless you happen to know that the money you overpay will earn you more elsewhere. OK, say you paid off £30K. You might now be paying a mortgage rate of ~2%, when you could get a "safe" 3% in a savings account. I don't think that's something to beat yourself up about. Back in 2007, nobody knew that rates would be cut so deeply, and for so long. Yes, we could have made a killing on gold etc, but that's hindsight. A lot of people were talking about the recession being "just a dip", and that things would soon improve. You know the feeling of being mortgage free, and you've been like that for a few years now. Not much to regret, I suggest.

Wookster

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.

You've done well until about here. Calling people financially illiterate and stereotyping bears is the hallmark (no pun intended) of someone losing the war.

Thrugelmir

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.

Though the money isn't accessible until your 55. Even then you'd be better off leaving it to compound.

RenovationMan

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.

Even more important if you're a higher rate taxpayer to get the higher tax rebate while it lasts.

macaque_2

julieq wrote: »

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.

Julieq, you are wrong and emotive language or snide comments will not win your arguement.

If you can save more money reducing a mortgage than you can earn by investing the money, you should reduce the mortgage. To do otherwise is 'financially illiterate'.

Your point about keeping an emergency fun is sensible but the amount will depend on personal circumstances. If you are on average income and need to hold £30k emergency cash, you are either overborrowed or living well beyond your means. If you are overborrowed/living beyond your means, you should consider a smaller house.

StevieJ

macaque wrote: »

Julieq, you are wrong and emotive language or snide comments will not win your arguement.

If you can save more money reducing a mortgage than you can earn by investing the money, you should reduce the mortgage. To do otherwise is 'financially illiterate'.

At last I think he has got it , in a roundabout sort of way. Cash should be allocated where it achieves the best return rather than the blunt statement that kicked off the precedings, different strokes for different folks.

Come on guys, pay down your debts. Its for your own good (and ours).

FTBFun

Happy new year to everyone.

I was looking at making some mortgage overpayments by the end of July (i.e. when the "promotional period" ends on my mortgage as I can pay 10% of the balance off without fees), but it seems this is going to be less likely as I'm looking to move by the end of the year.

I aiming for place #2 to be a £250k property and with an 80% LTV. I currently have at least £30k in equity in my flat at the moment so need to build up approx £30k in cash for the remainder plus legal fees, agent expenses, 1% stamp duty etc. It therefore doesn't make sense for me (personally) to pay off my mortgage beyond my regular payments as I won't receive any real benefit from it. I can understand why others would think the opposite though.