The moral hazard of being kind to the indebted

RenovationMan

I had virtually paid my mortgage off at 32, but moved house. Almost paid that off at 40, but moved house. I must really be a debt junkie.

StevieJ

julieq wrote: »

, since paying off my mortgage a few years ago

That should confuse them

Graham_Devon

julieq wrote: »

As usual, what happens if you challenge bears on detail is that you get deluged in tangential arguments (such as your own), ad hominem attacks and general indignation.

I was only asking you to provide the product that you based your argument on. Not a big ask, considering you were putting others down based on this theory.

It seems however, you haven't even followed your own advice, which again, I'm not surprised at.

I'm not quite sure what this whole "cornering a bear" stuff is about, and it all looks rather silly now. You've stated it's not difficult to beat mortgage rates. But you won't even come up with one singular example of how to do this!!! Your claim of "ad homien" attacks everytime someone questions what you state is getting a little tired.

robmatic

I started a S&S ISA at around about the time I bought my flat in 2010. Worked out the compound annual growth rate today and it's approximately -11%. The overpayments on the mortgage are performing much better!

pqrdef

RenovationMan wrote: »

Sorry, I have no idea what you're talking about and how it relates to my post?

Your punter can keep the savings or pay down the mortgage, and either way the net debt will still be £120K.

But it's not carved in stone that it should be. With borrowing so cheap, isn't this the time for your punter to think about spending say £30K on say home improvements? He can use the savings or add it to the mortgage, whatever. But assuming he can service the debt and pay it off before retirement, what's he waiting for? Does he think there'll be a better time later? Will he keep putting it off and end up wishing he hadn't?

Many people will, of course. For now, they've somehow got the idea that low interest rates create the right conditions for paying down net debt. This is the financial illiteracy. We have the right conditions for doing the opposite.

Of course people can act perversely if they want to. I do myself. Human psychology is rarely rational.

But they can't argue that a perverse policy is likely to produce best results, because that's an oxymoron.

Thrugelmir

pqrdef wrote: »

For now, they've somehow got the idea that low interest rates create the right conditions for paying down net debt. This is the financial illiteracy. We have the right conditions for doing the opposite.

Where's the wage inflation gone? That several generations enjoyed. While never actually having to worry about how they would repay their mortgage. As the debt was literally floated away.

hallmark

julieq wrote: »

But if the prevailing wind here is bear idiocy blah blah blah

TBH it says a lot about you that when everyone disagrees with you you think it's because every one of THEM is an idiot. Perhaps you should consider the alternative.

RenovationMan

pqrdef wrote: »

Your punter can keep the savings or pay down the mortgage, and either way the net debt will still be £120K.

But it's not carved in stone that it should be. With borrowing so cheap, isn't this the time for your punter to think about spending say £30K on say home improvements? He can use the savings or add it to the mortgage, whatever. But assuming he can service the debt and pay it off before retirement, what's he waiting for? Does he think there'll be a better time later? Will he keep putting it off and end up wishing he hadn't?

Many people will, of course. For now, they've somehow got the idea that low interest rates create the right conditions for paying down net debt. This is the financial illiteracy. We have the right conditions for doing the opposite.

Of course people can act perversely if they want to. I do myself. Human psychology is rarely rational.

But they can't argue that a perverse policy is likely to produce best results, because that's an oxymoron.

I'm sorry but I have no idea what you're on about. My 'punter' had £150k mortgage and £30k savings and the question was whether he was more secure remaining like that or paying all of his £30k savings onto the mortgage.

It was, of course, a rhetorical question because naturally someone with £120k of debt and no savings is less secure than someone with £150k of debt and savings. If he loses his job or has som sort of financial problems, those £30k savings are his buffer to sort himself out. Someone with no savings has no buffer and so the security of a lower mortgage is imaginary.

As I say, no disrespect intended, but I have no idea what your post in on about.

silvercar

RenovationMan wrote: »

I'm sorry but I have no idea what you're on about. My 'punter' had £150k mortgage and £30k savings and the question was whether he was more secure remaining like that or paying all of his £30k savings onto the mortgage.

It was, of course, a rhetorical question because naturally someone with £120k of debt and no savings is less secure than someone with £150k of debt and savings. If he loses his job or has som sort of financial problems, those £30k savings are his buffer to sort himself out. Someone with no savings has no buffer and so the security of a lower mortgage is imaginary.

As I say, no disrespect intended, but I have no idea what your post in on about.

Totally agree, but in a moneysavingexpert way, paying down the mortgage and leaving himself with no savings means he can claim SMI and the taxpayers will make his mortgage payments for him.

RenovationMan

silvercar wrote: »

Totally agree, but in a moneysavingexpert way, paying down the mortgage and leaving himself with no savings means he can claim SMI and the taxpayers will make his mortgage payments for him.

Isn't there something like a 6 week waiting period before many benefits kick in? Who knows what state his finances would be in by then. I'd imagine that most people are usually out of work only short-term, so they could very well be in new employment before SMI kicked in, but with a pile of credit card debt (as this is one of the few ways to secure monies when you are unemployed) and perhaps a few defaults on his (now ruined) credit record.

I'd rather secure my own finances than throw myself onto the state's tender mercies. To be fair though, I suspect that £30k is a large sum of money to secure a £150k mortgage especially with many emergencies already covered by insurances, so our test case could probably look at paying down his mortgage and still keep a decent buffer. However £30k cash would be a great stress reliever when your employer raises the spectre of redundancy.