The moral hazard of being kind to the indebted

hallmark

A lot of the discussion here ignores the biggest factor i.e. people.

The reason it's best to pay down/off a mortgage as quickly as possible is because in general people who pay extra money off their mortgage will leave it paid off wheras people who keep it (for example) in an offset account will tend to spend it. Whether it's on a genuine necessity or (far more often) on something that they consider to be one at the time because the money is sitting there tempting them.

Technicalities about fractionally better returns at a given time are a huge irrelevance compared to the above. Set about paying off your mortgage as quick as you can and the chances are you will. Stick the money in a separate pot somewhere & the chances are you will spend it & have a mortgage for most of your life.

A mortgage is just a loan & like all loans the aim should be to repay it as fast as possible.

StevieJ

silvercar wrote: »

Yes. No obstacles, no conversation. Online transfer from offset savings pot to current account with different bank (took 2 days) and then outwards from there.

Are you on an offset mortgage? I am not. I almost feel duty bound to borrow it back and find a decent investment with the MSE asset optimiser Angel sat on my shoulder

julieq

hallmark wrote: »

A lot of the discussion here ignores the biggest factor i.e. people.

The reason it's best to pay down/off a mortgage as quickly as possible is because in general people who pay extra money off their mortgage will leave it paid off wheras people who keep it (for example) in an offset account will tend to spend it. Whether it's on a genuine necessity or (far more often) on something that they consider to be one at the time because the money is sitting there tempting them.

Technicalities about fractionally better returns at a given time are a huge irrelevance compared to the above. Set about paying off your mortgage as quick as you can and the chances are you will. Stick the money in a separate pot somewhere & the chances are you will spend it & have a mortgage for most of your life.

A mortgage is just a loan & like all loans the aim should be to repay it as fast as possible.

No. What is being discussed is what is rational, and paying down mortgage debt frankly isn't rational, it's emotional, UNLESS you can pay it all off in one go. Owning part of your house doesn't make you more secure.

Your beliefs about what other people will or won't do are irrelevant. You have essentially a religious faith that debt should be paid off as quickly as possible, and that's simply untrue, whether you like it or not. Where cheap borrowing is available, it's one of the tools you have in life to achieve other things. If you want to eradicate your own personal debt then fine, do it, but that doesn't mean it's necessarily the right thing to do.

hallmark

Ha, please don't presume to lecture me on my beliefs, especially when you do such an especially bad job of anything like accuracy.

This is nothing to do with beliefs, merely reality, something you cannot seem to grasp with your purely theoretical idea of finance.

One final point - regarding my own personal debt - I don't have any, not since I paid my mortgage off (early) over a decade ago.

Keep dishing out the bad advice though, I just hope no-one takes it.

silvercar

StevieJ wrote: »

Are you on an offset mortgage? I am not. I almost feel duty bound to borrow it back and find a decent investment with the MSE asset optimiser Angel sat on my shoulder

Yes, offset mortgage fixed at 4.99% fixed for 3 years followed by lifetime tracker at BoEBR+0.75%. Fixed rate finished 2 years ago, now paying 1.25%.:j

silvercar

hallmark wrote: »

A lot of the discussion here ignores the biggest factor i.e. people.

The reason it's best to pay down/off a mortgage as quickly as possible is because in general people who pay extra money off their mortgage will leave it paid off wheras people who keep it (for example) in an offset account will tend to spend it. Whether it's on a genuine necessity or (far more often) on something that they consider to be one at the time because the money is sitting there tempting them.

Technicalities about fractionally better returns at a given time are a huge irrelevance compared to the above. Set about paying off your mortgage as quick as you can and the chances are you will. Stick the money in a separate pot somewhere & the chances are you will spend it & have a mortgage for most of your life.

A mortgage is just a loan & like all loans the aim should be to repay it as fast as possible.

I'm going to half agree with you. Agreeing with you because you describe exactly how people behave, the offset is there, the interest rate is low, so it costs little to spend it - especially if it is money you didn't expect to have.

My interest rate is currently 1.25%, so each month I have the difference between that and 5% (my initial fixed rate and budgeting amount) either going in the offset or available to spend. So its very easy, given its money I never expected to have, to spend it on an extra holiday or a gadget. All the time I'm sticking with my intended schedule for clearing the mortgage.

The bit I'm not agreeing with, is the need to clear your mortgage. Plenty people live on interest free mortgages to afford a family home while they have children living at home, with the life plan of moving to something smaller when the next is empty.

julieq

Graham_Devon wrote: »

How is it a straw man argument!? Please explain. It's asking about the specifics of what was suggested.

That's all fine. But Julies WHOLE POINT was around the fact that overpaying your mortgage is tying money up.....

So surely the suggestion to oppose tying money up....isn't tying money up!? Shares and investments fall under exactly the same as written by Julie herself above. You can't opt to sell you investment and not take on the losses occured should they occur.

It's a straw man argument because I specifically excluded differential returns as a decision factor, I was explaining the geared risk to capital in a market where one of the two owners of a house has a preferential position on a forced sale (can choose when to sell and does not risk their own capital), and as you say the risks of piling cash into a single illiquid asset.

I explained that even if you just put your cash into a savings account, the utility value of being in a house is worth paying a price for. So you don't have to beat mortgage rates with savings and investments: in fact on an offsetting situation on a realistic mortgage and fairly readily available savings rates, the amount this will cost you is small anyway.

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.

And yes, it's an absolutist position, but I'm reacting to the equally absolutist and completely wrong suggestion Macaque made in the initial post that paying down debt was the only rational thing to do. I've said repeatedly that there is nothing stopping people doing it, but it's an emotional position, not a financial position except in a few very limited circumstances (which I also laid out). That doesn't mean it's invalid as a choice.

julieq

hallmark wrote: »

Ha, please don't presume to lecture me on my beliefs, especially when you do such an especially bad job of anything like accuracy.

This is nothing to do with beliefs, merely reality, something you cannot seem to grasp with your purely theoretical idea of finance.

One final point - regarding my own personal debt - I don't have any, not since I paid my mortgage off (early) over a decade ago.

Keep dishing out the bad advice though, I just hope no-one takes it.

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.

julieq

PaulF81 wrote: »

Plus Julie has completely ignored my very valid point ref means tested benefits.

No I didn't, I included them as one of the two cases in which I said there were some arguments in favour of overpayment.

If you go onto benefits though, it's a slippery slope down, and you're in better shape in terms of security if you don't have to.

RenovationMan

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 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.

Needless to say I couldn't be bothered and just postponed the work and saved up. I was fortunate that the building work was a 'nice to have' rather than a priority.

What julieq is saying that seems to be getting lost in the white noise of indignance is not that overpaying is a bad thing, but that during times of financial upheaval, perhaps a more sensible approach is to build up emergency savings rather than make overpayments, especially if you have an inflexible mortgage as I had at that time.

I don't see what the issue is with this advice because once your emergency savings fund reaches the size where you feel comfortable, or you feel that the financial upheaval is ending, the emergency fund can then be reduced back to normal size and the excess overpaid onto the mortgage.