DON'T Pay Your Mortgage Off Early!!!

Kaz2904

Hmm- interesting question. At the moment I scrimp to pay my mortgage off by the time I'm 35 DD will be 12 and DS will be 10. Up until that age I'm not going to be spending out masses of money buying them the latest fashion etc. We have told them already that we will be going to America for a holiday when it's clear (6.5 years) but won't do so until then because I don't see the point in taking little kids who won't rememer it. I do pay into a pension for myself and one each for the kids. These were started at 2 and 4. DH doesn't have and never has had a pension. I've been on at him for years to get one but he just hasn't got round to it. I feel the need to clear my mortgage now so that I can assist my children through university should they so desire. I will then be able to put the rest of that money towards having a pot for DH's lack of wages.
We also have life insurance.

keeperbear

Sloppy_Saver wrote:

You could scrimp for years, stay in every night eating porridge and then when you finally pay off your mortgage, drop dead and have missed your life. Come on, lets all get pensions. Come to the "Pensions & Annuities" stream, that's where the cool people hang out!

Have you not read the press stories about people losing their company pensions? I have a final salary pension, but do not like investing in a scheme where:
1. The terms and conditions of the scheme can be changed overnight
2. You cannot withdraw your contributions unless you have a serious medical emergency
3. You could be dead before receiving anything back

I really saved hard to pay off my mortgage early. Achieving my goal was one of the best feelings in the world and I missed out on very little. I now own 100% of my property and have an extra £900 of extra cash flow every month for the rest of my life. I no longer have money worries, but would have if I had paid my overpayments into a pension or spent them enjoying myself.

keeperbear

Sloppy_Saver wrote:

Holy Cow! I knew I would be vindicated and lauded as one of the great financial advisers of our time, but who knew it would come so soon...

http://money.guardian.co.uk/news_/story/0,,2007748,00.html

I don't like to say "I told you so..."
But I DID!!!

I have lurked on this site for many months, and it seems that you are trying to provoke a reaction from people paying off their mortgages earlier. As a supporter of pensions and an anti-property person, what do you say about the following:

1.
http://news.bbc.co.uk/1/hi/programmes/breakfast/4807862.stm
What do you say to these pensioners?

2.
I am 'risking it all' on my property, but it has tripled in value during the last ten years and now grants me a rent free abode for the rest of my life. If house prices crash, so what? If I don't have a mortgage, why do I care? In fact, a crash will enable me to trade up the property ladder at a much lower cost.

Redbedhead

Interesting thought and to be honest, your view is the way I have been thinking! I always believe in a balanced approach and so our excess money after we have paid for everything gets split a few ways as follows:

A set amount each month into joint savings (this is for specifics like moving house/holidays)

After that, I split it as follows:

Cash ISA (until maxed) then high rate savings account - effectively rainy day funds
Stock ISA - also rainy day funds really
Mortgage overpayment

I would love to be mortgage free but realistically we are going to have to move house if we want a family, so I am trying to ensure we have enough saved to move and cover any maternity leave I take. Paying down the mortgage is part of the process just to keep the debt as low as possible while I am off, but when we take on a larger mortgage for a bigger house I don't want it to be so large it keeps me awake at night (I hope to have a baby to do that:rotfl: )

Redbedhead

Redbedhead wrote:

Interesting thought and to be honest, your view is the way I have been thinking! I always believe in a balanced approach and so our excess money after we have paid for everything gets split a few ways as follows:

A set amount each month into joint savings (this is for specifics like moving house/holidays)

After that, I split it as follows:

Cash ISA (until maxed) then high rate savings account - effectively rainy day funds
Stock ISA - also rainy day funds really
Mortgage overpayment

I would love to be mortgage free but realistically we are going to have to move house if we want a family, so I am trying to ensure we have enough saved to move and cover any maternity leave I take. Paying down the mortgage is part of the process just to keep the debt as low as possible while I am off, but when we take on a larger mortgage for a bigger house I don't want it to be so large it keeps me awake at night (I hope to have a baby to do that:rotfl: )

Should have also said, I have had a pension since I was 20. When I moved to my current company which has a final salary scheme, I kept the first one rolling and still have my contracted out of SERPS amount paid in there. I have been in a final salary for over 5 years now and am keeping my fingers crossed it continues.

H only started a pension at 27 and that was because it was offered by work and they contributed. He is about to go self employed and I think we have decided not to pay in to a pension for the moment and look at alternative methods of him saving for retirement - again to balance the risk.

All this of course is subject to change depending on what the government introduce:rolleyes:

Sloppy_Saver

keeperbear wrote:

Have you not read the press stories about people losing their company pensions? I have a final salary pension, but do not like investing in a scheme where:
1. The terms and conditions of the scheme can be changed overnight
2. You cannot withdraw your contributions unless you have a serious medical emergency
3. You could be dead before receiving anything back

I really saved hard to pay off my mortgage early. Achieving my goal was one of the best feelings in the world and I missed out on very little. I now own 100% of my property and have an extra £900 of extra cash flow every month for the rest of my life. I no longer have money worries, but would have if I had paid my overpayments into a pension or spent them enjoying myself.

When people hear "pension" they think of Final Salary and Mirror Group newspapers. I stated right at the start that it didn't matter what vehicle you used to get there (ISA, SIPPS, Final Salary, Money Purchase, Stocks, etc, etc) as long as you get there.

You don't have £900 of extra cash flow every month for the rest of your life. You have £900 of extra money until you stop working, or have to reduce your working hours due to sickness. This is exactly my point.

I bet now that you have paid off your mortgage, you never want another one, which means that you are now tied to your bricks and morter, unless you trade down. You won't relocate for a better job, you wont move to a better area so that your kids go to better schools, you won't get a larger house even though yours is bursting ta the seams.... in a word, your one investment has stifled you.

(and by you, I mean anyone who the above rant applies to!)

Sloppy_Saver

keeperbear wrote:

I have lurked on this site for many months, and it seems that you are trying to provoke a reaction from people paying off their mortgages earlier. As a supporter of pensions and an anti-property person, what do you say about the following:

1.
http://news.bbc.co.uk/1/hi/programmes/breakfast/4807862.stm
What do you say to these pensioners?

2.
I am 'risking it all' on my property, but it has tripled in value during the last ten years and now grants me a rent free abode for the rest of my life. If house prices crash, so what? If I don't have a mortgage, why do I care? In fact, a crash will enable me to trade up the property ladder at a much lower cost.

Again, when I say "Pension" I don't mean put all your money in a single vehicle such as a company pension, just as I say don't put all of your money in a house. You have to have a diverse retirement vehicle (that may include Buy to Let - see, not all property is bad).

2. My house has also tripled in value during the last few years, BUT so have my stockmarket investments and so have my (dare I say it) Company pensions. I'm not saying don't invest in property, I'm saying don't invest soley in your own property to the exclusion of everything else...

"If house prices crash, so what"??? You've just scrimped and saved to invest money in your house and "So what" if the value of the house vanishes and you lose all the money you invested?????? How can I argue against that sort of logic?

However, I like a challenge so:
You guys seem to love property, so how about this idea. If instead of piling all your money into your house, you instead acquired two buy to let properties (as a retirement investment). You would have tripled your money when the house prices rose, have rental income from the two places to keep you in a nice retirement and if you lose your job, you'd have the income from the rent to keep you ticking over until you find another.

Instead you have 1 house totally paid for. If you lose your job you have to borrow against it to pay the bills and buy food. Oh, ohhhh!! A mortgage! but hold on, how will you get a mortgage when you're unemployed? you won't. So you end up with higher interest borrowing, and soon it spirals out of control and you lose your house.

Even if you don't have any problems, when you retire you justhave th state pension. So, you retire in poverty and work as a deckhand on my yatch!!!!

(and yes, I am trying to provoke a reaction)

Tim_L

I've said this a few times on these boards: there is no rational financial reason to pay off a mortgage early, because it is extremely easy to equal or beat mortgage rates with savings rates or investments at the lower end of the risk continuum.

The reason people do it is purely emotional: a mortgage is a monkey on your back, and people feel that when this monkey is shaken off many other worries - for example the burden of having to work for 25 years to pay the mortgage off - will disappear. I can understand exactly why people think like this.

However by piling money into your house, you have effectively put it in the most illiquid investment you could possibly choose. At a point where you might actually need the cash - redundancy or illness - it is by definition impossible to get at because remortgaging will be nearly impossible, and selling and downsizing probably not an option. If you look at this as an investment, it is an investment in one of the most risky sectors imaginable: residential property. There is no real point in having a pile of bricks and mortar if you can't afford to pay your bills or eat, and if there were a property crash you could end up losing a lot of money.

In short there are far better things to do with your money. Pensions are one option - these are essentially tax wrappers around investments, and people get far too wound up in my opinion about problems with company schemes or trouble caused by the equity boom and bust around 2000. Cash savings are another, and there are various investments you can make that are less risky than stocks and shares (which are what many believe to be the only option). Probably the self help ethos of boards such as this are not helping, in that a sort of received wisdom is being created from the ideas of enthusiastic amateurs, and people seem less inclined to take professional advice.

The aim of becoming "mortgage free" is entirely laudable, and the sacrifices people make to do this are something I admire enormously. But I'd replace it with the idea of becoming "mortgage neutral". That's to say that there is no practical difference between having a mortgage and an equal and opposite amount invested elsewhere yielding the same or more return than the cost of interest on the mortgage, except that having a pot of cash available in case of need is extremely valuable.

Personally I'd keep my mortgage for ever if I could.

PS: One other thing in response to the last post suggesting buy to let as an investment strategy. We're in a classic part of any bubble now, where people are relying on capital growth to justify investments and are discounting the need to generate actual income from the investments (in this case via rental income). Pretty much the same thing happened with the last stock market bubble in 2000, which allowed Gordon Brown to raid dividends for tax without many people caring much. This means that rental income is in many cases much lower than it needs to be to pay the cost of the underlying borrowing, and in many respects renting a house in some parts of the country is far far cheaper than it would be to buy the same house. Renting looks like a bargain to me! So it would be a hugely dangerous time to invest in rental property in my opinion.

Daft_Monkey

A mortgage is another debt, the sooner you get rid of it the better.
However, people with savings and/or homeowners are quite dissadvantaged when in need. We all hear stories about people having to sell their homes so they can be looked after when old. It seems like the less you save and the less you have the more better off you end up being. It is an unfair system to my opinion and looking at your assets and your children's inheritance shrinking must be a painful experience.
Regardless to whether a house is a good investment or not, it's your home and that's good enough for most. A problem that myself had faced was that my dream home had turn into a nightmare. Had to sell at rock bottom price just to get out. My worst fears haven't as yet materialised but at the time I just couldn't even cope with the idea of things going wrong. Interestingly enough a month or two before I moved out I was thinking of doing some renovation work and paying off my mortgage within a couple of years. Didn't really lose any money, but only made half the amount I could.
What I'm trying to say is that what might seem a good idea right now might not be as good tomorrow, next week or a few years down the line. The only thing we can do is to try and achieve what we think is the best for us. We don't know what the future holds and our perspective/outlook can change. We are only human.

Tim_L

A mortgage may be a debt, but that doesn't mean you need to get rid of it. Stoozed funds are debts, but they can generate more cash than they cost. And that's the point really.