DON'T Pay Your Mortgage Off Early!!!

IFA

Hi sloppy just to answer some of your q's

1) I can claw back any saved money at anytime (it's basically a savings fund like any other) currently at 5.75% tax free, so it's still my money.

2) Yes I did pile into a tech managed stock (all the big names microsoft, dell,cisco ,sun etc..) on the ill advice of a "professional" and the fund had a good 5 year past but as they say now "past performance is not indicative of future performance!"
It was certainly not AIM companies or penny shares and I genuinely thought (as others did at the time) it would be relatively safe. Poor advice really but the experts are wrong a lot of the time including some of us, especially on house prices/interest rates/endowments etc..

3) Some good points on moving abroad, I have two possible destinations US or France. US I could have more problems with medical cover but no language barrier, France is on the doorstep so I could still see friends/family but house prices are more. I havent looked into healthcare of EU countries such as France yet. If I can find a house even 100k less than here (which is easily attainable) I think that would cover me for a while

Thanks

Sloppy_Saver

IFA wrote:

I have two possible destinations US or France. US I could have more problems with medical cover but no language barrier, France is on the doorstep so I could still see friends/family but house prices are more. I havent looked into healthcare of EU countries such as France yet. If I can find a house even 100k less than here (which is easily attainable) I think that would cover me for a while

I considered the US but my missus was worried about getting killed in a "drive by" - she watches too much US tv. My concern was how easy it would be to get in there, especially when you are retired. Also not sure if you can really bag a real real estate bargain over there ($ to £ ratio not withstanding) as they have a mature housing market. Knowing my luck I'd buy a cheap condo in a ghetto!

I looked at Australia as they have a special retirement visa, but too far away, no water, killer spider, snakes, sharks and full of Aussies (just joking).

EU is fine because you don't need a visa, etc. Again though, not sure if you can bag a house bargain in a country with a well developed health service, where I'm not shut off in the heart of France, not speaking french and feeling lonely.

Decide on Canada in the end. Good health service, no guns, rich with natural resources (so they can afford my free health service). Again though, not sure how easy it would be to get in on a visa, especially as they know you're old and may be a burden on their health service!!

(I worry about what state my health will be in when I'm aged, can you tell)?

keeperbear

Sloppy_Saver wrote:

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.

Your continued rants make implicit assumptions that have zero validity. You are just trolling to get a reaction.

With no mortgage I have a monthly cash flow saving equivalent to the monthly rent payment for the REST of my life. That is £800 now, and will increase in line with inflation over the years. That is a £9600 per year AFTER TAX income saving over someone who rents. Trying making that amount RISK FREE in one of your fabulous pensions investments or equity isas. Alternatively, I own a tremendously valuable asset that can be sold tax free by moving to a rental property. All in all, it doesn't appear that my property investment has "stifled" my life one bit.

Furthermore, as you advocate never paying off your mortgage, how are you going to pay off your mortgage once you retire and your earned income declines? Are you going to rent once you are retired? Are you going to sell your investments to pay off your mortgage? Trying getting a new mortgage at 65+!

Paying off my mortgage gives you security and flexibility. Since paying off my UK mortgage I have secured a good job in the USA and purchased a holiday home there. If I still had a mortgage in the UK, I would have never taken such a employment risk or property investment This scenario totally contradicts your points, and has hardly "stifled" me as you implied would happen to a mortgage free person. The slam dunk for me is that later in this thread you even suggest moving abroad! Much easier, and less riskier to move abroad when you have a mortgage free property back in the UK that even earns a rental income.

Try and reply to all the above points, rather than continue ranting.

keeperbear

Tim_L wrote:

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.

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.

Personally I'd keep my mortgage for ever if I could. Renting looks like a bargain to me!

I will bite on this.

As a a higher rate taxpayer (40%), please show me a LOW RISK savings or investment account that will generate an AFTER TAX return equivalent to the interest payments of a 7.3% variable rate mortgage. You need a low risk investment earning over 10%. Not many of those are there? In addition, unlike the USA, in the UK, you do not get tax relief on mortgage interest payments. Paying off your mortgage is a low risk investment earning a tax free return equivalent to around 7.3% per annum.

You are missing the main benefit of being mortgage free. If you have no mortgage, you have no FUTURE mortgage payments. I am now saving £900 a month from being mortgage free, and this money is going in the bank EVERY month. This is fast building me a very substantial emergency pot to cover for a loss of job or illness etc. Taking this in account, why exactly would I ever need to sell my "illiquid" property investment?

Residential property "one of the most risky sectors imaginable". Are you having a laugh? My property has tripled in value since 1995. Even if there was a property crash why do I care? My property gives me a roof and keeps me warm. Who cares about the value of a mortgage free property now it is saving me on rent every month!

Renting seems like a £800 per month non-bargain to me. Are you going to rent for the rest of your life? My monthly housing costs (apart from maintenance) ceased once I paid off my mortgage. If you rent, you will still be renting in retirement and your earned income declines. In addition, do you fancy being moved on every 6 months by your landlord?

Kaz2904

I think that most of the people who post on this board have a fairly balanced pot. I know that I only considered making overpayments when I knew I could after my pension is paid. I also have savings of £17000 which are instantly accessible. Even my children have pensions (no mortgages as they are 5 & 3!). My husband does not have a pension as I have mentioned before but he is an adult and I cannot set one up for him, I can only guide cajole and bully- none of which have inspired him yet. We don't scrimp and save and are actually renovating our house at the moment. We have just finished doing our kitchen which cost us about 5K but did a huge amount of work ourselves and have added about 20K of value onto our house. That I see as a risk free investment.

Sloppy_Saver

keeperbear wrote:

Your continued rants make implicit assumptions that have zero validity. You are just trolling to get a reaction.

Whatever. I started this message stream to discuss an investment strategy that I think is flawed, and wanted to get feedback to see if my thinking was correct. I still believe it is. I have had a couple of jokey rants and pokes at people to try and keep the subject light hearted and a bit fun, cos lets face it financial planning is a little dull to say the least. As I said, I started this stream (rather than hijacking someone else's) to give my views and to hear other people's. If you don't want to hear an alternate view from yours, then don't come onto this stream. I made the title and first post as clear as I could what the contents would be about...

keeperbear wrote:

With no mortgage I have a monthly cash flow saving equivalent to the monthly rent payment for the REST of my life. That is £800 now, and will increase in line with inflation over the years. That is a £9600 per year AFTER TAX income saving over someone who rents. Trying making that amount RISK FREE in one of your fabulous pensions investments or equity isas. Alternatively, I own a tremendously valuable asset that can be sold tax free by moving to a rental property. All in all, it doesn't appear that my property investment has "stifled" my life one bit.

Where exactly is this "cash flow" flowing from when you retire and have no income? I agree that once you have paid off your mortage you free up a large amount of wages, but how much do you free up when you don't have wages and have to rely on your state pension?

The bit about "stifling" is that I believe that once a person has sweated blood to pay off a mortgage really early, s/he is extremely reluctant to get another one and so will stay put in a house when it makes more sense to move. I have a friend who paid off his terrace house in a nice village. He believed that all his mates were in debt "up to their eyeballs" with their mortages, so he sat back with glee to watch the disaster. It didn't happen. Meanwhile we traded up from our terraces, to semi's and then onto detached, taking our mortages with us. He is still in his terrace with his wife and two kids and no mortgage. I live in a 4 bed detached house with my wife and 2 kids and a large mortgage. His house is worth 100k (all his), my house is worth 300k (150k of it is mine). I have 150k not because I over paid the mortage, but because when house prices gain 15%, you get more money on a 300k house than on a 100k one.
**NB: The monetary amounts quoted here are for example, only and not the actual amounts. I'm not about about to give away personal financial details on a public website (the tax man may be looking!).

keeperbear wrote:

Furthermore, as you advocate never paying off your mortgage, how are you going to pay off your mortgage once you retire and your earned income declines? Are you going to rent once you are retired? Are you going to sell your investments to pay off your mortgage? Trying getting a new mortgage at 65+!

God almighty does no one read earlier posts!! When have I EVER said don't pay your mortgage off? Why even my signature states my plan. I'll repeat it here to save you looking elsewhere in this message stream:

My stance has consistently been that I am not opposed to paying off your mortgage, I am opposed to paying it off to the exclusion of everything else in something akin to a religious frenzy, in the mistaken belief that it will give you financial security. My stated ambition is to let it run it's course (which is just before I retire at 60), having used the money that I could have thrown at the mortage as investment income to fund my retirement. So, when I retire, I will have no mortgage, decent savings and a large pension and will look forward to a comfortable retirement.

keeperbear wrote:

Paying off my mortgage gives you security and flexibility. Since paying off my UK mortgage I have secured a good job in the USA and purchased a holiday home there. If I still had a mortgage in the UK, I would have never taken such a employment risk or property investment This scenario totally contradicts your points, and has hardly "stifled" me as you implied would happen to a mortgage free person. The slam dunk for me is that later in this thread you even suggest moving abroad! Much easier, and less riskier to move abroad when you have a mortgage free property back in the UK that even earns a rental income.

Do you really believe the only place to put your savings is in property? Do you really believe that if you have no money in property you can't possibly have savings that will give you the confidence to make life changes? If you have 200k in equity in your house, is this any different from having 200k in saving & investment? (apart from the fact that money in property is a lot less fluid than cash and investments). The "Slam Dunk" for me is that you are "stifled" enough that you cannot concieve of moving abroad until you have your mortgage paid off. In fact you are so "stifled" that you cannot think of going abroad at all unless you have huge amounts of money behind you. Oh, and as I type this I am currently overseas working in Norway - and with a mortage back home - how reckless of me!

keeperbear wrote:

Try and reply to all the above points, rather than continue ranting.

Why I do believe I have

Sloppy_Saver

keeperbear wrote:

I will bite on this.

As a a higher rate taxpayer (40%), please show me a LOW RISK savings or investment account that will generate an AFTER TAX return equivalent to the interest payments of a 7.3% variable rate mortgage. You need a low risk investment earning over 10%. Not many of those are there? In addition, unlike the USA, in the UK, you do not get tax relief on mortgage interest payments. Paying off your mortgage is a low risk investment earning a tax free return equivalent to around 7.3% per annum.

Sorry Tim, I know this is addressed to you, but I couldn't resist! This is taken from an article written by Martin Lewis and published on this very website:

"Money is paid into pensions before income tax is taken off. So when a basic 22% rate taxpayer invests £100, it only costs them £78 because this is all that would’ve been in their pay packet; it only costs higher 40% rate taxpayers £60."

"Thus basic rate taxpayers get an instant 28% investment boost (i.e. pay £78 get £100) and higher rate taxpayers 60%. This is why pensions should be taken seriously."

That 60% investment boost for high rate taxpayers beats your 7.3%

My "just in case" savings are in my offset account.

There. Safe investments and safe savings!

p.s. If anyone here has a 7.3% interest rate on their mortage, please rush over to the "Mortage & Endowments" Stream to get advice on a cheaper mortgage.

jamesp_3

keeperbear wrote:

You are missing the main benefit of being mortgage free. If you have no mortgage, you have no FUTURE mortgage payments. I am now saving £900 a month from being mortgage free, and this money is going in the bank EVERY month.

Theres more to it than that. No one in this thread is also looking at the interest you can saving by trying to become mortgage free.

I have an 80K mortgage and 20K in savings and have been looking at investment opportunities for the 20K. I've been looking at a 2nd property but to be honest, if I invest the money in an offset mortgage (plus payments that would have been towards another mortgage and interest on the other mortgage) i can look at saving around 70-80K in interest payments and have my mortgage paid off in 10 years. This is a massive saving and i'm not convinced i can get the same return in a property over the same period if you factor in all the associtated costs. We have to remember that the interest we pay on our mortgages is massive and we must offset that loss against any other savings (property, savings accounts or pensions).

I do beleive in spreading the pot though. I currently pay into a pension scheme but i do not believe that paying off the mortgage (if you can do it) is a bad idea.

Sloppy_Saver

WISHIWASRICH wrote:

Sloppy Saver you have too much faith in investment institutions.....they are robbers just like the banks. I want to pay off my mortgage as soon as possible so I can pay my bank as little of my income as possible over my life time. Then I will have all that money to play with myself....I'd rather buy my own shares thank u I don't need some city fat cat to do it for me.....and when I'm mortgage free I can do that , I can decide what happens to my money. I can save it and buy more property or I can choose where I invest my money.....why wld you want to over-invest in pensions?...it's just an investment u have no control over?

Why do people keep thinking that my message is to bung all your money into a pension rather than into a mortgage? When did I say that???

I'm saying exactly the opposite! You can't trust your money to just one investment (stocks, gilts or indeed property) because any of them individually have the possibility of doing badly over the short term. My message is that you should invest money in a managed fund, put some in an ISA, put some in a savings account offset against your mortage, put some some in governent bonds, put some in property, put some in a matress if you like. That way if one sector goes down, the other will probably go up. I'm also not "over investing", I have a balance that I keep repeating "Spend a little, Save a little and invest a little". It's you POYM guys who are over investing, and in a single sector - property.

The trouble with your argument is that you say that once you pay off your mortage you will have "money to play with" and invest in shares, in property, in savings accounts which is exactly what you just berated me for - except that I'm doing it already, but over a longer period. This means I get the advantage of compounding, plus I'm investing smaller amounts each month so stand to lose less as the market fluctuates. If you're so scared of financial institutions such as banks and investment houses (because they are robbers), then how will you invest or save without them?

comping_cat

Sloppy saver - your post states 'DONT PAY YOUR MORTGAGE OFF EARLY !!!!' and you have posted it in the mortgage free wanabee section. The majority of us are on this board, because WE WANT TO PAY OFF OUR MORTGAGES EARLY with the help and support from the others on this board who feel the same way. We are all on here for different reasons (not wanting to pay the institutions thousands in interest, to free cash whilst still young etc), but with the same goal - to be mortgage free.
How everyone chooses to do this is up to them - but we really do not need someone deliberatly being argumentative and put us down for something we believe in. I agreed with you earlier, i want to spend a little, save a little, invest a little - but i also want to pay off my mortgage ASAP, and dont need someone putting me down for it - which is how i feel you are doing, as i dont share your views. If i want to invest all my money in property, that is my right, just as its your right not to pay off your mortgage, and to invest in other things.