Is POYM the best strategy for everyone?

firesidemaid

i too am a recently converted mortgage-payer-offer!

if it was down to me i'd pay it off in no time. but, i have a partner who has different needs - so there has to be a balance.....

my main reason for wanting to pay off the mortgage asap is so that i have the freedom to work as and when i want, doing a less stressful job.

we could downsize and almost have no mortgage, but i want to save that option for later in life.

extra money to pay off the mortgage can come from extra earnings or savings (eg. making cutbacks). this website has plenty ideas and tips for both of those. i try to do this without reducing our current quality of life too much.

we have just reduced from 30 to 17 years, and i hope to get that down to at least 10/11 within the next 2 years.

not everyone may agree with this, but any spare cash we have i am transferring to the mortgage. meanwhile, i am stoozing into premium bonds (not the best, but no risk to me), hoping for that elusive prize!

Dithering_Dad

Hi guys, in the words of IFA, here are the numbers:

First Direct 10 year fixed rate offset Mortgage, fixed at 5.49% for 10 years. I reckon that most of us "Disproportionates" have a plan of paying our mortages off in 10 years (certainly a few posters here have already said that). This mortgage would allow me to overpay into an offset (meeting Sloppy's wish for an emergency fund) and have a fixed rate that means no rate surprises for me while I diligently pay down my mortgage.

Its also far better than my current rate.

I really like the 10 years fixed rate & offset bit, so if anyone can find one with a better rate than this please get in touch!

p.s. Hi nearlyrich, dont worry no one is really banned, just trying to stop the chaos of the DPOYM with all the opposing views. What I'm trying to do here is figure out a way I can (with my limited budget), find a meeting place between the "DPOYM"'s and the "POYM"s. Currently I have a product that will allow me to meet 2 of sloppy's criteria, and will allow me to overpay my mortgage at the same time...

Now just need an offset pension and we're home free

Dithering_Dad

I've just been looking at cashing in my endowment, getting cheaper life assurance (via a company reccom by this web site) and a better mortgage and have found:

New offset mortage fixed for 10 yrs @ cheaper rate than current one.
Reducing life & critical illness cover @ similar price as current one, but includes cover lost by cashing in endowment policy.
Cashing in endowment reduces mortgage by over 10k & saves £66.21 endowment payment ea month.

The savings from all the above will come to £193.00 per month and I'll end up with better life assurance, a more flexible mortgage (can offset current A/C, savings A/C and credit card) and no more endowment shortfall worries.

I've decided to put the £193.00 that I've saved into an L&G stakeholder pension (the government will add 22%), so I'll actually be putting away £235.46 each month. My reasoning is that the £193 is money I never expected to get and so was never factored into the overpayment calcs. I can still aim to pay the mortgage off in 10 yrs, but at the end of it I'll also have decent(ish) pension savings that I can then pile into once I free up my mortgage money.

How's that for being both a DPOYM and a POYM!!

MUSTBEFUNNY_2

Not so dithering after all:money: Good luck

Dithering_Dad

MUSTBEFUNNY wrote:

Not so dithering after all:money: Good luck

Ah, but the dithering part comes now. Will I cash in my endowment or should I try to sell to a brokerage company, is it definitely the best option, should I hold onto it because it may recover.

When should I set up my life assurance, before or after I sell the endowment, what if I sell it and then die the next day the wife and kids will be destitute on the streets, what if I buy it first wont it be a waste having too much cover.

Should I really change my mortgage provider. Actually this one is a no brainer, even for me.

Are L&G the best pension providers for me, should I really get a stakeholder or a SIPP or a Personal Pension or no pension at all and use ISAs, what fund should I choose.

These are the many thoughts that are in turmoil in my dithering mind before I can make a single decision!

Dither Dither!

alanobrien

Dithering_Dad wrote:

Hi SC,

You're in the same situation as me. Disproportionate sized mortgage in relation to income. Our mortgages are mount everests and I think we may be hanging around base camp for a wee while

To me that's what the MFW forum is all about, encouraging those with an aim to meet the target, even if its an ant trying to climb everest

I like the sound of Offset mortgages. I have circa 2 years left on a fixed rate then i may look at offset next.

nrsql

Sorry - I guess I'm banned on 2 counts but I was in your situation in the past.

I would get the lowest mortgage rate possible (in current climate a fixed rate probably). It would probably allow 10% overpayments without penalty.
You will probably do better in a cash ISA so that's the first place for any money so 3k per year.
After that it's really up to you.

As I've said before there is a case for an interest only mortgage in the hope that wage inflation will help. I wasted a lot of money by taking a flexible mortgage in the hope that I would pay it off - didn't overpay at all until I could afford it easily. Sorry I didn't go for the cheapest, glad I didn't go for the expensive offset that I was considering.

But if you're motivated by paying off the mortgage then that would be the best route to save money.

I really doubt that an offset mortgage would be a good idea.

As to the endowment - no idea. I have one and keep wondering what I should do with it. I try not to think about it but I'm veering towards the selling on the assumption that there's no reason for the managers to try very hard now.

Happy to delete this post if you think it inappropriate.

Dithering_Dad

nrsql wrote:

Sorry - I guess I'm banned on 2 counts but I was in your situation in the past.

......

Happy to delete this post if you think it inappropriate.

Hi nrsql,

Everyone is welcome, at first I just wanted to put a bit of distance between this thread and the more controversial DPOYM. Looks like it worked and no one has come to blows yet, so we can afford to give the doormen a night off

I had the same thoughts with the endowment, I just think they're dying on their feet - I doubt that anyone new is investing in one so any good fund managers would steer clear, so they're not going to do well. I'd rather cut my losses (actually I did make a gain of about 4.3% over the whole term) and put the money to better use. Just not sure if there would be a capital gain if I cash it in before maturity.

The only downer I had on the offset was the higher cost, but now I have found the 10 yr fixed one at a low rate, it's perfect for me. I don't intend moving for the next 10 years - my youngest has just started reception, so by the time she's ready to go to college the fixed period would have elapsed. I guess the other worry is as you rightly said - you need to have dedication to keep putting the money away and keep your mitts off it. Hopefully I'll manage this. Other than that, it seems to be a good way of having a fund of easy to access money in anything untoward happens.

nrsql

>> The only downer I had on the offset was the higher cost, but now I have found the 10 yr fixed one at a low rate, it's perfect for me.

Who's it with - I might be interested.
Compare it against other fixed rate mortgages i.e. how much you have to keep in the offset account to match the non offset payments, remember to take into account interest you would get on the money in an e-saver. I would be surprised if it would save you money (probably cost a lot more) but maybe they are doing competitive ones now.


http://www.thisismoney.co.uk/mortgages/mortgages/article.html?in_article_id=404704&in_page_id=58
James Cotton, a mortgage adviser with independent broker London & Country in Bath, Somerset, says that higher rate taxpayers need at least £10,000 in savings to offset against a £100,000 mortgage to make an offset deal better value than a traditional mortgage.
And basic rate taxpayers would need at least £20,000 in savings to offset against a £100,000 mortgage. These calculations are based on a fixed offset rate of 4.69% for two years with Leeds Building Society, compared with a 4.49% two-year traditional tracker with Nationwide.

Dithering_Dad

Hi nrsql,

The mortgage I saw is a First Direct 10 year fixed rate offset Mortgage, fixed at 5.49% for 10 years. You can offset against current account, savings account and I think, credit cards. The account is separate though - I'd never want a current account offset where your balance is -140,000, way too depressing. Plus I'd never know where I was upto. There is a minimum of £250 withdrawal, which is a slight disincentive to withdraw the money. The First Direct wensite looks well designed too.

I did a quick check on fool.co.uk and a 10 yr fixed deal with the woolwich was coming in at 5.37%, which was the cheapest I could see. I think it amounts to a saving of £17 per month.

The worry I have with a normal fixed rate is that they tend to have a capped overpayment amount and pretty stiff penalties if you go over. The Woolwich one has a 6% repayment charge and a 5% overpayment limit. Plus once the money is in there, it might be difficult to get back out if needed. I know that you could probably use cash ISAs, but with only 3k per year it'd take 3 yrs to put away my emergency money.

I've seen the article you linked too previously, as I said in an earlier post I liked the theory behind offsets but saw that they were expensive. I based that statement on this very article

The APR difference between the two example mortgages in the article are higher at 0.2% rather than the .12% in my examples, though I'd imagine that with more than the 2 mins of looking that I did, you'd be able to get a cheaper 10yr fixed than the woolwich one.

I would definitely be interested to know if anyone could find a cheaper fixed rate mortgage and have an idea where to put my rainy day fund in a more cost effective place than the offset. This is all about making the best use of our limited money supply!