Is POYM the best strategy for everyone?

nrsql

Most of those change a bit if you have a mortgage where you can withdraw overpayments (but you might consider getting a cheaper mortgage).

I would say that you should pay off the mortgage if the other option is frittering away the money (there might be better places for it but motivation is the key) unless frittering enhances your quality of life by enough - but that's your call.

For instance almost always a cash ISA should be more beneficial than paying off the mortgage but only if you actually do it.

Hurdler

Hi
Having recently paid off a loan - the next target was initially to wipe off an extension I took to my tracker mortgage to get my share of the freehold (live in a block of flats) - that will take off a couple of 000's ... BUT... herewith my dilemma!

Since my pa passed away, mum's mission is to now "help" me get on the next rung by wanting me to buy a house (somehow sweetly nagging constitutes help, bless her!!)
However - my flat has pretty much quadrupled in price so any house in the kind of areas I need (easy public transport access to mainline BR to Waterloo/easy motoway access) are fairly steep.
I have a nice chunk of equity in the flat and intend to BTL.
I have approx 20 years of employment to go, but in an area where redundancy has been a yearly axe.

I intend to take out enough equity in the flat to put down a deposit and resulting rent should be just enough for the flat to wash it's face/cover legal/mgt costs and I also don't want to really damage my current standard of living.

Do I save some dosh and extend overpayments to a comfortable level until I can cover a bit of a mortgage hike... or should I abandon overpaying completely and just focus on saving every penny to go towards the additional deposit/surveyor costs/stamp duty, blah blah?

nrsql

What is the rate and do you have an ISA.
When you come to get another place and rent this out you will probably resructure so the mortgage outstanding isn't material (in fact if is lower there might be a tax issue but I doubt it).

The more you save now the lower the mortgage on your new property but there's no point in paying off the mortgage unless that's the best place for it.

But is this what you really want to do?

Hurdler

Hi nrsql
The rate on my current mortgage is 6.04% and I do have an ISA - as part of our planning to limit the amount on inheritance tax I will eventually get clobbered with, mum's gift allowance of £3K goes straight into that.
We have already planned a little for that anyway - dad's shares came to me via a deed of variation which gnawed a huge chunk away from mum's taxable estate.

Initially I had planned to look for a house within a couple of years - for personal reasons I really am not in much of a mood to do anything big until after all the "firsts" are done with so really I wasn't looking to do anything much until July of this year.
There isn't any urgent need to move on my part, and if I am being fair - I understand why my mother is keen to try and provide some assistance in terms of the things we've learnt with regards to probate/IHT etc.

So if I put new house aside for the moment...
I have an ISA, a Regular Savings Account, various Instant Access Savings Accounts, and a few current accounts for specific "pots" ... I even have £100 of premium bonds!

A quick stroll to the local estate agents churns out the following:
My flat ought to be worth around £225K at the very least (upstairs flat recently valued at £275).
3 bedroom houses that match my criteria are generally starting at the £350K mark.
Current mortgage payment on approx £56K = £480 p/mth
Surplus Income (worst case) p/mth (assuming no leisurely spend) is around £400 (but that's the absolute lowest on those months where all the quarterly DDRs go out!)
So if i never wanted to go out again... or start chipping in to O/drafts I could stretch to at least £900 for a mortgage (for 20 years?)

So back to my dilemma... overpay now (set the mortgage to £500 - and also bear in mind if I pay off the sub-account below, my mortgage payments will drop anyway)... or have the surplus and save/enjoy myself a little after a tough year!

I suspect a little of both for the time being...

I used to be indecisive, but now I'm not so sure....

nrsql

First impression is that 6.05% is really really really high - higher than an offset so you maybe should look at that. I'm guessing you are on a standard variable rate at boe rate + .8%?
If you are going to move soon then the charges probably don't make it worthwhile but otherwise you can do lots better - better than paying off lumps. If you stay on that then paying bits off the mortgage would be worthwhile - depends what the conditions are, if you can always get the overpayments back then it's an easier decision and on that rate you should.

I know I posted on a different thread that diversity guarantess mediochre returns but for most of us that's what we're aiming for, so if you haven't any exposure to the stock market you might consider that. You look like you might be in danger of being very exposed to property (although the rental property gives exposure to rental values rather than property prices unless you sell). If you don't already I might suggest a share ISA - drip feed rather than lump sum and whatever you feel comfortable with, don't feel obliged to max it - maybe just £50 per month into a tracker.

>> So if i never wanted to go out again...
Might I suggest you get a life too? It's pointless being rich if you don't also enjoy the journey (speaking from experience).

I would suggest talking to a motgage broker or several and a few IFA's - sounds like your father might have contacts in that area.

Hurdler

Howdy again nrsql
Heh - "get a life"?! I think that's the issue... I enjoy my life a little too much at times!
Let me tell ya... self imposed financial detox in January was the hardest thing I'd ever done... all those sales on Play.com and in HMV and the cards of burning plastic locked safely away in my drawer! When I was finally into February I was quite literally giddy at the prospect of spending, takeaways and being out on the town!

Thanks for some of your advice above, though. My own Bank's premier service financial adviser was trying to push their share management offering, but I am not keen so a share ISA will probably be good. I thought about dad's financial adviser, but he proved to be exceptionally useless when mum and I needed a hand understanding what he had where ... (died without a will!)

The mortgage is a Base Tracker mortgage so I've suffered a bit with the recent hikes - but the compensation is either regular overpayments or lump sum payments to the mortgage with no penalties, and the ability to draw down again (like the sub-account in the sig below) at any time.

I think I'll focus on paying off the chunk below, which should be done in April/May ... that ties in nicely with my own feelings of wanting all the "firsts" over and done with... and will keep fingers and toes crossed for a payrise!

nrsql

>> My own Bank's premier service financial adviser was trying to push their share management offering
Surprise, surprise.

Sorry - didn't notice your signature - and also that your pa had passed away - my condolences.

I would post this in a new thread as people won't be ooking down here. I still think it's worthwhile addressing the mortgage - even fixed usually allow overpayments.
And don't neglect the pleasure and reassurance your mother will get if you let her help you - even if it's not really help.

>> Reset lease to 999 years (Perk of being freeholder now)
Lucky - I had to pay for it.

Dithering_Dad

I decided that POYM was the correct strategy for me. Please see my other thread and wish me good luck in my mad quest to pay off my mortgage in a ridiculously short amount of time!!

cupid_s

At the moment poym is the best strategy for me too. I hope you do it. Good luck!

exil

What irritates me about this whole question is how zealous people can get about it, as if they'd had a religious conversion.

If you have a lot of spare income, it clearly makes sense to pay off debts. If not, then there is a question mark over whether you should live like Scrooge in order to pay off a mortgage in a very short time. And we can't ALL work 100 hours a week running businesses doing Feng Shui or whatever, there is a limited market for these services - and it'll be even more limited if everyone else is saving like mad to pay off their mortgages!