How to convince DH its worth doing?

InMyDreams

keeperbear wrote: »

This is a REAL problem when you are trying to decide whether to overpay or invest the money in an ISA. Fees quickly increase the overall mortgage interest rate on low mortgage amounts, rendering the total interest rate much higher than even the best ISA rates.

Are you implying that you don't have to pay these fees if you're not saving in an ISA then? If you have a low mortgage amount, you have a low mortgage amount regardless of whether you have savings or not. Oh no, hang on, if you have savings then you're mortgage amount will look much bigger because it's offset by those huge savings making more interest. As soon as savings = mortgage, then wham bam, when the deal ends, your morgage can go up in a puff of smoke. Unless of course you continue to stooz it. I'm looking forward to comparing the figures when I reach that point. What a lovely decision to have to make.

keeperbear wrote: »

Finally, when the BoE next cuts interest rates, I bet ISA rates fall much quicker than mortgage rates.

Probably. And actually my mortgage rate is fixed at the moment so won't fall at all. They'd have to fall a long way before my savings rates fell that far though. And even if they did, even if I was making no saving at all by having my cash in savings rather than off my mortgage, I'm still at an advantage by being able to utilise my ISA allowance. The ease with which I could dip into those savings could be considered an advantage or a disadvantage depending on your personality, I suppose.

InMyDreams

keeperbear wrote: »

Finally, what happens when your "overpayment" savings account exceeds £3,000 per annum? You are left paying 20% or 40% tax on your savings.

Only on that bit you save above £3k per year. So stick the £3k into savings and the rest in your mortgage if you can't better it with regular savers or the like. And for a couple that's in effect £6k if you use both allowances. And if one of you doesn't pay tax, it gets even better (if you ignore the fact that this means you're effecively doing it on one income).

sharkmark

Read this thread with great interest...I currently overpay my mortgage by £200 a month (currently mortgage is £880!!! so am paying £1080!!!:eek: )

KeeperBear and JamesD---Are you members of a debating society - perhaps you should be?

I can see both sides to this argument and seem to be seeing that James MAY have a point here...

HOWEVER there is one thing that everyone has forgotten methinks - we are all human and if you have an ISA with lets say £30,000 in it I don't care how disciplined you are you will be tempted to dip into this money when you need a new car/tv/computer

Whilst it is true that some mortgage lenders (like mine) allow you to retrieve any overpayments it certainly isn't as simple to withdraw from as making a withdrawal from your ISA account...

JamesD will probably argue that he is disciplined and won't touch his savings but I'm about to have a baby and a friend of mine found out they're pregnant with triplets the other day (:eek: ) - What I am saying is that you don't know what's round the corner and if was now in possession of a big pot of money in an ISA I may well now be dipping into it to buy the sensible family car, the nursery furniture, the new carpet for the nursery ......the list is endless. As it happens I will not be dipping into my overpayments as it's a pig to reclaim (which in this case is actually helpful) and I consider that money already spent in any case. (i don't mentally see it as a savings pot)

I'd say you may be better off doing it the way James suggests but you may also not be able to resist the temptation of dipping into what may become a sizeable ISA in years to come...

InMyDreams

sharkmark wrote: »

HOWEVER there is one thing that everyone has forgotten methinks - we are all human and if you have an ISA with lets say £30,000 in it I don't care how disciplined you are you will be tempted to dip into this money when you need a new car/tv/computer <snip>
I'd say you may be better off doing it the way James suggests but you may also not be able to resist the temptation of dipping into what may become a sizeable ISA in years to come...

Um, I take it you haven't read my post's then? (posts #23 and #32)

InMyDreams wrote: »

There are other considerations though... this is the MFW board afterall. You have to be disciplined enough to think of this savings pot as offset mortgage, and treat dipping into it in the same way as you would treat remortgaging. <snip>
But do be careful if you do this... As accessible as this money might be, you have to treat it as untouchable as the rest of the equity in your house, otherwise at best you undo all your moneysaving and at worst you may end up in very deep water!

InMyDreams wrote: »

The ease with which I could dip into those savings could be considered an advantage or a disadvantage depending on your personality, I suppose.

Is that what you mean?

jamesd

sharkmark, keeperbear and I actually are in pretty good agreement about the core principles, like picking the best mortgage.

The list of possible uses for the savings is endless. Are those uses good ones? Maybe. Is it cheaper to use the savings instead of taking out a car loan? If it is, borrow from the savings and repay them at the difference between the car loan and savings rates and you'll save money on the loan and still make more than the savings were making. Assuming you have the budget to afford the car in the first place!

If you can't afford the car, it's up to you to decide whether you want to use the money or not. You did overpay so it's fair enough to make the choice.

Anyone who is overpaying is already demonstrating a strong tendency towards prudence. I'm inclined to believe that people with that strong an urge to be prudent aren't going to casually go wild with their early repayment pot.

InMyDreams, yes, one advantage of the save approach is that it lets you get the overpay and drawdown features while still getting the cheaper mortgages that come with restrictions.