Pension Mess - Not sure What to do

atush

cosmicDolphin wrote: »

Well I only pay for things I know I need, any insurance is a gamble.

Yes, it is a gamble. But it isn't your 'need' we are concerned with, but gambling on your children's well being and future should you shuffle off your mortal coil.


And yes, you do need a pension. But you need emergency cash first. And you need to keep your hands off it next time you feel the need to upgrade your accomodation.

Right now you have only one asset class, property. All your eggs in one leaky basket.

cosmicDolphin

rpc wrote: »

Using debt to purchase assets.

Yes..It's called a mortgage..most people have one

rpc wrote: »

in excess of your "normal" capability is leveraging. .

Sorry you've lost me there. Put £38k p.a. earnings into this very sites mortgage calculator and it comes up between £124k - £152k...we're sitting at £125k..how is that in excess of 'normal'

rpc wrote: »

You are taking a gamble that you will be able to pay off that debt.

By that reasoning so is everyone who has a loan or mortgage

rpc wrote: »

You may not be able to and that would result in the debt defaulting and causing all sorts of trouble.

On the other hand we will likely ( as previously ) overpay and save a vast amount of interest in the long term. Once we've overpaid enough to create a buffer which may take another 12-18 months , that then is 'available' for any emergencies should we need it.

rpc wrote: »

You may be able to, but you cannot know that until after the debt is cleared.

I can know because I can track it as I go, and can measure each month how we are tracking Vs target. It's pretty simple..money in Vs money out...no little pots of savings stashed in multiple places. Any money left at the end of the month automatically overpays the mortgage. simple.

cosmicDolphin

[QUOTE=atush;56771

And yes, you do need a pension. But you need emergency cash first. And you need to keep your hands off it next time you feel the need to upgrade your accomodation.

Right now you have only one asset class, property. All your eggs in one leaky basket.[/QUOTE]

As mentioned above once we've overpaid enough into the one account we will build up a cash buffer that can be used should the need arise, no need for any seperate emergency fund, the interest saving alone will out perform any other type of savings by doing it that way.

I've never understood why you would take out a 25yr mortgage that'll rack up far more interest than you could ever earn by putting spare cash into any savings account/Isa etc when you could effectively reduce the mortgage term and slash thousands off the interest with the same money. Pay off the big interest debts soonest which for us is the mortgage as we have no loans or credit cards. I even 'stoozed' for several years, using an initial super balance transfer of £8k , wiping 3yrs worth of interest off that £8k whilst it sat in the one account. Sadly fees became the Norm and it wasn't worth it any longer.

I really don't see how property is a leaky basket unless you've mortgaed to the hilt and are trapped in negative equity. This is my 3rd property, all repossesions, all below market value when purchased, both the others sold quickly at above average price for their areas.

How is wrong to move up the property ladder you've doubled your salary and paid 50% of your current mortgage off in less than a third of the term??

Linton

cosmicDolphin wrote: »

I've never understood why you would take out a 25yr mortgage that'll rack up far more interest than you could ever earn by putting spare cash into any savings account/Isa etc when you could effectively reduce the mortgage term and slash thousands off the interest with the same money. Pay off the big interest debts soonest which for us is the mortgage as we have no loans or credit cards.
....

Its easy. If you over pay your mortgage by say £1000 you will gain by the interest you would have paid on the £1000. So at 3% its £30 annually.

If you invest the £1000 (and I mean investing, not saving) you could reasonably average 5% annually tax free without taking undue risks. So investing the money rather than paying off the mortgage gains you £20 annually.

Its just a matter of comparing the interest rates. Of course unsecured debts like credit cards will charge far more than you could reasonably expect from investing and so should be paid off first.

Linton

cosmicDolphin wrote: »

......
I really don't see how property is a leaky basket unless you've mortgaed to the hilt and are trapped in negative equity. This is my 3rd property, all repossesions, all below market value when purchased, both the others sold quickly at above average price for their areas.

How is wrong to move up the property ladder you've doubled your salary and paid 50% of your current mortgage off in less than a third of the term??

Nothing wrong with moving up the housing ladder if you want to live in a better house. But on this forum we need to look at it in investment terms.

It is highly illiquid. For example if you want to retire early on the proceeds you will need to sell the whole house. This is expensive and can be personally difficult as anything substantially cheaper could feel horribly cramped or below what you have learnt to consider to be appropriate for someone in your position.

It is risky in that you entire future depends on one asset class. If the government decides to go for the level of house building which we so desperately need to cope with our current population the value of your major savings drops and you cant easily move to a safer investment. Or we could just happen to be in a long term housing slump due to economic circumstances just at the time you want to retire.

The key to sensible investing is to hold a range of different types of asset to ensure that any one possible event doesnt have a catastrophic impact on your wealth.

rpc

cosmicDolphin wrote: »

By that reasoning so is everyone who has a loan or mortgage

Yes, but most don't dismiss the need for other financial products because they are risk-based. A loan is also a risk for both parties.

I can know because I can track it as I go, and can measure each month how we are tracking Vs target. It's pretty simple..money in Vs money out...

You know with 100% certainty that nothing will happen that will limit your ability to pay off the mortgage? Redundancy, illness, death?

Can I borrow your crystal ball? I need it for tommorrow's lotto numbers.

Insurance is a risk, a mortgage is a risk. You claim that a mortgage is not leveraged debt (it is) and that there is no risk to one. The risk associated with lower LTV mortgages is pretty low, but it is still there.

You are likely in breach of the terms of your mortgage by refusing to take out life insurance to cover the loan.

dunstonh

Yes, but most don't dismiss the need for other financial products because they are risk-based. A loan is also a risk for both parties.

Indeed, a mortgaged buy to let is higher risk than conventional investments with no gearing.

cosmicDolphin

rpc wrote: »

You are likely in breach of the terms of your mortgage by refusing to take out life insurance to cover the loan.

Not in breach , just swimming against the tide.

http://www.oneaccount.com/onev3/faqs/toa-faqs-insurance.shtml

xylophone

Have you arranged buildings insurance? And contents?

Why do you take pride in this "swimming against the tide"?

Mind you, I suppose there are always those who like to play Russian roulette!

cosmicDolphin

Linton wrote: »

Its easy. If you over pay your mortgage by say £1000 you will gain by the interest you would have paid on the £1000. So at 3% its £30 annually.

If you invest the £1000 (and I mean investing, not saving) you could reasonably average 5% annually tax free without taking undue risks. So investing the money rather than paying off the mortgage gains you £20 annually.

It's not that simple because with a std mortgage you'd be paying 3% interest on your £1,000 for the remainder of the term so the interest is saved not only in that year but all the subsequent years remaining..

After a few years your overpayments you would/should exceed the amount you're allowed to pay into tax free savings each year. i.e. we overpayed by £800 last month due to my bonus being paid and avaraged £4k overpayment per year at the old house.

As they haven't figured out how to tax us on interest not incurred yet, effectively it's also tax free unlike any savings outside of your £11k per year isa limit.

If we can overpay by an average of £400 per month , that will reduce the term by approx 10yrs , saving around £80k in interest.

If we put £11k maximum ( which we would take a few years to build up to anyway ) into an isa @ 5% ( and I'm being generous here because I don't see any over 4% and that's locking-in the money so bang goes your emergency useage ) then that would earn just over £8k in interest over the same 15 years it took to pay the mortgage off.

So £80k of interest saved vs £8k interest earned....I know which one I prefer.

Yes you could put subsequent years savings elsewhere but you'd get piddly interest and be taxed on it. Far more efficient to whack it off the mortgage and I can still access it if I want without any penalty.