Mortgage Free in Three Yrs

enola05

I am new to the idea of reducing your mortgage by overpaying, I too was of the 'a mortgage is for life not just for Christmas' pursuasion so this thread has really opened my eyes.

My kitchen table is now the home of Maggie the Mortgage Pig and she is being fed regularly, so far so good.

Regarding the ISA / mortgage debate. I can see the benefits of a tax free investment with a higher interest rate than that being paid on my mortgage (term base rate + 0.45%) but apart from the psychological effect of reducing a debt, how does it compare financially when you take into account the fact that overpaying the mortgage will reduce the term therefore not only are you saving the immediate % of the interest you are not paying at the moment but also the future interest you would have paid had your repayments continued for the full term of the mortgage.

I hope that makes sense and someone in the know can reply

Many thanks for 'listening'

Enola

Dithering_Dad

When I cleared all my CC & loans debt and decided to move onto my mortgage (setting up this MFi3 thread along the way). I made my mind up that I would cash in my endowment, sell my free standard life shares, put my emergency money into my offset acount and then blitz my mortgage with all available cash. My mind was made up and I wasn't to be deflected.

However, like my name suggests I dithered a bit after reading some of the posts on MSE. I was told I was an idiot for getting rid of my endowment, that I should hold onto my free shares, that I am a fool for paying off the cheapest loan that you can get (mortgage) and should invest the money in ISAs instead.

I therefore didn't go ahead with all of my plans and had pretty poor results because of it.

I did cash in my endowment and pay the money onto my mortgage. This worked well because it was before the recent banking and market turmoil and I got a good value for the endowment. Also, I have nearly paid off the interest only part of my mortgage - 13 years earlier than my crappy endowment would have!

I didn't cash in my Standard Life shares. They have since nose-dived and worth half(?) what they would have been when I originally considered selling them. This didn't work well.

I paid emergency money into my offset. This has worked well and allows me to reduce my mortgage interest payments (and therefore increase my mortgage capital payments) and have a pot of money that is easy (but not too easy) to get at. This is working well.

I paid off a lot of my mortgage, which has freed up £300 a month. This has worked well because I have more money to throw at the mortgage (though I actually use this to contribute to my wife's new stakeholder pension).

I did pay 7k of my mortgage overpayment money into an ISA instead and promptly lost 3k when the markets crashed.

Therefore my advice (if you're still with me after all that rambling) is to decide on a course of action and stick with it!!! If I had, then I would be 6.5k closer to my mortgage free dream right now.

catshark88

I think that it is important to identify the savings mechanism that works best for you from a psychological perspective.

Many people on here are far more numerically literate than me and can work out the exact benefit of ISA v. mortgage overpayment etc. I am a simple soul and seem to suit the pay every penny off the mortgage approach. I have online banking which shows me exactly how much I owe day by day. Each day I pay a tiny amount off and it keeps me motivated to see a gradually declining number. We are nearing the moment when we go sub £200k and that will be an enormous milestone and hopefully keep us going for quite a while. We might save a few more £s doing something else but the simple reduction gives us the best incentive.

For what is is worth, my suggestion is to think what approach gives you the best warm feeling and stick with that.

Happy mortgage bashing everyone, am already looking forward to April update.!

InMyDreams

Another important distinction to make is what you mean by ISA. ISAs can be risk-free savings accounts that you simply don't pay tax on. Or you can get investments of varying risk in an ISA too.

The overpayment vs cash ISA is a whole different debate to the overpayment vs S&S ISA.

enola05

catshark88 wrote: »

I think that it is important to identify the savings mechanism that works best for you from a psychological perspective.


Many people on here are far more numerically literate than me and can work out the exact benefit of ISA v. mortgage overpayment etc. I am a simple soul and seem to suit the pay every penny off the mortgage approach. I have online banking which shows me exactly how much I owe day by day. Each day I pay a tiny amount off and it keeps me motivated to see a gradually declining number. We are nearing the moment when we go sub £200k and that will be an enormous milestone and hopefully keep us going for quite a while. We might save a few more £s doing something else but the simple reduction gives us the best incentive.

For what is is worth, my suggestion is to think what approach gives you the best warm feeling and stick with that.

Happy mortgage bashing everyone, am already looking forward to April update.!

I'm getting very confused with interest rates and different types of ISAs and which is most beneficial financially so I think I'm going to stick with catsharks answer. Reducing the mortgage, balance and term, gives me a lovely warm feeling, much more so than increasing savings balance so that's what I'm going with. Thanks everyone for your opinions and advice, I'm off to feed the mortgage pig again

MUSTBEFUNNY_2

Dithering_Dad wrote: »

Could we please draw a line under the ISA v Mortgage Repayment debate here as this is a support thread for people who have weighed up the pros and cons and have decided that, for them, it makes financial sense to engage in a period of mortgage debt repayment.

There are lots of threads on the MFW board that cover this area, so perhaps the issue could be debated there?

I ask this because this particular debate usually descends into madness, attracts lots of oddbods and results in closure of the thread - not something we want to happen on our MFi3 support thread :eek:

Thanks

p.s. I know I also engaged in the debate in an earlier post - apologies, I forgot where I was!
Tsk, I'm such a hipocrite :rolleyes:

What happened to free speech
BB has spoken

Trying_to_be_good

DD

I did find your post a bit 'BB', but I was here when the oddbods arrived and tried to hijack last time, so you have my support.

Obviously we do welcome all relevant discussion and it's really important people understand the alternative ways of paying off the mortgage, but we don't want to risk the thread being closed down. Keep cracking the whip at the mortgage everyone!

BACKFRMTHEEDGE

I suppose it depends upon your motivation. Some people on this board seem to be paying down their mortgage so they can take on another mortgage and thus move up the property chain. For them an ISA is less relevant. However, others seem to want to work less and for them a tax free income every year in the form of interest might help them achieve their aim. Horses for courses I suppose. You can't loose money on a cash ISA thouugh as one poster seem to be suggesting.
...it's all abit of a luxury though....you guys should pop onto the debt free board...these are luxury problems:o

gallygirl

BACKFRMTHEEDGE wrote: »

...it's all abit of a luxury though....you guys should pop onto the debt free board...these are luxury problems:o

A few of us have 'graduated' from there .

Re the losing cash on an ISA, I believe that was a comment about a stocks & shares ISA, so it could lose value v easily, although you've not actually 'lost money' unless you cash it in.

Financially, x may be better than y, but really it comes down to what you're comfortable with. I've tried to save, but I get a much bigger kick in bringing forward my mortgage free date. I bung it all in my offset & I'm happy.

As long as people are thinking about it, doing something and not wasting money by paying more than necessary for goods & services then that's great by me :T .

Kaz2904

Blimey, a bit of a kerfuffle going on isn't there?
This is a Public Forum so lets try and keep it nice guys.
And yes it is all a bit of a luxury compared to the debt free wannabee board but is there a possibility that it could be relevant to them? Probably not as so much debt tends to cost more than an ISA could earn.