Paying off mortgage vs Saving

davidqu

bowlhead99 wrote: »

I would say the opposite, as the returns on savings and investments can still beat a "mortgage that is really really cheap". Some people are on base plus half a percent, or less.

Of course, the OP had not previously told us how much money he's talking about, or what rates he's paying, or what he wants out of life in terms of goals and future aspirations. The bank employment connection might complicate things anyway, because perhaps they are on a preferential rate on non-arm's-length terms and she pays tax on the benefit of getting a sweet headline rate compared to the 'going rate'.

So, we could only speculate.

Now with some hard figures it is clearer. The amount we're talking about is not so high that it's impossible to mostly invest at reasonable interest rates or require spreading around to keep it under FSCS limits. So that's a positive thing for keeping it as cash. But the mortgage rate is not so low as to be ludicrously cheap like some deals, so it is tough to equal with savings rates. But back on the other side of the coin, the early repayment penalty of 3% ish is a deterrant to paying it off, and presumably does not last forever, so no need to dive into clearing it right now if you don't want to.

Personally, if the mortgage interest rate is not substantially higher than the return they're making after tax, I wouldn't pay it off. If you have the cash on hand to meet every future payment as it ever becomes due, it can never be a burden and a standard mortgage is unlikely to stop you getting credit cards etc, which you won't even need if you have pots of cash anyway. It only needs to be cleared if it becomes expensive in terms of interest cost against your available returns from elsewhere. I am presuming you aren't a high rate taxpayer so your 3% on the bulk of the savings at Santander is still 2.4 net which approaches the 2.99 charge on the mortgage. Seems like you won't be short of the mortgage interest bill by much over a couple of hundred quid.

Having a monster cash stash, even if it is costing you, net, something to maintain the mortgage, can be a valuable thing. Say you want an extension for your house, or some cash for some emergency that besets you or a loved one. A 'rainy day', if you like.

If you have used 100% of your savings to clear the mortgage, the only way to get the cash for the life-changing event, is to remortgage or borrow it. A loan for a new car might cost you 6-10% APR. A remortgage for a house extension at current rates might end up costing you 2.5-6% APR depending whether you can pay it back in a short term fix period or it ends up being a 25 year loan again and it ends up back on standard variable rate. Both of them will require you to have the salary to support it. It's conceivable that the reason you need emergency funds is that you don't have a salary, in which case if you deliberately voluntarily paid off the mortgage in the good times, you would be annoyed you had done so and could now not get someone to give you credit at super-low rates any more in the bad times.

So IMHO, one can be quite happy paying a few hundred quid more in mortgage interest than they earn in savings interest, for the insurance policy the large cash pile represents. Personally I might even gamble the cash pile on investments, if I thought self and spouse had the income stability to handle the future mortgage payments without issue.

One issue for OP is that the mortgage is with his fiance, not wife. Having joint ownership of a house, with the assets supported by joint borrowing, can be a tricky thing. You (collectively) owe 33k on a house. You (personally) have personal assets of that amount in bank accounts and ISAs and S&S investments. While not wanting to say anything about the quality of your relationship or what proportion of them statistically end in separation before or after you get down the aisle, I would offer the observation that staying in cash is not a completely reckless thing to do (it's economically justifiable as I outlined above, particularly when early repayment charges are considered) AND it gives you a bit of personal insurance against something going wrong.

Of course if you kept the cash, she might want you to buy an expensive wedding party or honeymoon, which is potentially a worse use of funds than tucking it away in a house.

So, as suggested in post #1, there are pros, and cons.

Thank you for your very detailed post, it's defo gave me something to think about, and your right, were getting married next year and my fianc! likes the nice things haha so is costing a pretty penny.

When we bought the house I got the lawyer to write in the contract if anything was to happen, if we separated etc that I would be entitled to 75% of the house and her 25%. Not for a second think we will but as the deposit was mostly mine I wanted a bit of security

Yorkie1

Have you got any pension plans in place for you / OH?

planteria

some good answers.
and further to the last one, i think the concept of paying off your mortgage and Then starting to invest for the future has a considerable appeal.
bottom line though: it's all about the bottom line, ie. the rate you are paying and the rates you can achieve.

nicknameless

davidqu wrote: »

When we bought the house I got the lawyer to write in the contract if anything was to happen, if we separated etc that I would be entitled to 75% of the house and her 25%. Not for a second think we will but as the deposit was mostly mine I wanted a bit of security

You old romantic you :rotfl:

davidqu

nicknameless wrote: »

You old romantic you :rotfl:

Hahaha I was just surprised she agreed to it

atush

i think the concept of paying off your mortgage and Then starting to invest for the future has a considerable appeal.

It may have a ppeal but doesn't always mean the best way to go. Esp if you have a really cheap mtg. Better to invest the money now, and pay off the mtg later if rates rise, as the longer your money is invested, the better.

dunstonh

atush wrote: »

It may have a ppeal but doesn't always mean the best way to go. Esp if you have a really cheap mtg. Better to invest the money now, and pay off the mtg later if rates rise, as the longer your money is invested, the better.

Especially on things like ISAs where the allowance is a use it or lose it allowance. Or pensions which may not always benefit from higher rate relief or increase the amount of childrens/working tax credits you can get. (where applicable).

davidqu

atush wrote: »

It may have a ppeal but doesn't always mean the best way to go. Esp if you have a really cheap mtg. Better to invest the money now, and pay off the mtg later if rates rise, as the longer your money is invested, the better.

For every 166 quid I'm paying in mortgage payments, 81.54 of that is getting wiped back of me in interest.

atush

And every 80 you pay into a pension is 100 overnight (60 if you pay HRT) plus any investment growth. Which over the last year (recent falls included) has been substantial.

There is no 100% rule anyway. Even though i have a cheap mtg I still overpay a bit (less than I did before due to the rate), alongside cash and equity savings, plus pension savings.

racing_blue

Almost all businesses use leverage. You have done the hard (expensive) bit and arranged the leverage... now make it work for you!

That £33k is costing you £1k per year. What asset could you buy for £33k, with a good chance of being worth more than £38k in 5 years time?

If you can think of one you are onto a winner- even better if it something you can add value to, or extract value from. The classic example would be a house to improve, while living in it rent free.