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Overpayment or Savings?
Comments
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To find the flaw in my own argument a little, I guess that once you get to the point in time that the mortgage would have been paid off anyway, the £3k in Approach 2 is no longer effectively giving a 5.5% return, whereas the £3k in the ISA would continue to do so. NB time that the mortgage was due to be paid off rather than time at which it's repaid early.
This would tend to favour the ISA, but for many people the time at which the mortgage was due to be paid off is years away. E.g. I should repay my mortgage in 2010, but under the original 25 year term it would have been 2025. So from 2025 onwards the ISA approach would be better. But by that time who knows whether ISAs will be around or have the same tax advantages...e.g. for equity PEPs our friend Mr Brown "stole" most of the tax benefit.I really must stop loafing and get back to work...0 -
We are going for the pay off the mortgage and then use the money we have from not paying the mortgage, and of course the spare 'credit rating' to invest for our old age. We should be mortgage free in three, or very close, at which time we're hoping the housing market will have calmed down a bit- we're considering buying a flat to rent out, then be available for our daughter when she is older-she is currently 8yo, so plenty time to get a foot on the ladder for her to use when she's older.:DMember of the first Mortgage Free in 3 challenge, no.19
Balance 19th April '07 = minus £27,640
Balance 1st November '09 = mortgage paid off with £1903 left over. Title deeds are now ours.0 -
This all makes for interesting reading and I guess there's no easy answer.
Our situation is somewhat different to boybeck's as we have a high £200,000 mortgage (flexible discount rate of 5.59%) and have just acquired a lump sum of £140,000.
So...advice please ... should we pay £100,000 off our mortgage, thus halving our repayments. OR should we pay only £50,000 off the mortgage thus leaving another £50k in savings. (The other £40,000 would pay off other debt, buy us some nice things etc).
I love the idea of halving our mortgage, however, worry that it doesn't leave any lump sum incase we may want to move house and trade up or buy a property abroad as an investment and holiday home or , buy an investment property in the UK to handover to the children.
Please don't roll your eyes. We realise we are in an extremely lucky position and are not taking it for granted.
Has anyone been in a position whereby they have put ALL their savings/lump sum into paying off the mortgage and regretted it later when they needed to get their hands on a lump sum of money ?
Thanks everyone !0 -
You have to decide what you are going to use the money for first.
Sit on it for a few weeks while you decide- well,not literally stuffed under the sofa- stick it in a no ties higher interest rate a/c to get it earning, but don't tie it up anywhere. You could maybe even put it in an overpayment fund you can get at in your mortgage if that's the best,safe home for it.
We can still get our overpayment out if we ever needed it, it makes no difference to how hard it works in the mortgage payments.
If I was stuck with this lovely problem I'd probably hide it in the mortgage until I had done a lot of homework on investing in property (maybe even keep it there until the property market calms down a bit?) and investing abroad, wait for the 'right' thing to come along.
Have you thought about asking for a recommendation for a good IFA in your area? Might not be a bad thing to pay someone to go over your situation,provided you trust them to know what they are doing- which is why I'd say a personal reocmmendation. Lot of money to make mistakes with.Member of the first Mortgage Free in 3 challenge, no.19
Balance 19th April '07 = minus £27,640
Balance 1st November '09 = mortgage paid off with £1903 left over. Title deeds are now ours.0
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