Should I pay off my mortgage discussion

Dithering_Dad

Jonbvn wrote: »

DD,

I have never mentioned anything about 12% trackers and no crashes???? I have never even mentioned stock market investment vs. mortgage overpayments. The only thing I have ever mentioned is cash ISA's vs. mortgage overpayments, which is a simple direct comparison.

I think you may have the wrong person.

Sorry Jon, I have gotten into a muddle. Ignore me - I hardly have any time to get on MSE these days, and the times I do are snatched moments when my boss isn't looking . So I got a bit confused somewhere along the way!!

I've deleted the mistaken post. I was right with my post though, it was confusing!! The confusion really being why I thought you were jamesd - not why jamesd has suddenly done a U turn and started paying down his mortgage instead of investing his money. :rotfl:

lol, what a plonker, Rodney!

Tommy_C_2

An advantage of having a mortgage rather than paying it off early is that you can treat it as life insurance.

If something happens to you or your partner then the mortgage could be paid off by the mortgage insurance. Plus you or your partner would also be left with the savings that you had built-up.

Dithering_Dad

You can still have life insurance, regardless of whether you have a mortgage. Even better is that your spouse don't have to use the majority of it to pay off the mortgage, but can use it to buy you a silk lined solid oak casket and grave plot sheltered by a weeping willow.

Seriously though, if you don't need to pay off a stonking great mortgage you can get away with much lower life assurance, resulting in lower monthly premiums.

Tommy_C_2

Dithering_Dad wrote: »

You can still have life insurance, regardless of whether you have a mortgage. Even better is that your spouse don't have to use the majority of it to pay off the mortgage, but can use it to buy you a silk lined solid oak casket and grave plot sheltered by a weeping willow.

Seriously though, if you don't need to pay off a stonking great mortgage you can get away with much lower life assurance, resulting in lower monthly premiums.

Just highlighting that there may be an additional cost to consider if people pay off their mortgage and want to replace the life insurance cover with the same level as they had with their mortgage.

Also, some people might have problems getting a new life insurance policy that would be as attractive as the one they may have had for years with their mortgage. Worth finding out those costs before jumping in to pay off a mortgage with all your savings.

hertsbet

Sorry if this has been discussed. The calculator only deals with basic and higher rate tax payers. What about non taxpayers or even ISA openers?

For instance I have a mortgage at 5.53% tracker and have no idea if sticking £3600 in a Barclays Tax Haven 6.5% ISA is better than paying off £3600 from my mortgage.

jamesd

Cash ISA rates are tax free so all you need to do is pick the highest rate betwen mortgage and ISA and put the money there. ISA in this case.

CJL2548

Re: The Size Of The Savings section at the bottom of the Should I Pay Off My Mortgage article.

Yes I agree with all the figures but it omits to mention that paying £100 a month into a savings account for 16 years generates £19,200 in capital (as well as the £9,540 interest).

Look at it another way.

Option 1 : Don’t overpay / Save your money
£100,000 on a 5.5% mortgage over 20 years: the total cost is £167,300 (rounded).
And, if you bunged a £100 a month into a 6% gross savings account for 16 years it would (approximately) become £19,200 + £9,540 = £28,740 (on basic rate tax).

Option 2 : Overpay by £100 a month
£100,000 on a 5.5% mortgage over 20 years overpaying £100 a month does indeed complete the mortgage in 16 years: the total cost is £152,800 (rounded) – so I agree with the quoted saving of £14,500.

Summary:

Option 1 costs £167,300 - £28,740 = £138,560

Option 2 costs £152,800

Conclusion : do not over pay your mortgage

Since this conclusion contradicts what MSE are stating there must be a flaw in my argument so perhaps someone out there can identify it ?

gillian46

You have forgotten in option 2 that after the 16 years is up then you would be able to save the equivilent of your monthly mortgage payment and overpayment into a savings account (ISA for the first £3600). You need to add this money on to make the options equivilent. :rolleyes:

Dithering_Dad

gillian46 wrote: »

You have forgotten in option 2 that after the 16 years is up then you would be able to save the equivilent of your monthly mortgage payment and overpayment into a savings account (ISA for the first £3600). You need to add this money on to make the options equivilent. :rolleyes:

What she said.

Also, with the advent of the credit crisis, I suspect 20yr fixed mortgage rate deals at 5.5% are going to be difficult to find, especially with a high LTV. I suspect many people are staring at mortgage rates well in excess of what you could get on a cash ISA.

Just to add to the theoretical example... Our chap loses his job after 15 years and gets a derisory redundancy payout of 6k. He's 53 yrs old and is unlikely to get another job because his health is not what it was. He therefore goes down to the benefits office...

Option 1 : Don’t overpay / Save your money
The nice lady from the benefits office informs our chap "You have too much in savings to qualify for benefits and will have to use this up before you can get any state money". "But I can just take my savings and pay off my mortgage and then I'll have no savings", he replies. "Sorry, The Department of Work and Pensions can treat you as still possessing capital if they can establish that you spent it or got rid of it in order to qualify for some, or more, benefit. Please come back when all your savings have gone, chummy.", she replies, looking down at him over the rims of her glasses in a very superior sort of way.



Option 2 : Overpay by £100 a month.
The Nice lady from the benefits office says "You qualify for a load of benefits, here's your wheelbarrow and shovel. Just go around the back to the vault and help yourself, after all Labour is still in power!".

Conclusion: With a labour government and its mania for means tested benefits and pension credits, it's better to have your savings locked away in pension schemes and house capital!!

CJL2548

Thanks to gillian46 for nailing that one. Being a prat I'd not, as you pointed out, run both options over 20 years ! MSE/gillian46 1 CJL 0.