Should I pay off my mortgage discussion

Dithering_Dad

Investing to pay off my mortgage is a tad too close to endowments for me. I know there are huge differences, but after being burned with an endowment (I cashed it in and I'm now only 9k away from having paid off the mortgage the endowment was supposed to cover) I find it to be much less stressful to pay down the mortgage with cash than to sit and look at my investments fluctuate. Plus I'm hoping to get rid of the mortgage in the next 5 years, which isn't really a long enough time scale for an investments.

Thanks for your comments on the pension, I never really know if I'm doing well or badly within my peer group (professional workers), so it's hard to know if 80k at age 39 is lower or higher than the average pot in my industry - especially given that it's all Money Purchase as I missed the boat on Final Salary pensions.

angelavdavis

Dithering_Dad wrote: »

it's hard to know if 80k at age 39 is lower or higher than the average pot in my industry - especially given that it's all Money Purchase as I missed the boat on Final Salary pensions.

You and me both DD!!!! Luckily, my mother bullied me into taking out a pension when I was 18 (much to my distain at the time!). Good ole Mum saw me right in the end....

jamesd

DitheringDad, those two are pretty stable, it's why I mentioned them. Those are the sort of place where my property deposit money is being put. Much more cautious than my normal long term investing.

Pension values are tough to comment on because it depends on the income you want in retirement and when you want to retire. You're well ahead of me but I intend (am acting) to exceed yours within a few years even if I ignore my ISA investments, which are getting funded by the maximum each year. Once I'm closer to on target I'll drop back to contributing just 100% of my higher rate income to the pension, in addition to the ISA funding and anything needed to add value to the pension to repay a mortgage (likely quite a lot).

aztec

MSE_Wendy wrote: »

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Should I pay off my mortgage article

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I have £23000 left to pay off my mortgage but I have unexpectedly been told that from June this year I will be made redundant. With my pay off of £15000 plus some savings of £12000 I could pay off my mortgage but should I as after this I will have no money saved?

jamesd

What do you plan to live on?

If means tested benefits, check the rules on intentionally depriving yourself of assets.

Gregm

I am self employed and have been for a number of years, I've recently hit 40 and married with 3 kids.

Upto about 18 months ago I was earning peanuts and the thought of financial planning never came up as my income was just enough to pay bills/mortgage/food etc.

Then Christmas 2006 was a turning point and I was fortunate to start earning a decent income, (coincidently was about same time I claimed back my bank fees). For the first few months we went spend mad, but then one day I sat down and scared myself when I saw how much we had spent on 'luxuries'.

At this point I started paying of debts, clearing CCJ's and loans etc aswell as putting some cash away 'for a rainy day'. In August we started doing some home improvements etc so money was not being 'wasted'

We are now debt free apart from our £62k Interest only mortgage, we have about £38K in an online savings account, £18k sat in current account and £9,600 in mine and the wifes cash ISA's. £3600 will be taken out of the current account this week and put into the wifes ISA taking both to their limit for the year. The ISA's where intended to be long term (retirement fund).

We are also having further home improvements done on the house this month which will be paid for out of the Current account.

The 'good times' have come to a sudden end now, for the time being anyway, and although I expect to earn more than I was 18 months ago we are not going to have the sort of income we have had over the past 18 months.

Our mortgage is with a 'sub prime' lender (sorry but we didn't cause the credit crunch) so the interest is higher than both the savings and ISA's. If we make a payment on the mortgage to reduce our capital we are charged about 1 months interest on the amount being paid off.

It is a no brainer that I should pay a large amount off my mortgage, but we do not have any pensions (well apart from small amounts accrued when employed). I although I am fairly good with figures etc when it comes to situations like this I have been known to get confused, As far as I can see I have the following options:

1. Stay as I am, earn less interest on savings then I pay on mortgage but have emergency funds if needed if have periods of no work/income.

2. Take all the money and pay off the mortgage in full. - This would leave me no money for the short term but over the next few months my income should be enough to live on (no CTC/WTC due to high earnings last year). It also leaves me nothing in the 'retirement fund'

3. Pay about £50k off the mortgage, clearing out savings and current accounts but leave the ISA's for retirement fund (or emergency) although the retirement fund would not be a great amount in 20 years time if I can't add more each year.

4. Pay a smaller amount off the mortgage so have a bit more 'emergency' cash, but then how much emergency cash should one keep.

5. Forget about paying off the mortgage and see if there is some kind of pension/investment I can put savings into for retirement.

Part of me thinks clear the mortgage, this would make living now easier because of the reduction in monthly outgoings but I have a 'poor' credit history, which has improved over the past 18 months, all CCJ's and defaults cleared, but still not good and i've read that keeping the mortgage and making regular payments helps your credit rating. But does it help that significantly?

Sorry its a long one.

Dithering_Dad

Gregm wrote: »

I As far as I can see I have the following options:

1. Stay as I am, earn less interest on savings then I pay on mortgage but have emergency funds if needed if have periods of no work/income.

I'm in the same position as you - I am self employed, albeit within a limited company structure, and so need to have a decent amount of emergency savings. What I did was sit down and really think about what "Emergencies" could occur. Once you get going, you'll realise that a lot are covered by insurance policies, mortgage payment holidays and by having 3 - 6 months 'housekeeping' money (this is barebones no luxuries money to pay mortgage, food, utilities, etc. while you're not working). Check to make sure you have adequate life assurance & income protection insurance (for long-term sickness or accidents). Once you've got all this sorted you'll see two things; You will feel much better to know you've done your best to protect you and your family & you'll need much less money than you thought!

In any case, you have far too much money sat in your current account, so if you can't put this into cash ISAs, have a look at getting an offset mortgage - this is perfect for us self-employed folk. I use mine to hold my tax money until it's time to pay the revenue, but you could use this for your emergency money.

Gregm wrote: »

2. Take all the money and pay off the mortgage in full. - This would leave me no money for the short term but over the next few months my income should be enough to live on (no CTC/WTC due to high earnings last year). It also leaves me nothing in the 'retirement fund'.

Not a good idea to leave yourself exposed like this. Once you've calculated how much emergency money you need, keep that in your cash ISAs and then you could dump the rest onto your Mortgage. Then arrange a stakeholder pension plan for retirement - you get an additional 20% to40% from the government in the form of a tax rebate to help you build your pot. If you work within a limited company structure, get your company to pay this direct, saving Corporation Tax. The advantage of stakeholders for us self-employed folk is that you can start and stop payments into them and make large one off payments without penalty. Great if you're flush or struggling.

Gregm wrote: »

3. Pay about £50k off the mortgage, clearing out savings and current accounts but leave the ISA's for retirement fund (or emergency) although the retirement fund would not be a great amount in 20 years time if I can't add more each year.

Don't use ISAs for retirement planning - you're already thinking of them as your retirement & emergency money. If an emergancy comes you'll spend all of your retirement money and spend your golden years in poverty. Pensions are not means tested for benefits, there are great tax incentives (esp. for self employed) and you can't touch them, even in an "emergency".

Gregm wrote: »

4. Pay a smaller amount off the mortgage so have a bit more 'emergency' cash, but then how much emergency cash should one keep.

If you lower your mortgage you will be in 'Prime' mortgage territory, enabling you to get better remortgage deals. Calculate how much emergancy money you REALLY need and stick at that, having cash salted away for emergency scenarios that could never happen is a waste. i.e. Do you really think you'll ever be without work for 12 months? or is 6 months or 3 months more likely?

Gregm wrote: »

5. Forget about paying off the mortgage and see if there is some kind of pension/investment I can put savings into for retirement.

You should be saving for retirement regardless. If you only have enough spare money to put aside for a pension, then this should be your priority - your mortgage will be paid off eventually anyway.

Gregm wrote: »

Part of me thinks clear the mortgage, this would make living now easier because of the reduction in monthly outgoings but I have a 'poor' credit history, which has improved over the past 18 months, all CCJ's and defaults cleared, but still not good and i've read that keeping the mortgage and making regular payments helps your credit rating. But does it help that significantly?.

If you clear some of the mortgage, then you'll be able to negotiate better rates when your current deal ends. You'll also have a smaller mortgage, so your interest payments will be less. The money you have freed up can then either be re-invested into the mortgage or put into a pension plan.

Just to show that I take my own advice (unlike many on this site :rolleyes:), I paid down my mortgage by 30k, got cheaper utilities & insurance and I got rid of a crappy endowment. This freed up about £400 per month from my outgoings. I use £300 of this freedup cash to pay into my wife's stakeholder and I use the remaining £100 per month to overpay the mortgage.

Whenever I'm flush and have an excess of cash, it can go directly onto the mortgage because I already know my emergency savings and pension are sorted. Its all about making yourself secure financially. My long-term future (retirement) is becoming more secure because I contribute a sufficient amount to a pension plan, my medium-term future is becoming more secure as I pay down my mortgage and my sort-term future is secure due to my emergency savings. It's not rocket science - you just need to make your plan and then stick with it. As each year goes by you become more secure until you're practically invunerable .

Phew - I need a lie down after typing that lot!!

Gregm

Thanks for the fast response D.Dad

Check to make sure you have adequate life assurance & income protection insurance (for long-term sickness or accidents). Once you've got all this sorted you'll see two things; You will feel much better to know you've done your best to protect you and your family & you'll need much less money than you thought!

Ohh that reminds me, I did have life insurance but let it drop during the 'hard times' - that is something I will sort out this afternoon and I've never looked at the income protection insurance, I've always thought it is like the payment protection insurances on loans which I find give poor cover to Self Employed but I should take a look.

In any case, you have far too much money sat in your current account, so if you can't put this into cash ISAs, have a look at getting an offset mortgage - this is perfect for us self-employed folk. I use mine to hold my tax money until it's time to pay the revenue, but you could use this for your emergency money.

Much of the cash in the current account has only just been paid to me in the past couple of days, normally it would have gone straight into the savings account however I am waiting on the paperwork to come through for another savings account so I don't go to far above the £35k safe limit on a single account.

Due to my poor credit history I have difficulty in finding a mortgage co that will take me on otherwise I would go for the offset mortgage.

Pensions are not means tested for benefits, there are great tax incentives (esp. for self employed) and you can't touch them, even in an "emergency"

Yea, this is something I didn't realise until earlier this month when I spoke to someone about setting up a pension and he informed me that you can put upto 100% of the years earnings into pension and get tax benefits, unfortunately we didn't have the conversation until about a week into the new tax year. Subsequently he advised that I wait for a few months until I get an idea of what I will earn this year and then whack it into a pension.

Calculate how much emergancy money you REALLY need and stick at that, having cash salted away for emergency scenarios that could never happen is a waste. i.e. Do you really think you'll ever be without work for 12 months? or is 6 months or 3 months more likely?

If things go to plan over the next few weeks I should only need a month or so, but if things go belly up and I revert back to where I was 18 months ago then, especially without CTC and WTC, more would be required.

If you clear some of the mortgage, then you'll be able to negotiate better rates when your current deal ends. You'll also have a smaller mortgage, so your interest payments will be less. The money you have freed up can then either be re-invested into the mortgage or put into a pension plan.

This was my thinking, if I clear the mortgage and then invest the payments I was making into a pension, then if things do get really tight, missing a month or so payment to the pension could have a far less impact than if I missed a month or so on the mortgage, especially in the current climate.

Bristol9

I am thinking of paying off my mortgage, however some advice I am being given is not to due to tax relief reasons? What does this mean? Will I be penalised for clearing my mortgage and if so in what way?
Any help gratefully received

setmefree2

There are no tax implications to POYM, I don't think. Maybe the person is abit *cough* out of touch and is thinking of the (very) old MIRAS scheme. Maybe they mean you would be better off putting your money into a cash ISA? Have you read Martin Lewis' guide re POYM?

All the Best

SMF2