Should I pay off my mortgage discussion

setmefree2

SteveJSnell wrote: »

I have 2 endowments (£30,000 and £10,000) still costing me £70 per month ....
My mortgage has been converted to repayment.
I intend to cash in the endowments - but can't beat the incredibly low offer from Phoenix (£17,000 combined) - they are both "with profits" Sun Alliance policies (4 years to go on 25 year policies) - does anyone know of one of these second hand endowment companies who may improve my offer ?

Hi

You should go to the mortgage and investments board were someone will give you good advice - Edinvestor or Dunstonh.

tofa

I am going to pay off my mortgage in full within the next few weeks, what i was wondering is do i need to pay it off at a certain time of month or can i just contact my lender and get a closing statement and just pay off?Also what is the situation with the deeds to the property ,do you still get deeds or is it just a land registry number now?

Snowbiz

The issue is so complex. You have to balance the amount of return you could get on any surplus capital, compared to the amount you save by not having a mortgage. The saving needs to consider disposable income, because your rate of income tax needs to be considered.

But you also need to consider whether you could earn a better return outside of a simple savings account, for example with bonds, or ISAs, and then there is also the hidden cost of mortgages such as the arrangement fees every few years which they charge, and compulsory insurances which maybe you'd prefer to chose whether you have or not.

missrlr

Ok the facts and background (sorry it's a long one this one)

32 years old, single
I took out a 89.5% mortgage on a 2 year fixed term 2.5 years ago, and then got another fixed rate for a further 2 years - expires April 2010.
I was overpaying this by £100 plus per month BUT circumstances changed. This has not happened since August 2008. I can over pay by £499.99 each month without penalty.
I also had to use a chunk of my savings (I did have 3x net salary in an ISA)
I have a 0% loan (completes July 2009) @ £500 per month
I have a VERY small amount in a cash ISA (c£1.5k)
I pay 15% of my net pay into 2 stakeholder pensions (employer makes no contribution)
I am a higher rate tax payer
I do not have credit card debt/overdraft (although the facility is there)
There is no value in my paying the 0% loan off any faster (I believe)
THE DILEMMA
Should I (given present climate) reduce the amount I am paying into my pensions and use the balance to increase my savings so I can attain a more secure position of 3x net salary available to me using ISA etc savings method even though the interest rate is not high enough for me to really gain from it?
OR should I reduce the amount I am paying into pensions and overpay my mortgage
OR Should I wait until August next year and start saving using the £500 currently paying my loan off
OR should I wait until August next year and start saving/overpaying mortgage splitting the £500 currently paying the loan off between these two
OR ANOTHER WAY?

My concerns are:
IF I lose my job (I do have accident sickness and unemployment insurance but will only pay out for a year if I claim), I will need cash. (as likely as any of us for this to happen but still needs considering):eek:
IN the event of a disaster - e.g. boiler failing I will be either savingless and/or have to spend on credit card / loan
When I come to the end of my current fixed rate deal I am still in the quite high loan to value ratio so I want to ensure I am positioning myself as best I can to maximise any deals that are available to me
I am the only person available to make contributions to my pension and thus retirement income, and I do not want to jeopardise this by poor action now

Any pointers would be gratefully received as I am stuck.
Thank you

Dithering_Dad

missrlr wrote: »

Ok the facts and background (sorry it's a long one this one)

32 years old, single
I took out a 89.5% mortgage on a 2 year fixed term 2.5 years ago, and then got another fixed rate for a further 2 years - expires April 2010.
I was overpaying this by £100 plus per month BUT circumstances changed. This has not happened since August 2008. I can over pay by £499.99 each month without penalty.
I also had to use a chunk of my savings (I did have 3x net salary in an ISA)
I have a 0% loan (completes July 2009) @ £500 per month
I have a VERY small amount in a cash ISA (c£1.5k)
I pay 15% of my net pay into 2 stakeholder pensions (employer makes no contribution)
I am a higher rate tax payer
I do not have credit card debt/overdraft (although the facility is there)
There is no value in my paying the 0% loan off any faster (I believe)
THE DILEMMA
Should I (given present climate) reduce the amount I am paying into my pensions and use the balance to increase my savings so I can attain a more secure position of 3x net salary available to me using ISA etc savings method even though the interest rate is not high enough for me to really gain from it?
OR should I reduce the amount I am paying into pensions and overpay my mortgage
OR Should I wait until August next year and start saving using the £500 currently paying my loan off
OR should I wait until August next year and start saving/overpaying mortgage splitting the £500 currently paying the loan off between these two
OR ANOTHER WAY?

My concerns are:
IF I lose my job (I do have accident sickness and unemployment insurance but will only pay out for a year if I claim), I will need cash. (as likely as any of us for this to happen but still needs considering):eek:
IN the event of a disaster - e.g. boiler failing I will be either savingless and/or have to spend on credit card / loan
When I come to the end of my current fixed rate deal I am still in the quite high loan to value ratio so I want to ensure I am positioning myself as best I can to maximise any deals that are available to me
I am the only person available to make contributions to my pension and thus retirement income, and I do not want to jeopardise this by poor action now

Any pointers would be gratefully received as I am stuck.
Thank you

If I were you, I would decrease my pension savings by half (to 7.5%) and use the money this free's up to put back into my emergency savings fund. The priority if to get enough money to cover you in the period between losing your job and qualifying period of your unemplyment insurance (this could be about 6 weeks). Once this has been acheived I'd continue byuilding up your emergency funds to cover you for any unexpected eventualities such as a boiler breaking - your previous 3x monthly outgoings should do it.

Once this safety net is set up, you can then start making mortgage overpayments to ensure that your LTV is sufficient to be able to negotiate a decent mortgage rate when this needs to be renewed (though if you remortgage with your current provide they probably won't bother with a valuation and so your LTV is unimportant). You might want to check with your mortgage provider to see if your overpayments are accessible. I can get all mine back with just a £20 handling fee. While you don't really want to be increasing your mortgage debt, in a really dire emergency it's good to have this option.

It goes without saying that you should look at all your outgoings and make sure you have the best deals for your utilities, insurances and other regular bills/outgoings. Any savings should be ploughed into the suggestions above.

Good Luck

jamesd

tofa, ask your mortgage lender if they have the deeds and what their process is. Do remember that just having a mortgage with regular payments helps your credit score, so you might be better off just paying the mortgage down to say 100 and keeping it with tiny monthly payments.

misslr, as a higher rate tax payer you should check the tax benefits of a pension mortgage to see if that appeals to you. You use the 25% lump sum from part of the pension to pay off part of the mortgage and the remaining 75% remains to pay pension income when you retire. Main limitation is that you can't pay off the mortgage until you're 55. It's the most efficient way there is to both pay off a mortgage and increase pension income.

You should look to use your full 7200 ISA allowance each year if you can. That's more flexible than mortgage overpayments and offers you a large pot of emergency money if you need it. You can choose the amount in the cash portion but I suggest that you accumulate it gradually until you have a year or three's spending in cash. Short term you want enough to cover you until your insurance starts and some safety margin, because they can be slow to pay out.

If you have money left over after full ISA contributions and pension contributions equal to all of your higher rate income then you can consider other savings or mortgage overpayment.

You may want to consider PHI to provide you with income for decades if you do become unable to work. For someone without dependents it's probably the most important insurance to have.

You can just use savings to reduce the amount you borrow when remortgaging so you don't need to do this via overpayments now. Main reason to make overpayments is if you can't find savings or investments that pay more than the mortgage interest rate after any applicable tax.

cheeryoleary wrote: »

James, Why do you push the Halifax product so much, and why do you assume that most people are not high rate tax payers? What's your motivation for promoting this product?

Motivation is really easy: it was the highest paying account without prerequisites that I knew about at the time. Once that changes, I'll start to mention whatever account replaces it. If you know of one, please do mention it.

If you're a higher rate tax payer I assume that you can adjust for higher rate tax taking it down to 6%, still higher than the mortgage rate. In either case, a cash ISA might be preferable for someone who doesn't want to use their allowance for the stocks and shares part or someone who prefers a domestic bank.

missrlr

jamsed - what is PHI? thanks

jamesd

PHI is Permanent Health Insurance (not a recommendation to use that vendor). The key differences between it and accident, sickness and unemployment insurance is that it's only for sickness but it pays out until you retire.

You also need to check whether the policy applies if you can't do your own job type or whether it only pays out if you can't do any work at all - which could be very low grade work like envelope-stuffing at home. The own job type is the one to go for if you can.

It's sometimes compared to mortgage payment protection insurance but unlike that it can pay out more than the mortgage amount and doesn't end when the mortgage is repaid.

jamesd

skcollobcat10, one thing to consider in the medium term is that interest rates are likely to continue to drop, so placing money in fixed rate savings is likely to be useful for one to three years.

Longer term overpaying seems reasonable if you're investing and saving as much as you want to invest and save. Cash ISAs are probably still a better choice for you than overpaying the mortgage. Funds in a stocks and shares ISA also if you're comfortable with the value variations.

co123456

jamesd wrote: »

tofa,
Motivation is really easy: it was the highest paying account without prerequisites that I knew about at the time. Once that changes, I'll start to mention whatever account replaces it. If you know of one, please do mention it.

If you're a higher rate tax payer I assume that you can adjust for higher rate tax taking it down to 6%, still higher than the mortgage rate. In either case, a cash ISA might be preferable for someone who doesn't want to use their allowance for the stocks and shares part or someone who prefers a domestic bank.

Ah, you're assuming that my mortgage rate is less than 6%. It's 6.09%, and about to rise come June 1st when I'm due to go on the SVR with an outstanding debt of roughly 12K