Should I pay off my mortgage discussion

Bargain_Rzl

If that's your only cash savings, then you should probably keep it in cash savings unless your mortgage is very flexible (i.e. allowing you to withdraw it later if you need it). If you've got other savings, or a flexible mortgage, AND you're allowed to make overpayments, then I'd say it's a no-brainer - go for the overpayment

oellph

Sorry I haven't read the whole thread but need to chip in with something that may have been posted before. I regularly have this debate with a friend of mine who's feelings are an interest only mortgage and stocks and shares isas are the way to go versus paying off a mortgage.

I can see the logic and, when successful, see how investments can beat mortgages. However all these debates miss one extremely important factor for me which can't be included in any equation: the value of owning your home free of debt. Its easy for stocks and shares to fall rapidly. When they do you're effectively locked out of your cash until the markets and funds recover. If house prices fall you still have a place to live. What good is £100k in stocks and shares that have dived in value when you find you can't pay your mortgage or rent and no longer have a place to live? Sure if you look at a house as purely a money making vehicle then its not as black and white, but for most being mortgage free is the best thing you can do for long term security.

tali

oellph wrote: »

Sorry I haven't read the whole thread but need to chip in with something that may have been posted before. I regularly have this debate with a friend of mine who's feelings are an interest only mortgage and stocks and shares isas are the way to go versus paying off a mortgage.

I can see the logic and, when successful, see how investments can beat mortgages. However all these debates miss one extremely important factor for me which can't be included in any equation: the value of owning your home free of debt. Its easy for stocks and shares to fall rapidly. When they do you're effectively locked out of your cash until the markets and funds recover. If house prices fall you still have a place to live. What good is £100k in stocks and shares that have dived in value when you find you can't pay your mortgage or rent and no longer have a place to live? Sure if you look at a house as purely a money making vehicle then its not as black and white, but for most being mortgage free is the best thing you can do for long term security.

Agreed -current rate drops have put an extra £150 in my pocket due to mortgage tracker.Can't see investments earning me that in a month.

jamesd

jdpdean wrote: »

I've just been given a rebate from Ice save Isa. I'm thinking I should use this to pay off my 2 year fixed mortgage at 6.9%, rather than re investing it in another ISA at 4.6% with the best deal at the moment. Whats the best thing to do?

Find out what the penalty is for repaying. If there is no penalty than it looks like a reasonable option. If there's a penalty it'll probably be too large for it to be sensible.

jamesd

oellph wrote: »

I regularly have this debate with a friend of mine who's feelings are an interest only mortgage and stocks and shares isas are the way to go versus paying off a mortgage. ... If house prices fall you still have a place to live. What good is £100k in stocks and shares that have dived in value when you find you can't pay your mortgage or rent and no longer have a place to live?

So, you've paid 100k off the mortgage, you have no job and you can't pay the mortgage payments.

Your friend has lost their job and has the full mortgage and their stocks and shares have fallen to 60% of their value but they are still able to sell them and if necessary can pay the mortgage for the next ten years that way.

Which of you is going to end up homeless? Not your friend!

You may get assistance with the mortgage interest if your home isn't repossessed before that protection kicks in. Your friend might not get means tested benefits, or might, if it's an ISA mortgage deal properly set up so that the ISA doesn't count towards the capital test.

daveybea

James - The vast majority of mortgage lenders will allow you to underpay on your mortgage to the sum of the overpayments. Therefore in my case it's circa 12K which would give me nearly two years of no repayments if the proverbial hit the fan. Couple this with the mortgage protection policy which I cancelled and I stand to have that 9K in my pocket for a rainy day.

Since discovering the delights of overpayment - I have reduced my mortage term from 23 years to less than eight. That potentially will save me 60K in the long run which can go in the pension fund. There is a lot to be said for overpayment -certainly there is short term pain in terms of increased payment size but the reality is that the more you own of the house - the more equity you have and the value of houses whilst in decline willl bottom in the foreseable future.

stphnstevey

The great old age question! - good to see this thread is still going after when I started looking at a year ago (and still no resolution...)

Savings rates lowering to less than fixed rate mortgages, tax rates threatning to go up and already a higher rate tax payer, maxed out ISA's which have now halved in value - reconsidering this again :think: .

savingGrace

I have had an interest only mortgage, with an endowment, which I stopped paying into over 2 years ago, at advice of a new IFA. He said he could guarantee I could not lose. And I believed him.

The following year, mid 2007, I came to the end of a tracker deal, leaving me on the mortgage lender's SVR. As I thought I would probably move within the next year to 18 months, I thought I did not have much choice but to stick with it. However, my endowment was worth around 17 k, and I knew I could pay in as much as I wanted at this stage without penalty. To me it felt like a eureka moment! so was very disappointed, and never really understood why my IFA thought I should not. saying it would pay to wait.

Over the next year interest rates grew so I paid well over the odds, and then of course, my endowment value fell last sept to around 11k, as markets crashed.

To combat this I paid a largish chunk out of my ISA. but felt anxious, having spent years building it up, and expecting to have it as savings. I have also paid some extra out of my earnings monthly whenever I could over last 3 years.

However I am now paying on a repayment basis since last october as was about to cash in the endowment before markets crashed, so cannot make significant overpayments now.

It was never a big mortgage, and I have got it down from 41k to 20 k in last 3 years. I still have savings- all in an ISA of 19 k, and the endowment seems to be creeping back up a little to around 13k (only 1k more than I paid in over the term!)

The article seems to advise NOT to use ISA's , rather to make sure to pay in one's yearly allowance before paying off extra on mortgage. My ISA rate has fallen to 3.6% from 5.6%, whereas my mortgage rate is 4%.

I am approaching 50, and had seen my ISA as a backup to my pension in the future, the predictions for which are rather low 4k or so annually.

Would others search out a better ISA,- and can anyone suggest a decent one now, I cannot seem to find anything half decent. Or just pay off the mortgage- or most of it, and would you think it best to use the ISA, and hope the endowment will grow, or use the endowment- such as it is.
My remaining term is 7 years. I do seriously hope to move into something a little bigger and better this year however.

I don't feel very confident at all and would appreciate any thoughts. Sorry to be long-winded.

jamesd

savingGrace, you'd want to use ISAs to get and keep the long term tax benefit that you'll benefit from for as long as you have the money in the ISAs.

The timing of your discussion with the IFA about the endowment was unfortunate. The IFA gave you what was probably correct advice but the short term movement in the markets has still caused the value to fall. Can you say more about that endowment policy, in particular about the investments inside it? That'll give some idea about whether it's better to switch to a different type of investment.

Now isn't a good time to be selling investments, but may be to move them around. It's probably a once or twice in a lifetime opportunity to be buying many types of investment. It's normal to be uncertain and worried at these times, since they happen when the markets have dropped a lot and that's always worrying.

It would also be good to say more about how your pension and how the money in that is invested. If you have a spouse knowing more about their situation would be helpful.

Instead of replying here, please repost your question and answers over in the pension section where it'll attract those who can better consider your whole situation, from property through to retirement income.

YummyMummyBigBummy

Sorry if these questions have been asked before... But I wonder if anyone can give us a bit of advice regarding making overpayments into our mortgage versus savings please?
Our son (who is 6) has been saying since he could talk that he wants to be a vet when he grows up (great news!) so we need to start planning now for his uni bills and so on.
We are not a rich family at all (we have an total annual income of about 25k) and so need to start now to make sure we can help him out when the time comes.
We owe about 90k on our repayment mortgage over the next 21 years at a rate currently of 5.65% Remortgage due in June 2010
Having done some sums I have worked out that we would need to save 80 pounds a month in order to fully pay for Uni for our son in 12 years time bearing in mind it's a 6 year course. (Does this sound about right? Or have I got it completely wrong!?)
So my question is; would it be better to pay this 80 pounds off the mortgage each month or stash it away in a savings account for him? I can see the sense of paying off the mortgage and would love to be mortgage free sooner rather than later, but we obviously will need access to this money when the time comes for him to go to Uni, so which way would be better? This is just about the most we can afford to spare each month, so I really want to make sure that it is working as hard as possible for us.
Any help would be very gratefully received!