Should I pay off my mortgage discussion

hgrpotter78

This may or may not be a daft question, but...We are looking to upsize next year. Our current house, which we paid £215k for 2 years ago has a mortgage secured against it of £194k. We probably have only a slither of equity in it as we stand, so if we upsized to a house of circa £300k some time next year we would not get a mortgage due to the LTV. However, we both earn a lot more than we did and as we are on an interest only deal on Nationwide's BMR (2.5% at the moment, guaranteed never more than 2% above base) we are able to save circa £2k a month. Our idea is to save £30k and have that as a deposit for our next house so we have an LTV of less than 90% (if our current house gains a bit of value, then a bit more), when we would switch to repayment, porting our existing mortgage to keep that interest rate.Is this a better option than switching to repayment now and overpaying the money we would be saving? With the convexity of the mortgage curve wouldn't we be paying more interest than capital by repaying and hence not reducing our LTV as much as we would by ploughing the £30k savings straight into the new house? We can get a savings rate, even with easy access, better than the 2.5% we're paying on the mortgage as well and I expect base rates to stay where they are for most of this year and under 2% even in 18 months time.It's probably an easy question to answer for some of you out there, but I'd really appreciate it even if it turns out to be stating the obvious!

Bargain_Rzl

A hypothetical Nationwide question (something that occurred to me a while back, but I've been reminded by the discussion above):

I have no savings (on paper) and a Nationwide mortgage which is £10k less than it would be if I was keeping my savings in savings accounts.

If (heaven forfend) I ever had to apply for income-related benefits, would my overpayments reserve be seen as savings?

eden188

Hi and sorry if this question has been asked or sounds dumb, but I have a pension surrender value around £55000 that I have with my current employer for 12years. I have also a mortgage of about £150K, which has another 3 years before looking for another mortgage package.

I was wondering if its possible to surrender this pension fund in 3 years time and pay off a huge chunk of my mortgage? Or is it more sensible to hold onto the pension and try to pay as much off my mortgage as I could (which we don't have much left by end of the month).

Thanks in advance.

Harry_Powell

Bargain_Rzl wrote: »

A hypothetical Nationwide question (something that occurred to me a while back, but I've been reminded by the discussion above):

I have no savings (on paper) and a Nationwide mortgage which is £10k less than it would be if I was keeping my savings in savings accounts.

If (heaven forfend) I ever had to apply for income-related benefits, would my overpayments reserve be seen as savings?

What you're really asking is, "I have a decent amount of savings that could support me for a while in between jobs. I don't really want to spend my money to support myself and would rather that all you tax payers supported me instead. How do I wrangle this?"

I doubt that they will go into your finances so deeply though to be honest, so you should get away with it. Often banks will allow you to have your overpayments back, but often charge an 'administration fee' of around £30 or more and you also then have to borrow back the money on a new mortgage account at current interest rates (i.e. not at the rate of your existing mortgage). If this is the case with your bank, then your overpayments are not really held as 'savings', you're merely re-borrowing them back.

Have you thought what would happen when you come to the end of your current mortgage deal and look to get a new one. Your new mortgage will be based on your existing mortgage balance (including any overpayments) and once you sign on the dotted line, you will lose access to the overpayments.

With this in mind, you need to have emergency savings that are outside your mortgage account (try a cash ISA) and cover at least 3 x monthly expenditure. I realise that in today's benefit culture society, it's not trendy to support yourself, but times they are a changing and decent taxpayers are tired of supporting those who are more than capable of supporting themselves. Let's keep the benefits for those who really need them, not those who would rather pend 'our' money than their own! :mad:

Bargain_Rzl

Harry_Powell wrote: »

What you're really asking is, "I have a decent amount of savings that could support me for a while in between jobs. I don't really want to spend my money to support myself and would rather that all you tax payers supported me instead. How do I wrangle this?"

I doubt that they will go into your finances so deeply though to be honest, so you should get away with it. Often banks will allow you to have your overpayments back, but often charge an 'administration fee' of around £30 or more and you also then have to borrow back the money on a new mortgage account at current interest rates (i.e. not at the rate of your existing mortgage). If this is the case with your bank, then your overpayments are not really held as 'savings', you're merely re-borrowing them back.

Have you thought what would happen when you come to the end of your current mortgage deal and look to get a new one. Your new mortgage will be based on your existing mortgage balance (including any overpayments) and once you sign on the dotted line, you will lose access to the overpayments.

With this in mind, you need to have emergency savings that are outside your mortgage account (try a cash ISA) and cover at least 3 x monthly expenditure. I realise that in today's benefit culture society, it's not trendy to support yourself, but times they are a changing and decent taxpayers are tired of supporting those who are more than capable of supporting themselves. Let's keep the benefits for those who really need them, not those who would rather pend 'our' money than their own! :mad:

Whoa! Hold your horses. It's an entirely hypothetical question, as I stated (and yes, FWIW, I would definitely consider the morally right option to seek to support myself primarily from my own savings, wherever and however I hold those savings).

I'm just interested. I'm using "me" just as an example.

I was thinking more along these lines: if my overpayments ever get to a point where I could pay my mortgage off in full, and I did so, I would still be in a position of having "no savings" but would no longer have any facility to borrow them back without taking out new credit. In those circumstances I'd be more asset-rich than I currently am, and yet would ironically also be in a position where I would (were my income to vanish for whatever reason) qualify automatically for benefits.

!!!!!!, it was just a question... I've never claimed state benefits in my life, and I hope I never have to!

Harry_Powell

Bargain_Rzl wrote: »

Whoa! Hold your horses. It's an entirely hypothetical question, as I stated (and yes, FWIW, I would definitely consider the morally right option to seek to support myself primarily from my own savings, wherever and however I hold those savings).

I'm just interested. I'm using "me" just as an example.

I was thinking more along these lines: if my overpayments ever get to a point where I could pay my mortgage off in full, and I did so, I would still be in a position of having "no savings" but would no longer have any facility to borrow them back without taking out new credit. In those circumstances I'd be more asset-rich than I currently am, and yet would ironically also be in a position where I would (were my income to vanish for whatever reason) qualify automatically for benefits.

!!!!!!, it was just a question... I've never claimed state benefits in my life, and I hope I never have to!

Hmnnn, hypothetical was it?.... Perhaps you should have said "I have a friend who...."

Basically the answer would be to always maintain a decent level of emergency savings to cover yourself, regardless of your mortgage balance.

If you get made redundant and get a £40k payout and use it to pay off your mortgage, beggaring yourself in the process, then the benefits office will determine that you have deliberately deprived yourself of assets in order to receive benefits, and will act as though you still had the £40k.

Alternatively, if you made regular overpayments onto your mortgage over a couple of years and paid it off and were then made redundant, the benefit office would have a very difficult time proving that you deprived yourself of assets, especially if you didn't have notice of the redundancy/job loss.

Hypothetically, you should build up your savings so you can at least stand on your own two feet for a while before throwing yourself at the mercy of the benefit system. You are allowed around £6k in savings before your entitlement is affected, which I think is pretty generous.

Incidently, in all your mortgage overpaying activity, are you making sure that you're putting money into a retirement plan, or will you be throwing yourself onto the largess of the state when you're a pensioner too?

Bargain_Rzl

Harry_Powell wrote: »

Have you thought what would happen when you come to the end of your current mortgage deal and look to get a new one. Your new mortgage will be based on your existing mortgage balance (including any overpayments) and once you sign on the dotted line, you will lose access to the overpayments.

With this in mind, you need to have emergency savings that are outside your mortgage account (try a cash ISA) and cover at least 3 x monthly expenditure.

And just to answer a practical point: if I was looking for a new mortgage deal and didn't have any savings outside my mortgage overpayment reserve, I'd be releasing those funds from the reserve prior to making the new application, so as not to tie up emergency money I couldn't afford to lose. So the situation you've outlined would not arise.

Where my money is now is immaterial.

Bargain_Rzl

Harry_Powell wrote: »

Incidently, in all your mortgage overpaying activity, are you making sure that you're putting money into a retirement plan, or will you be throwing yourself onto the largess of the state when you're a pensioner too?

Not really sure why I am bothering to answer this, as you still seem convinced that I am out to fleece the system, but I have been paying into a company pension scheme for 10 years which is currently set to provide 2/3 of final salary (though obviously given the way that pensions are going, that provision may change) which would also provide a small pension if I had to take health-related early retirement. In addition, I have insurance which would pay out at £1000 a month if I ever got signed off long term sick.

I do overpay my mortgage, and I do keep the majority of my savings in my overpayment reserve, with a view to getting my mortgage paid off as soon as possible.

As I say - hypothetical.

stphnstevey

The other persons tax affairs are nothing to do with you and you should consider your posts before throwing wild accusations around.

The other person is within their rights to plan their affairs to be tax efficient and with that, take state benefits into account.

It's a very intelligent question to ask if mortgage overpayments are considered savings for benefits purposes.

In answer, I don't think they are as it's a repayment of debt, but don't quote me.

I too have never claimed benefits, but after the number of years I have worked and paid taxes for others to benefit, I see no reason why I shouldn't use the benefits system if I ran into bother.

I would divert your over enthusiasm and sarcastic remarks to those who have never put any money back into the system and never paid a penny in tax and are claiming benefits and not those that are intelligently planning to use a system they have paid for and use only the worst case scenario.

pencekeeper

stphnstevey wrote: »

I would divert your over enthusiasm and sarcastic remarks to those who have never put any money back into the system and never paid a penny in tax and are claiming benefits and not those that are intelligently planning to use a system they have paid for and use only the worst case scenario.

Hear, hear. I'll potentially be in a similar situation myself in the next few years as I've overpayed and will probably lose my job. I've never claimed any benefits in my life - I don't see that you should be expected to apologise for looking to the future and understanding how your mortgage affairs will be affected if you lose your job.

You are simply repaying debt - albeit ahead of the minimum repayment schedule agreed with your lender. The state shouldn't (and I don't think it does) consider those overpayments to be savings, anymore than someone with their own home and no mortgage has £150,000 in savings just because they could go out and get a mortgage.