Should I pay off my mortgage discussion

stphnstevey

Just wondering with the Nationwide Mortgage flexible overpayment and then drawing on this reserve, in the short term is it better to

a) Reduce the payments
b) Keep the payments as they are so they reduce the loan amount

pencekeeper

stphnstevey wrote: »

Just wondering with the Nationwide Mortgage flexible overpayment and then drawing on this reserve, in the short term is it better to

a) Reduce the payments
b) Keep the payments as they are so they reduce the loan amount

I'd go with the latter if you can afford it. Both save you money, but reducing the term will pay off the loan quicker, and hence less total in interest.

Not everyone can do that of course, and even if you go for reducing the payments overpaying is still the way to go (if you sensibly can).

mozzo16

Similar to the Nationwide, I have a A&L (now Santander) tracker mortgage which is 0.55% above base rate, currently 1.05%. Overpayments can be made (without penalty) as can borrowing back overpayments.
Through aggressive overpayments, I've managed to build up £100,000 of overpayments which I have now borrowed back and placed into a savings account paying 2.5% net.
I can't see how this strategy, which flys in the face of mortgage overpaying, is flawed. Unless anybody can show me?

[Deleted User]

mozzo16 wrote: »

Similar to the Nationwide, I have a A&L (now Santander) tracker mortgage which is 0.55% above base rate, currently 1.05%. Overpayments can be made (without penalty) as can borrowing back overpayments.
Through aggressive overpayments, I've managed to build up £100,000 of overpayments which I have now borrowed back and placed into a savings account paying 2.5% net.
I can't see how this strategy, which flys in the face of mortgage overpaying, is flawed. Unless anybody can show me?

If you're getting 2.5% net of tax on your savings and are only paying 1.05% interest on your mortgage, then I'd say you've found the solution that works for you.

mozzo16

Thankyou.

I think it goes to show that it it NOT always best to overpay the mortgage. In these strange times, it pays to explore all the options and not take an irrational, emotional or even dogmatic approach.

[Deleted User]

mozzo16 wrote: »

Thankyou.

I think it goes to show that it it NOT always best to overpay the mortgage.

I don't think anyone has suggested that it is ALWAYS best to overpay the mortgage. If you've a mortgage interest rate of 1.05%, good for you. You're very lucky.

In these strange times, it pays to explore all the options and not take an irrational, emotional or even dogmatic approach.

So noted, but I think it helps, when advocating a 'rational' approach, not to fall into the trap of committing a "straw man" fallacy by attacking a position that few if any here actually advocate.

But FWIW... As I see it, one is perfectly entitled to take an irrational, emotional or even dogmatic approach in respect of one's own financial affairs. They are, after all, one's own - and it may be that those emotional or ideological considerations are more subjectively important than a cold calculation of how much additional cash one might expect to have a year, five years or ten years hence if one adopted a different course.

As such, I would always reserve the right to say "well, that might be a more rational way of going about it, but I don't like it/I'm too lazy/I don't feel comfortable with that, so I'm not going to".

Of course, I'd never expect such considerations to be persuasive to anyone else; their motivations are different from mine. There lies the difference between "what I choose to do" and "what's sound advice". It pays to be rational when giving advice. What one does with one's own finances, however, is entirely one's own affair.

jamesd

setmefree2 wrote: »

for decades bricks and mortar have returned more than stocks and shares in the UK.

Unless you think that the Pensions Commission was wrong, that's not an accurate statement. After allowing for the saving in rent it concluded that compared to the UK stock market only "On this basis residential housing has displayed an extremely attractive risk return combination, with mean return similar to equities, but with much lower variance. ... There is however one further adjustment which should ideally be made, but which we have not yet been able to do as this long-run price series is based on a simple average. This would be to calculate how much of house price appreciation has been due to capital investment in existing houses either by increasing the number of rooms or improving the quality of the house without increasing the number of rooms, for example the kitchen of the year 2004 is on average very different from that of say 1970. ... once this adjustment is made it will result in estimates of returns on housing slightly lower than suggested" (page 68 of the appendices to the first report).

And "This increase in the value of houses does not however show up as an element within household sector or national saving. This is logical because an increase in house value unexplained by capital investment represents a windfall gain for all those who already own a house, but a matching windfall loss for those who do not yet own a house. This would be obvious if the effect were a one-off instantaneous event. It is solely because it has been spread over several decades that it appears that all people can gain from it: effectively each new cohort of house buyers for the last several decades has suffered a windfall loss to the previous generation, but then enjoyed a windfall gain at the expense of the following generation." (page 96 of the appendices to the second report).

Investors using better performing markets can do better than the UK, while that failure to allow for the value of property improvements and the greater fool issues with property if the number of households was to fall are concerns. That probably won't happen for the early baby boomers who are retiring now but for the later baby boom generation the following generation will be smaller and that might result in a shortage of buyers.

setmefree2 wrote: »

So it can easily be argued that you are better off investing in property than the stock market.

You invest in property when you buy or sell it, not when you overpay on the mortgage.

For the mortgage overpayment part the comparison is between the rate of return from overpaying the mortgage (from the reduction in interest) to the return on the alternative investments. With 29 UK bond funds paying more than 7% it's not that hard to get a bond fund yield inside a S&S ISA or pension that exceeds most current mortgage rates. Some people can even do it with normal savings accounts.

setmefree2 wrote: »

Good Luck with your pension Harry. I hope your pension scheme has some money left in it when it is your turn to retire.

That's final salary pensions whose costs are temporarily higher and assets temporarily lower because of quantitative easing. For the previous report from the Pension Protection Fund about 75% of the shortfall was due to QE. It's normal for there to be variation and it's moot for pension investments because those aren't final salary pensions but investments in a market that moves up and down, just like property.

stphnstevey wrote: »

Just wondering with the Nationwide Mortgage flexible overpayment and then drawing on this reserve, in the short term is it better to

a) Reduce the payments
b) Keep the payments as they are so they reduce the loan amount

First it's best to ensure that Nationwide doesn't have discretion to withdraw the facility, something that's happened to the customers of some lenders.

Given current investment conditions I'd be reducing payments and increasing investing to buy while markets are relatively depressed. The next markets boom time would be a good time to do the reverse. Markets here might include buying residential property, since that market is also depressed.

PGSchick

okay I've read the article on repaying mortgage early, I've used the calculator to see my mortgage rate versus savings rate. I'm paying 5.19% on a fixed 10 year mortgage that doesn't become unfixed until 2015.
I've overpaid my mortgage by the allowed 10% penalty free each year since I got it.

I know I'd have to pay a penalty of £2,500 on top of debt if paying off mortgage before nov 2011 when the penalty starts reducing but not by much.

But I also know my highest paying savings account matures july this year from 7.2% and will fall to goodness only knows how low. At that point I will have enough money in savings to clear my mortgage plus the penalty charge, it will leave me with little savings but I will be getting a company service loyalty bonus in October which would put my savings back with 3 months outgoings again.

So should I clear my mortgage in july?

I would discuss this with other people but I'm all on my own, and taking the advice of off someone in either a bank or financial place isnt always smartest move.

Please fellow moneysavers advice massively appreciated.

setmefree2

jamesd wrote: »

Unless you think that the Pensions Commission was wrong, that's not an accurate statement.

They are wrong -see Niall Ferguson The Ascent of Money "Safe as Houses" Page 263

Bricks and mortar (up by a factor of 4.5) out performed shares (up by a factor of 3.3).

setmefree2

jamesd wrote: »

Investors using better performing markets can do better than the UK.

The overseas markets may perform better than the UK indexes but what about currency movements? Who wants to bet their shirts (or their future retirement/ financial security) on movements in the currency market?