Your Financial Setup

lisyloo

Get rid of debt ASAP , who knows whats round the corner

I don't agree with this statement - although I understand the point.
I've made quite a lot of profit on risk free, FCSC cover cash i.e. no risk and I can cash it in at any time and pay off the mortgage.
I can't see any risk whatsoever (please let me know if I'm wrong).

So for example £100K mortgage at 1%, £100K cash ISA at 2% (for a couple) is £1K per annum free money.
What's the catch?
I don't think there is one.

Other money I have is in NSI index linkers which are guaranteed by HM treasury at RPI + something.

YoungBusinessman

Very good reading on this thread, love it. Mine is interesting, I posted similar before and was told it wasn't possible at my age so deleted my post.

£96k mortgage on £120k property with 19 years left as of a few weeks time.
£19kish debt(will increase income as of April)
£6k emergency fund
£2k due from family members
£4k van worth
£3k motorbike worth(to be sold when weather better so just shy next summer)
And work 3 weeks behind at work as weather depending job so currently £2.5k net due.

22 year old. Great salary but high (£825!!) debt payments hampering plans. debts only taken out a matter of months ago, aim to save enough by end 2014 to pay them all off and have emergency fund intact. Well done to the truck driver away to live the dream for a year, travelling the world. Never too late.

hw185

Hi I'm 29, single and no kids. I have a decent job and salary (£55k) but also high expenses so I don't have much disposable cash.

Assets;
House £205k
Savings £3k (apart from this account for emergencies, any spare cash goes on overpaying mortgage as rate is high at 5.9%)
Pension £35k (defined contribution)

Liabilities;
Mortgage £172k
Student loan £4k (should be paid back within about a year or so)

Once my student loan is finished, I'll split the extra £350 between pension and mortgage I think.

Archi_Bald

lisyloo wrote: »

What's the catch?
I don't think there is one.

There might not be one for anyone who might have 100% cover for their mortgage, as well as an emergency fund that would see them through 6-12 months of unemployment, and/or major unexpected expenses. A lot would also depend on the interest of the savings vs the interest on the mortgage. It would seem counter-productive to, for example, pay 4% for a mortgage when savings earn less than 2%. Plus people aren't all the same age and will not all have the same plans for the future.

But aside from that, not everyone is in a position to pay off their mortgage from savings at the drop of a hat. Therefore the risk for those people is entirely different to someone having the cash to cover their entire mortgage.

BarleyGB

I made similar points on the first page of the thread, im in the position of being able to pay off my mortgage but my investments are growning at well over the 3.79% im paying on my mortgage.

In my particular position im happy with this approach, I like the idea of easy access to my money should I need it and have all the money working hard in equities.

Keeping 100k invested and earning 10-20k+ a year vs using it to pay off a mortgage thats costing 5k a year is a no brainer for me. That said im happy with the risk, if the stock market crashes 50%, im young enough to wait it out or earn the money again.

lisyloo

There might not be one for anyone who might have 100% cover for their mortgage, as well as an emergency fund that would see them through 6-12 months of unemployment, and/or major unexpected expenses.

I do agree that circumstances vary and there's no black and white.
However I'm not clear on your point above about percentages.
Let's say someone has £100K mortgage and £50K savings (and for the sake of argument they are young with a long term).
Assuming mortgage rate is lower than the savings rate (NET) then wouldn't it be more flexible to have the savings available?
I don't see what the % has got to do with it.
If you pay off the mortgage (and it doesn't have flexible drawdown) then you've lost the money for good.
If you keep it in a seperate pot AND you are disciplined then you can profit AND have flexibility for an emergency.
I'm just not clear on how the % affects this rationale. Please advise.
I'm not picking holes but I'm very keen to question my own thinking if Ive missed something.

A lot would also depend on the interest of the savings vs the interest on the mortgage.

Of couse, I believe we're referring to cases where there is a profit to be made (in some cases with instant accesss cash with NO risk).

Plus people aren't all the same age and will not all have the same plans for the future.

Totally agree but normally having the money seperately give you MORE flexibiilty and often paying it off is non-reversible.

But aside from that, not everyone is in a position to pay off their mortgage from savings at the drop of a hat.

If I were doing a "stoooze" I'd ideally want to have instant access in case rates go up (or somthing happens).
If you tie up money that you ultiamtely want to pay off your mortgage then of course that's a risk, but that's a CHOICE you make when you tie it up.
The way you say it makes it sounds like this is something that jsut happens to people and it's not. Tying up money is an active choice (I understand people's circusmtances do change).

lisyloo

Keeping 100k invested and earning 10-20k+ a year vs using it to pay off a mortgage thats costing 5k a year is a no brainer for me

You are taking capital risk.
Obviously you know that and you're happy with it, but many people would not consider this a no-brainer.
I'm not saying there is anything wrong with your choice if it's right for you, but I don't think most people would be happy with it.
In fact about 3 million people went wrong with endowments (and yes there were particular issues with those products).

im young enough to wait it out or earn the money again

Unless you get sick or have an accident or indeed die ir perhaps you're skillset is offshored or taken over by economic migrants.
Sorry - I didn't wish to be grim but there are definitely RISKS.
There is no guarantee you'll be able to earn it again.

You may consider the risks to be small and acceptable and you're probably right, but you should not be oblivious to be risks you are taking (I'm sure you aren't - just pointing it out for the sake of balacned discussion).

Cotta

lisyloo wrote: »

I don't agree with this statement - although I understand the point.
I've made quite a lot of profit on risk free, FCSC cover cash i.e. no risk and I can cash it in at any time and pay off the mortgage.
I can't see any risk whatsoever (please let me know if I'm wrong).

So for example £100K mortgage at 1%, £100K cash ISA at 2% (for a couple) is £1K per annum free money.
What's the catch?
I don't think there is one.

Other money I have is in NSI index linkers which are guaranteed by HM treasury at RPI + something.

Your point is a fair one, but is it realistic to expect savings rates to be higher than mortgage rates?

cloud_dog

Cotta wrote: »

Your point is a fair one, but is it realistic to expect savings rates to be higher than mortgage rates?

But if they weren't then I'm sure Lisyloo would re-assess her (?) situation and adapt the strategy to best suit the situation, i.e. the money is there to be used to pay down/off the debt if required.

Cotta

cloud_dog wrote: »

But if they weren't then I'm sure Lisyloo would re-assess her (?) situation and adapt the strategy to best suit the situation, i.e. the money is there to be used to pay down/off the debt if required.

Sorry I was just using a simple exampe as to why many would opt to pay off debt ahead of investing. I don't think I've explained myself very well though. :cool: