What will happen when interest rates rise?

MFW_ASAP

midnight_child wrote: »

I hear what you are saying about reducing debt vs building savings, though for those fortunate enough to have such a low rate building savings is clearly more efficient.


FSCS protection means your savings (up to 80K or whatever it is) are safe, so unless you truly minted you wont need to stand around queuing in the rain for 3 days.


It did get me thinking though that if my bank goes bust I should (according to the endless radio ads) get all my money back within 7 days. However, if I go bust the bank has to go through all the agro of repossessing my house and then trying to find a buyer, hoping that the sale price will realise enough cash to eventually recoup all their losses. Almost makes you feel sorry for them.


MC

I'm sure our Greek counterparts had the same argument, until the banks all closed at the command of the government and people were only allowed to take out a small stipend. Of course that wouldn;t happen here because our banks are as secure as houses and even if they failed, the insurance companies could afford to refund our money and even if they failed, the government could aford to refund our money. Oh....

Sure as eggs is eggs, the powers that be will do whatever they like with your savings, even skimming a percentage off you 'for the common good' if anything goes wrong, but they definitely won't then skim the same amount off your mortgage debt as recompense.

chucknorris

MFW_ASAP wrote: »

I'm sure our Greek counterparts had the same argument, until the banks all closed at the command of the government and people were only allowed to take out a small stipend. Of course that wouldn;t happen here because our banks are as secure as houses and even if they failed, the insurance companies could afford to refund our money and even if they failed, the government could aford to refund our money. Oh....

Sure as eggs is eggs, the powers that be will do whatever they like with your savings, even skimming a percentage off you 'for the common good' if anything goes wrong, but they definitely won't then skim the same amount off your mortgage debt as recompense.

Yes, that situation is best avoided, many a slip between cup and lip.

katejo

MFW_ASAP wrote: »

Putting aside the fact that people on <2% mortgages are atypical...

Some people are more motivated by reducing debt rather than increasing savings and so by making cirect overpayments are therefore more likely to stick at it when they see the balance reducing rather than putting it into a savings account and seeing the balance increasing.

I'm one of the former. I tend to build up my savings when I feel insecure so that I have a decen buffer, but always return to direct overpayments once I feel the savings are at a comfortable level.

I remember when I started the Mortgage Free in Three challenge a few years back (pre- credit crunch), we had a lot of people deriding us for having a 'sub-prime investment strategy'. They all vanished when people started queuing up outside Northern Rock, worring that they would lose their savings.....:rotfl:

Any money saved while I still have a mortgage doesn't quite feel like mine. I hate having debt of any type so I want to clear the mortgage. Low interest or not I still have capital payments to make each month. If I were forced to retire early due to ill health, I wouldn't want to spend my pension lump sum on paying the mortgage off.

chucknorris

katejo wrote: »

Any money saved while I still have a mortgage doesn't quite feel like mine. I hate having debt of any type so I want to clear the mortgage. Low interest or not I still have capital payments to make each month. If I were forced to retire early due to ill health, I wouldn't want to spend my pension lump sum on paying the mortgage off.

Sorry but that really doesn't make any sense if your mortgage payments are less than alternative opportunities, my average mortgage payment is 1%, my shares investments pay about 3.5%. That extra money can be invested and/or saved to pay off MORE of the mortgage later.

wotsthat

I could've paid off the last £50k of my mortgage with cash savings 4 years ago but chose to divert it to pension contributions instead.

That £50k has more than doubled for the cost of about £4500 in mortgage interest instead.

It must feel so good to pay off the mortgage but it's got to be worth 5 minutes starting up excel to see what the price of that feel good feeling might be.

katejo

wotsthat wrote: »

I could've paid off the last £50k of my mortgage with cash savings 4 years ago but chose to divert it to pension contributions instead.

That £50k has more than doubled for the cost of about £4500 in mortgage interest instead.

It must feel so good to pay off the mortgage but it's got to be worth 5 minutes starting up excel to see what the price of that feel good feeling might be.

I am already paying extra into my pension and have been doing so for over 20 years.

katejo

chucknorris wrote: »

Sorry but that really doesn't make any sense if your mortgage payments are less than alternative opportunities, my average mortgage payment is 1%, my shares investments pay about 3.5%. That extra money can be invested and/or saved to pay off MORE of the mortgage later.

I am not going to invest money which I could possibly lose if shares were to drop or I got bad advice.

Thrugelmir

katejo wrote: »

I am not going to invest money which I could possibly lose if shares were to drop or I got bad advice.

Sensible view. Plenty of storm clouds on the horizon.

chucknorris

Thrugelmir wrote: »

Sensible view. Plenty of storm clouds on the horizon.

I'm really surprised that you would advocate 100% savings over a balanced portfolio over the long term.

chucknorris

katejo wrote: »

I am not going to invest money which I could possibly lose if shares were to drop or I got bad advice.

Keeping all your money in savings is not a good long term strategy, if I had done that I wouldn't be mortgage free already (my home), my mortgages are on my investment properties.