Low Rates = Massive Mortgage Payoff?

wotsthat

Thrugelmir wrote: »

Interest rates on savings are in decline. Hindsight is a wonderful human tool. The future does look less promising. With interest rates on borrowing becoming "real" again. There's little wage inflation either to erode the debt that people are now taking on board.

If you've enjoyed savings rate ahead of mortgage rates and it goes the other way then bung the cash in the mortgage instead.

A flexible or offset mortgage rate helps in this regard - wage inflation or an an an an ability to predict the future isn't required.

Rocket science it ain't.

michaels

It is quite complicated. 2 years ago we maxed out the mortgage on a 5 year fix at 2.5% which was extremely competitive at the time. At that time we were making 0.5% on the turn and it seemed like the balance of probability was that rates might rise over the term leading to a big profit. In reality rates have fallen and some of the money is now making only 2.25% and with the erp on the mortgage we can not just stick this back in. The average rate remains more than 2.5% but not by a lot. We could have locked the savings up for the 5 years to lock in 3% plus but part of the reason was to have funds available should opportunities arise and of course there was the expectation of rising rates.

Oh and spidernick's point about the DW not understanding that having a large balance in the 123 account is jot the same as having money also applies....

wotsthat

michaels wrote: »

It is quite complicated. 2 years ago we maxed out the mortgage on a 5 year fix at 2.5% which was extremely competitive at the time. At that time we were making 0.5% on the turn and it seemed like the balance of probability was that rates might rise over the term leading to a big profit. In reality rates have fallen and some of the money is now making only 2.25% and with the erp on the mortgage we can not just stick this back in. The average rate remains more than 2.5% but not by a lot. We could have locked the savings up for the 5 years to lock in 3% plus but part of the reason was to have funds available should opportunities arise and of course there was the expectation of rising rates.

I blame Mark Carney. Based on what he was saying I fixed for 5 years at 2.29% and thought I'd be able to pocket 1% - 1.5% on the turn.

I have unused pension tax relief to mop up. Obviously not much help if I lose my income and I've locked the cash away but the return is huge.

If I started having to pay to be in debt and found myself looking at an ERP I'd pay 10% off each year. I doubt it'll happen and I'm interested to see how I feel when the mortgage has gone - happy and sad at the same time I think.

mwpt

Yes, there must be a definite feeling of satisfaction at being mortgage free and owning the house. Emotionally, I can understand that. I just have to keep telling myself to think rationally rather than emotionally because of the finances. But, I'm on a mortgage where I can overpay 10% pa so have the option to bung in should the situation change.

[Deleted User]

Having been mortgage free in the past it does fill you with a sense of freedom that allowed me to go contracting, holiday as you wish, couldn't give a monkeys if I was out of work for a period. Life was cheap...

But then maxed out on mortgage for the wife's dream home so it's back to permie work, just as well as the contract market died in 2007/2008, for certainty especially with DD now. As the mort was a high proportion of earnings we hammered it down should one of us loose a job. Yes I could have stuck more in a pension/ISA but not fun being skint month to month till retirement

Hammering the mort turned out to be a good thing as the monthly payments are down £300pm over a shorter term with and being public sector no salary rises in recent years and facing a small salary cut to boot

Not all bad news as with the lower mortgage payments were chucking money into pensions from all sources [stoozing, bank switches, quidco, rhi, Fits, basically anyway possible to rip off the banks/govt etc] on top of employer conts.

Did not fancy having a pile of cash in the bank that would have taken me out of benefits land should we have suffered a job loss during the recession. Hence why we keep cash at a sensible level and extra to the SIPPs and Maldives holidays...

I don't think there is a right or wrong answer.

Cheers

ukcarper

wotsthat wrote: »

It doesn't make sense to pay off a mortgage if you can earn more interest elsewhere. A lot depends on the mortgage interest but, for me under 2.5% I could've made a profit staying in cash.

If you lose your job the cash in the bank gives you a few more options too.

Financially speaking overpaying a mortgage can be throwing money away although I understand a paid off mortgage must feel good.

It's more complicated than that first where are all these risk free high interest accounts and secondly paying of mortgage might enable you to get a lower rate and that will apply to all your outstanding mortgage dept.

dano17439

Spidernick wrote: »

I'm not financially illiterate (for from it). If I was on my own I certainly wouldn't be overpaying the mortgage at all. However, I'm not and, whenever I've tried putting money away to be used to pay down the mortgage later when interest rates rise, my wife has always found something to spend it on! As such, for me it very much makes financial sense to overpay on the mortgage.

100% agree with this. Its the reason we heavily overpay our mortgage and only save a little bit otherwise I fear we would fritter the overpayment away on stuff we don't really need

mwpt

ukcarper wrote: »

It's more complicated than that first where are all these risk free high interest accounts and secondly paying of mortgage might enable you to get a lower rate and that will apply to all your outstanding mortgage dept.

My mortgage will be up for renewal later this year and before that point I'll be overpaying a small amount so that I fall into the 75% LTV bracket without requiring a revaluation on the house.

bugslet

Spidernick wrote: »

If I was on my own I certainly wouldn't be overpaying the mortgage at all. However, I'm not and, whenever I've tried putting money away to be used to pay down the mortgage later when interest rates rise, my wife has always found something to spend it on! As such, for me it very much makes financial sense to overpay on the mortgage.

Now I am on my own and do overpay by around £150.00 a month and have done since about 2009, in essence keeping my payments the same as pre crash levels.

My reasoning for doing so is that owning a house outright represents security to me. My father was made bankrupt in the 80s and the very real fear of losing the house is something that I remember well and probably is a driver in wanting to rid myself of a mortgage.

I have enough savings to live for a year, plus various insurances for if things go drastically wrong and ultimately a business that would either carry on trading or be wound down, either would offer income. I contribute to a pension as well.

I just see overpaying the mortgage as part of an overall strategy and it suits me.

wotsthat

ukcarper wrote: »

It's more complicated than that first where are all these risk free high interest accounts and secondly paying of mortgage might enable you to get a lower rate and that will apply to all your outstanding mortgage dept.

Yes a lower LTV might allow for a better mortgage rate but it's not complicated and would take a few minutes to do the sums.

The complication comes in seeking the interest rates. MSE best buys are 3% on £20k with Santander, 5% on £2k with TSB, 5% Nationwide regular saver (£500/ month). Even after tax they'd all be profitable for me.

It's a low yield world and looks like staying that way for a while. The effort per unit return has increased and people value their time in different ways. It's not for me these days - I've been diverting capital payments to a pension so using cheap money to take on additional risk.