Explain to me Why its Good to Pay off Your Mortgage quickly!

beachbeth

FC_United_Fan wrote: »

you are quick to tell MFWs how they should run their lives,

When did GTD do this? Im more aware of DD telling people how to run their lives. Ie his (your) opinion is the only one and beware all who disagree with anything he says.

InMyDreams

FC_United_Fan wrote: »

Sorry, but this isnt what you said. Your actual words were: But if we pay more into the mortgage, the net worth does not change.

Indeed they were :T

FC_United_Fan wrote: »

which as I said is clearly incorrect.

FC, we will have to agree to disagree.

FC_United_Fan wrote: »

Im sorry to labour the point

Please forgive me if I don't. I have a feeling we are both playing with semantics and actually both know exactly what the other means. I really can't add more than what I have already so will not repeat myself and let you have the final word on that issue.

FC_United_Fan wrote: »

but because of your whole 'net worth' statement and other remarks in your original post, I got the impression that you were looking down on MFWs who paid directly into their mortgage rather than going the savings/investment route you have decided to pursue.

I can only apologise if I have given anyone that erroneous impression. Why, just because I have chosen this route because I believe it is the best for us in our circumstances, should that mean I look down on others who have determined that their circumstances dictate that they should do something different? I'm simply sharing our journey.

FC_United_Fan wrote: »

I really just wanted to show that despite what you were saying, actually they are increasing their net worth by overpaying on their mortgage.

I think we've covered that one already.

FC_United_Fan wrote: »

also as most of the MFWs work, they do not have access to tax free savings as you do (except for their 3k ISA allowance) and so if they followed your route of putting money into savings accounts rather than directly overpaying their mortgages they would actually be worse off because the tax deducted on their savings would reduce the interest rate below that which they are paying on their mortgages.

I don't think that we are in a very unusual position. My husband works but I am at home with our three children. I do work very part time in addition to this, but not enough to use up all my tax-free allowance. Hence we put the regular savers in my name.

FC_United_Fan wrote: »

finally, I also got the impression you looked down on other MFWs because they dont choose to invest in the stockmarket. Again, while this may pay off for you if your funds increase in value, they could also halve in value due to a stockmarket crash and you will not be able to overpay your mortgage. you have decided to take this risk, whereas other MFWs dont want to take this sort of risk and so pay directly onto their mortgages. I dont think they are to be looked down on for using this more careful approach.

I'm not sure why you think I look down on them.

Dithering_Dad wrote: »

I've just invested 3k in a S&S ISA in HBOS, Northern Rock and Alliance & Leicester shares. I am using the money from my Offset account. I almost did it yesterday but bottled it and then missed out on the huge rises :rolleyes:.

I've decided to modify my 3 yr challenge somewhat - I will pay off 2/3rd of my mortgage (leaving me with a 50k mortgage), get my pension pot up to 100k and use both my wife & my ISA allowances (7k x 2 x 3 = 42k). I'll also retain 8k in cash saving.

Effectively I will still be mortgage free as I will have offset it with my ISA and cash savings. I just don't want to lose out on my ISA allowances during the 3 years of the challenge.

You see. Even Dithering Dad invests in the stock market from his 'offset pot' and does so in a far more risky manner than I do. But there is no suggestion that he looks down on MFWs who chose to play it safer. Just like me he is aiming to put himself in the position of being able to be MF asap, but not necessarily actually pay the mortgage off. I don't look down on anyone who has chosen a 'safer' or 'riskier' route to MF status. Everyone should evaluate their own position themselves.

FC_United_Fan wrote: »

hope i havent caused offense, but this is just the impression i got .

You have not offended me (it takes quite a lot). I'm glad to have had the opportunity to try to rectify your impression and I hope I have managed to do that.

FC_United_Fan wrote: »

To use your term 'looking at the big picture', it doesn't matter whether you put your money directly onto your mortgage or into savings or into investments the net worth is the same.

:T

FC_United_Fan wrote: »

final example: a person with a 100k house with 50k mortgage & 10k in cash and 40k in Investments has the same net worth as a person with a 100k house and zero mortgage. i.e. 100k. I hope this is clearer

This is exactly my point. The important bit being the "50k mortgage & 10k in cash and 40k in Investments". These cancel each other out. What to do at this point will depend on your circumstances. If the cash and investments were all sheltered in ISAs for example, there would be a very strong argument against cashing them all in to repay the mortgage, because you instantly lose that tax shelter that has taken years to build up. If you start savings from scratch again, you may very quickly find yourself paying a lot of tax.

jamesd

FC_United_Fan wrote: »

Both brothers live next to each other and so have the same house, not sure how you decided that they had different priced houses - perhaps this fitted your argument better? one put his money into investments and savings the other paid off his house. That's where the additonal money came from - funny how you only ask where the "extra" 100k came from for the mortgage free brother, yet ignored the fact that brother #1 had the same 100k.

I needed to do something to make up the missing 100k that you gave brother 2. So, you say that brother 2 overpaid on the mortgage and to be equal brother 1 would have invested the overpayment money.

FC_United_Fan wrote: »

Now you'll tell me that if brother #1 had investments that he will have a greater amount of money because he invested in stocks while his brother merely paid down debt. Unfortunately brother #1 was badly advised by an IFA who got him an investment plan with a great commission rate (for himself) but a really poor return. The IFA also loaded up the costs at the front of the plan, so there was no on-going servicing of the investment.

OK, so you assume that brother 1 got extremely poor investments and spent 100k to get investments worth just 8k. Those investments were so bad that brother 1 received a negative rate of return over the years that was close to -100%, losing almost all of the capital. That's actually pretty tough to manage when it's an IFA following the rules (and if not the IFA gets the bill, not the brother).

If you assume that brother 1 does this I suppose we can also assume that brother 1 hired a surveyor while brother 2 didn't, so two weeks later brother 2's house fell into a mine pit, since you're simply assuming incompetence of one to make the other's choice look bad.

To do a decent comparison you have to assume that both are making reasonably sensible choices. You're simply making one incompetent to make the other's choice look good.

FC_United_Fan wrote: »

wow, given examples like these, how could you fail to want to be mortgage free?

Right. And that's why your examples are bogus and useless for sensible people trying to make reasonably well informed choices.

FC_United_Fan wrote: »

They therefore try using an IFA - but how does someone with no financial experience know if he gets a good one or a bad one? The IFA puts your money into some funds - again, how do you knwo if he has put you into good funds? Even if he does - what if the fund manager leaves after 5 years and your well performing fund than falls into the doldrums - would your ordinary punter know enough to know enough to move the fund?

They ask here. Here's my standard recommendation:

"I suggest that you read Ok then - How do I choose a S&S ISA to get an idea of what a sector allocation is and what an IFA should be doing. The IFA's services should include:

• Initial sector allocation using Watson Wyatt or comparable method.
• Investment selection advice within the sectors.
• Annual rebalancing.
• Advice on fund changes if a fund manager changes."

Then they ask here to double check the advice of the IFA. It's what we're here for.

FC_United_Fan wrote: »

The premise that investing in the stockmarket will always beat debt repayment relies on the following -

1) the person knows what he is doing with his investments or manages to choose a good IFA to do this for him.

Yes, this is an assumption, same as the assumption that the mortgage broker isn't unnecessarily selling a sub-prime mortgage just to make extra commission.

FC_United_Fan wrote: »

2) that he remains in permanent employment and can afford to pay into these investments and repay his mortgage at the same time.

That's an interesting assumption. What happens when both lose their job? Who has money to live on and who gets their house repossessed because they have no investments to sell to pay the mortgage?

If the one with the mortgage overpayments can survive for a year they could get the interest paid. Or both could pay for insurance.

For those on low incomes this is a good point, though: savings won't be sufficient so relying on benefits can make not accumulating lots of non-pension investments less good.

FC_United_Fan wrote: »

3) that interest rates don't rise because not only will this have an adverse effect on his mortgage rate, but also on the borrowing of the companies his fund invested in - which in turn sends their share price down, affecting the price of the funds.

That isn't what happens long term when rates go up. What happens is that the companies change their investment strategies and pricing. The period of high interest rates in the 1950-1990 period was not one of companies making little money with share prices falling.

The people who lose out in this case are those with fixed interest incomes purchased at a time of lower interest rates - annuity holders, say. Those with stock market or fund investments would be fine long term and using the markets is the primary way to protect yourself from the negative effects of long term high interest rates.

The brother with the paid off mortgage would suffer, though: high interest rates decrease the value of capital good like houses so property prices would stagnate or fall in a sustained period of high rates, just as they have done the opposite in recent years after sustained higher rates fell to sustained lower rates. The one investing would get increased investment returns so wouldn't suffer so much, if at all.

FC_United_Fan wrote: »

My actual argument though is not whether one method is better than the other at increasing net worth, but that simply that mortgage repayment is as valid a financial strategy as investing in the stockmarket and does increase your net worth.

Yes, it's an entirely valid low return investment strategy.

FC_United_Fan wrote: »

I am investing heavily in the stockmarket in both funds and individual shares, but not everyone wants to do this, but why should they be made to feel like fools just because they decide to pay down debt rather than risk their money in stocks?

They aren't fools. They are simply choosing a low return investment approach. Telling them about their other options that can make more money is part of what this place is for, whether it's ISAs paying higher rates than mortgage interest or that the average FTSE returns have been around 12% so investments can be useful. Then they can make an informed choice based on their own preferences with knowledge of what options are available to get the mortgage paid off.

FC_United_Fan wrote: »

I don't see any MFW people running onto the pensions, savings and investment threads telling them how to run their lives....

This section is "Mortgage-Free Wannabe". Any approach that gets you mortgage free is fair game, whether it's overpayment, second jobs, lodgers, stoozing, investing or anything else that helps with the task.

You do find people suggesting property over in the pensions, saving and investing areas. It's not telling them how to run their lives, just telling them about an investment or pension option.

jamesd

Ditheringdad, those MFi3 topics sound much more exciting when you describe them that way!

GettingThingsDone

@Ditheringdad - I didn't really want to say this in open forum, but as a fellow-MSE-er, I'm seriously concerned about your mental state. Is there someone you can talk to about this as you seem to have a lot of pent up anger and rage. If you are feeling persecuted for some reason, please, please, please discuss it with someone. Apologies if this sounds patronising, that is not intended - it is genuine concern.

I think you'll find the OP to this thread wanted to discuss the pros and cons of getting to MF with her circumstances, and discuss the general subject with others. This is nothing to do with MFi3. I never even knew there was a 'threat of closure' over the MFi3 thread. It all seemed happy enough in there when I was posting.

Due to the wonders of PM-ing we all knew about the DD/FC thing and it was just a bit of fun to try and get you to argue against yourself. Again, it's not persecution, but it does prove our point that there are differing opinions on the best thing for an individual to do given their circumstances.

Another example for you, a family friend is just outside the Times Top 100 rich list, rents her house and has done so ever since I've known her (at least 10 years) if not longer. She is incredibly well advised and this makes sense for her situation. Everybody's circumstances are different!

Incidentally, I have a closed presentation to a number of Building Societies early next month about this subject of unregulated advice, which is hugely positive about MSE in general (thank you Martin!), but (and I won't mention any names) highlights the potential dangers of those giving potentially unsuitable or bad advice. Obviously, this has scaled up from the 'bloke down the pub said it was a good idea' in the age of the Internet.

Anyway DD/FC - if you want to chat anytime, just PM me. Nobody here is attacking MFW/MFiX - we are just trying to work out how it can work under differing circumstances. I, for example, was hoping to see some general guidelines.

Some advice for you - when you ask questions can you please read and try and understand the answers first; maybe you'll learn new things. Maybe there are reasons why people are saying certain things. I think this might help you stop 'attracting' arguments. Also, have you read 6 Thinking Hats by Edward De Bono - I seriously consider it to help get out of the rut of your argumentative style.

Wishing you well...
gtd

beachbeth

GettingThingsDone wrote: »

@Ditheringdad - I didn't really want to say this in open forum, but as a fellow-MSE-er, I'm seriously concerned about your mental state. Is there someone you can talk to about this as you seem to have a lot of pent up anger and rage. If you are feeling persecuted for some reason, please, please, please discuss it with someone.

I think it is quite worrying that someone gets so angry at people who he believes are anti MFW's. For one thing, most (if not all) of the people DD has been arguing with are not anti MFW. Even if we were, why should he get so angry about it? Plus it is also quite worrying that someone has to invent an alter ego in order to find someone to back him up (because no one else was backing him up). I really think you should continue on your MFW way, DD, and when you feel anyone is anti this just ignore them because you are most probably wrong anyway.

GettingThingsDone wrote:

I think you'll find the OP to this thread wanted to discuss the pros and cons of getting to MF with her circumstances, and discuss the general subject with others. This is nothing to do with MFi3. I never even knew there was a 'threat of closure' over the MFi3 thread. It all seemed happy enough in there when I was posting.

This is exactly what I wanted and this is how this thread started. Then DD came along, misread and misquoted everything I said and also what others said and completely hijacked the thread. Instead of discussing being mortgage free I was having to defend myself against his attacks.

Someone said the definition of a troll was: someone who posts intentionally inflammatory remarks on a message board, designed for no other purpose than to disrupt, upset and coerce decent users into arguments with them and each other. Well, I know one person who definitely does this and has done this all the way through this thread. When he was no longer succeeding he pretended to be someone else and did the same thing again.

Very sad.:rolleyes: