No mortgage, now what?

enthusiasticsaver

Alexland wrote: »

I agree there are probably few people who have fully considered this early enough to be of use as we don't teach kids the key concepts of financial planning in schools. It's not an easy problem to understand as it is multi dimensional involving debt, investment performance, financial products, risk assessment and several areas of tax rules.

Wouldn't it be great is someone sent out explanation letters at key live events such as when your income first goes into higher rate tax?

Still, if everyone did it the tax rates might have to go up!

Alex

Totally agree. I also wonder if employers and governments have a vested interest in not advising people to be tax efficient when it comes to long term financial planning. There is also a tendency to think short term.

One of the best things we did before even having children was for my husband to enrol in a booster pension with the idea of taking early retirement. He was 23 at the time, travelled lots and worked long days. It effectively doubled his contribution to 10% of his salary which his employer matched and then when he moved into the higher tax bracket we doubled his contribution again to 20%. We got used to not seeing it in his net pay and was the sole reason why we retired at 58. We should have tackled mine too but my income was always seen as an extra income for holidays, child expenses, new car, home improvements and mortgage overpayments etc and we were reluctant to reduce that to overpay pensions too.

Zero_Sum

Zola. wrote: »

A paid off home gives you many options with future work etc. a massive chain off the neck.

I paid off my 1st home ages 27. (It was a dirt cheap terraced house in a northern pit village so nothing to write home about). What i found afterwards it was almost impossible to get decent credit cards for rewards / stoozing which at the time i wanted to do with rates being decent. Turns out you need debt to get debt.

Now onto 2nd home with mortgage, not making that mistake again. Had a 5 year fix, rates were a bit higher than they were now so hammered the overpayment. With the benefit of hindsight had i invested that money instead i couldve been practically mortgage free, but hey hum. Have remortgage at lower rate, now playing the regular savers, got a decent chunk of cash (which was originally earmarked to overpay) in a fixed rate paying 0.4% more than mortgage & dabbling with investments. I'll be still overpaying a bit when regular savers mature but think there's better options & can afford a bit of risk now.

Zola.

Alexland wrote: »

Wouldn't having ISAs to the value of the mortgage generating dividends that could roughly cover the mortgage payments be in any way reassuring? Sure there is a bit of risk of dividends falling or interest rates increasing but your 30s seems too early to be completely eliminating your advantageous super low cost gearing.

I am not quite there with the S&S ISAs yet but our inaccessible DC pensions could pay our mortgage off several times over.

Alex

All our money is invested in Accumulation funds. To do that would you switch them all into Income funds when the time comes ? I take it all funds have different terms, e.g. some pay every month and others quarterly / yearly?

Bravepants

When my partner and I paid off our mortgage early (in our mid to late forties) we were chuffed! We don't owe anyone anything, and if we lose our jobs then no-one can take our house away from us. That is a great sense of security and achievement in my opinion. And now our mortgage payments are being fed into our investments, instead of servicing interest.



As I pressed the button to pay the lump sum off I said to myself..."Go shove it Mark Carney!"

Alexland

Zola. wrote: »

All our money is invested in Accumulation funds. To do that would you switch them all into Income funds when the time comes ? I take it all funds have different terms, e.g. some pay every month and others quarterly / yearly?

I am mostly accumulation too but the fund manager will publish how much dividend is being reinvested - especially easy to discover if there is an income version of the same fund. So if you want sustainable income you could either sell down units at the rate of dividend or switch to the income version if available.

Now if you were serious about paying your mortgage from your ISA income (not that I am recommending this approach but if you needed to as your earnings unexpectedly stopped before your anticipated retirement date) then you might consider switching funds to something that may give a more favourable, regular and/or secure dividend stream however it may be at the cost of capital growth and even total return.

Alex

Alexland

enthusiasticsaver wrote: »

Totally agree. I also wonder if employers and governments have a vested interest in not advising people to be tax efficient when it comes to long term financial planning.

My employer certainly has an incentive as they retain the Employer NI saving from the pension salary sacrifice contributions making me cheaper to employ than my colleagues on the same grade. I sometimes remind them of this when we are doing pay planning. Bizarrely, for structural reasons, my salary is paid for out of one of my cost centers so I always keep it a bit below the published grade median incase anybody thinks I am taking advantage of setting my own salary. It probably shouldn't be allowed but they seem to trust me and it actually gives them further benefit.

Alex

seacaitch

DFWATTS wrote: »

All,

ALL feedback is gratefully received, and it goes to show how naive some people can be when it comes to finance! There was me thinking I’m a legend, but am actually I’m a massive tw....

In all seriousness, I love the comments, and I thank you all for your input.

Criticism may not be agreeable, but it is necessary. It fulfills the same function as pain in the human body. It calls attention to an unhealthy state of things.”
– Winston Churchill

I must say, huge kudos to you for taking on board the feedback in suich a constructive fashion; many people would've immediately become defensive of their position rather than acknowledge that some prior decisions may not have been optimal.

This attitude - of taking responsibility for your actions - generally serves people very well in life, and should prove beneficial when you turn your focus to investing in a tax efficient manner, per the many comments already made.

atush

Zola. wrote: »

Cant believe we are caning a guy for paying off his mortgage at aged 38 haha. I tip my hat to you sir. good work.

At 38 time is still on your side if you invest heavily now in index funds in you ISA and work pension. If your work offers salary sacrifice make use of that to avoid tax etc.

I cant believe you cant do the maths and see that it was foolish? Ie [aying 40% tax on income to pay off a mtg at say 2%

Foolish

atush

Peelerfart wrote: »

This is the money saving forum, I get that.

We don't know what the OP's circumstances are, entirely, and if they want to spend their money on keeping a roof over their young families heads then they, IMHO, were right to do just that.

there are more tax efficient methods, but isn't that what the original question was?

Yes,the feedback is harsh, but as parents they, again in my opinion got their priorities right.

And yeah, I came from the MFW Board :-)

I can tell.

And you can have a roof over your head with a mtg, and should have an emergency pot too.

Zola.

Alexland wrote: »

My employer certainly has an incentive as they retain the Employer NI saving from the pension salary sacrifice contributions making me cheaper to employ than my colleagues on the same grade. I sometimes remind them of this when we are doing pay planning. Bizarrely, for structural reasons, my salary is paid for out of one of my cost centers so I always keep it a bit below the published grade median incase anybody thinks I am taking advantage of setting my own salary. It probably shouldn't be allowed but they seem to trust me and it actually gives them further benefit.

Alex

Can you explain this? Not sure I follow