Finally debt clear and aggressively saving - what to do with the money?!

Flobberchops

CharlesD wrote: »

Are we able to put into both a stocks and shares ISA and our help to buy ISAs in the same year so long as we don't exceed the £20,000 yearly allowance? Same goes for the LISA which was suggested, can we add into LISA's and a S&S ISA?

Yes. Your ISA allowance can be split between Cash, Stocks and Shares, Lifetime ISA and Innovative Finance (Peer to Peer) ISA types in any proportion you like, as long as the overall doesn't exceed £20000 of new money (i.e. not transferred in from another ISA) in a tax year.

Bear in mind that Help to Buy is a variant of a cash ISA. So you can pay into a HTB and a LISA in the same year, but not a HTB and, say, an instant access cash ISA. As you say though, cash ISA rates are worse than many other regular savers or even instant access savings accounts on the markets, so in practice that's not much of a loss.

Haffertee

From what you’ve described with the relatively high employer contributions, based on salary and the amount of the annual increase, it sounds like a DB pension to me. That would also fit with the extra contributions going into a separate pot.

If so, you don’t have a ‘pot’ for the main pension as such and the annual increase represents the increase in the value of the pension you’ll receive each year on retirement (not sure I’ve worded that well, sorry!).

Definitely worth finding out for sure, as I think if it is DB it will be more valuable than you’ve been assuming!

katsu

Don't go to the bank, go to a mortgage broker. They can help find a lender that best fits your work circumstances.

The mortgage forum area is a good place to read.

Good luck and well done on your savings.

mark55man

well done - what a fabulous achievement!

also even if you want to not be paying your mortgage in years 20-25, that doesn't mean you need to take out a 20 year mortgage - you can take a 25 year mortgage and overpay, which gives you more flexibility. sometimes doing what everyone else does means you get more choice than doing something different, even if you plan to do something different from what is says on the tin

some serious investors regard paying off the mortgage as an expensive mistake, as it wouldn't be too hard or too risky to make a safe balanced portfolio earn more than the interest accruing on your mortgage debt would cost. some posters on the Mortgage free wannabe thread refer to being mortgage neutral not mortgage free in that they have savings and investments earning more than the mortgage is costing, and could switch to being mortgage free when they want!

with your experience is milking maximum interest you might do that in cash or cash like things, but generally the inflation risk is better mitigated with some blend of investment in other assets. certainly anyone able to do as well as you have should have no trouble understanding the basic principles of safe investing the key of which is its not a get rich quick scheme - its a get more comfortable slowly sort of scheme ...

CharlesD

Hi everyone,

Thanks for all the encouragement and advice! I just thought I would post an update as after reading all your posts we had some serious discussions and decision making.

We decided to use our savings to get on the property ladder and are currently in the process of buying a house for £230,000. We are going with, what feels like a really chunky deposit of £57,500 , so we just hit the 75% LTV. This has gotten us an interest rate of 1.64% fixed for 5 years borrowing £172,500 over 26 years. We are really pleased with the deal and house.

It will be less per month than we are renting - but our initial plan has been to overpay the mortgage very aggressively. We went into this wanting to hit the 10% max per year.

Having recently spotted that a sharia bank is offering 1.6% interest, which is really close to our mortgage rate - I've started wondering whether actually overpaying the mortgage (by what would essentially be an extra £1,400+ in the first year) per month is financially the right decision. I feel like we're a bit at risk of making an emotional decision of wanting to feel'responsible' overpaying and trying to clear the debt ASAP when this may not actually be best (i'm very debt averse...)

In an ideal world - and if our incomes remain the same for the next 5 years - we plan to try and clear the mortgage at the end of the fixed term and I'm basically now asking for some help thinking this though (though Mark's post above has already been very helpful on this).

My initial thoughts:

As the market currently stands - we can beat the mortgage interest rate with a fixed term savings account of at least 3 years. However - im having some issues understanding whether these allow you to 'drip feed' money in after opening or whether money remains locked in from each deposit's date of deposit - if that makes sense. If its not really suitable for drip feeding - this may not work so well because we are essentially depleting our accounts to get the 1.64% interest and wont have a substantial opening deposit for a savings account anytime soon.

Theoretically, if we could comfortably drip feed as savings product with what would be the £1400 mortgage overpayments and get say over 2% interest, I'm tempted to say this would be a more profitable solution?

Indeed i've noted that MSE's guide on this - says that generally if savings interest > to mortgage interest - its better to save. But I wonder whether this factors in, that making overpayments to the mortgage, I think increases the efficiency of our mandatory mortgage payments as well. My understanding is that the more we overpay, the more our monthly £680 mortgage payments, will go to capital and not interest?

Thanks for any insights guys and for helping us make an informed decision to move our finances forward!

Anonymous101

I've posted the below several times before but I think its pretty applicable to what you've been writing about in this post.

I'd recommend you read and listen to everything you can on Financial independence Retire Early (FIRE). All of it may not be applicable to you but since you're looking in on here at a relatively young age you seem like the type that would be open to it. You can be as radical or as laid back about the approach as you like, its not all or nothing, but I feel like the principles would benefit anyone and everyone.

If you start by reading the two links below. Particularly the Mr Money Mustache article. If you've never heard of him he's an American chap that managed to retire by 30. That might not be one of your goals but their approach to investing is something that could hugely benefit you.


A very simple guide to investing I often recommend is:
https://monevator.com/category/investing/passive-investing-investing/

The choose fi links below is a good place to start with a good overview of FI. They also do a podcast which I've put a link to the introductory one below. Most of their podcasts are interviews with people that are working on their own terms after adopting the principles of FIRE in one way or another.

https://www.choosefi.com/the-why-of-fi/

https://www.choosefi.com/financial-independence-beginners-guide/

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Hopefully you'll find them interesting and useful.

Reaper

Regarding the mortgage it may not be worth paying off because:
* You can earn more investing/saving the money than you pay off the mortgage.
On the other hand:
* It sounds like you are limited in how much you can overpay on the mortgage each year, so if interest rates change in future you can't just take your savings and pay it all off.
* Emotionally you prefer to be debt free. I can understand this as I felt the same. I paid off my mortgage early even though it didn't make financial sense.

There's not really a right or wrong answer. It depends on your views.

CharlesD wrote: »

However - im having some issues understanding whether these allow you to 'drip feed' money in after opening or whether money remains locked in from each deposit's date of deposit - if that makes sense.

Fixed term, fixed interest accounts do not let you add to them later (I'm ignoring past fringe cases). They are open until the bank has reached its target then they close to business from new and existing savers.

Congratulations on your approach to money to date. The only thing I think I would add is to not be afraid of long term investments in the stock market. As long as you pay in regularly (not lump sum), do it for a lengthy period of time, are in diversified investment and whatever you do don't stop contributing when a crash comes along (as they do quite regularly) you can be pretty confident of making a good return.

MaxiRobriguez

Congratulations on your house decision, I think that's wise!

In regards to overpaying the mortgage, if you have the resolve not to spend money sat in a savings account, it is better to park it there if the interest rate is higher. The other thing to consider is that a bout of inflation returning would reduce the real terms cost of your continued debt when considering it as a proportion of salary if such a scenario played out. Those two things may convince you to not overpay the mortgage.

Equally though paying it off is fine too, if it helps you sleep at night. Spitting feathers about a couple of basis points for a handful of years isn't going to make much difference. If you're really ensure, you could do a mix of both?

Clive_Woody

You will get a whole range of opinions on this, but my tuppence worth is that it is about balance.

Being mortgage free is a great goal. We should be mortgage free in just over 18 months, not long after my 45th birthday, which makes me feel happy and takes away my largest monthly bill should my job situation change (or I want to change it). We have a roof over our head and a valuable asset should we ever want to downsize. We've always made overpayments, small ones at first but as funds have become available we have paid more off each month.

I am also paying heavily into my work pension, 17% into the main fund plus regular AVCs that also get employer NI added. Aim is retire before I am 60.

We have a cash emergency fund and also pay monthly into a VLS fund for long term investment.

Once the mortgage is gone things will be ramped up further with increased AVCs, more money invested and increased cash savings.

Plenty of folk will tell you that you will get probably better returns from investing and pension, and they would be right. But nobody knows how long mortgage rates will stay this low, a long time most likely, but one day they will go back up so being prepared is important.

I guess everyone finds their own balance that works for them and makes them feel comfortable.

Alexland

We overpaid our mortgage down to 20% LTV and in retrospect it was a mistake as we could have been more tax efficient and had better investment returns making higher pension and S&S ISA contributions in our 20s. In our 30s we now have enough in our ISAs to cover the remaining mortgage balance (and enough in our pensions to buy another house) and will drag out repayments over the next 20 years provided rates remain low