Overpay mortgage rather than save now?

Thrugelmir

Sailtheworld said:

Thrugelmir said:

grumiofoundation said:

DiggerUK 
Getting rid of the mortgage, especially now, is the wisest move.

Just because you keep on saying something is wise doesn’t make it wise. 

As this crisis unfolds going to be apparent who is overleveraged. 

You used to say (probably no more than three days ago) that cash is King. A few extra months of mortgage payments as cash might be just as wise as paying down a mortgage. Especially given the cost to hold leverage right now is miniscule.

“You’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do ya, punk?”

Sailtheworld

Thrugelmir said:

Sailtheworld said:

Thrugelmir said:

grumiofoundation said:

DiggerUK 
Getting rid of the mortgage, especially now, is the wisest move.

Just because you keep on saying something is wise doesn’t make it wise. 

As this crisis unfolds going to be apparent who is overleveraged. 

You used to say (probably no more than three days ago) that cash is King. A few extra months of mortgage payments as cash might be just as wise as paying down a mortgage. Especially given the cost to hold leverage right now is miniscule.

“You’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do ya, punk?”

It seems pointless to pay down a mortgage when there's an option to hold the cash instead. This approach would increase the OP's resilience to unplanned events. There's a cost involved which probably amounts to pennies and the real question is whether that increased resilience is worth those pennies.

I've, and I almost can't believe it, just sold a second home and was facing the same question. I've paid off a shed load of mortgage because I do feel lucky, it felt good and it cleared some headspace. I held back a few thousands partly because penalties would kick in but also because I didn't think it would do any harm to increase my cash holdings in the current circumstances. My mortgage rate is less than 1% - I actually felt silly paying off any of it.

DiggerUK

grumiofoundation said:

DiggerUK 
Getting rid of the mortgage, especially now, is the wisest move.

Just because you keep on saying something is wise doesn’t make it wise. 

Time is the judge of wisdom, not repetition.

Day traders hope to profit by fractions of a percent on huge volumes. Stoozing between mortgages and savings isn't going to profit anybody in a similar manner, especially when inflation is devaluing the cash on deposit.

Cash is a good king at the moment, so is cash flow. With mortgage payments reduced or eliminated then cash flow improves. Royalty comes in all shapes and sizes..._

bowlhead99

DiggerUK said:

grumiofoundation said:

DiggerUK 
Getting rid of the mortgage, especially now, is the wisest move.

Just because you keep on saying something is wise doesn’t make it wise. 

Time is the judge of wisdom, not repetition.

Day traders hope to profit by fractions of a percent on huge volumes. Stoozing between mortgages and savings isn't going to profit anybody in a similar manner, especially when inflation is devaluing the cash on deposit.

Cash is a good king at the moment, so is cash flow. With mortgage payments reduced or eliminated then cash flow improves. Royalty comes in all shapes and sizes..._

If cash is king and you have £20k in an account for emergencies (a highly positive thing when cash is king), it doesn't seem like spending that kingly cash on paying off a low interest debt that marginally reduces your monthly outgoings is going to achieve much positive. Because when the emergency happens and you need the £20k, the ability to not pay a few tens or hundreds of pounds of mortgage a month doesn't really help your emergency situation.

grumiofoundation

DiggerUK said:

grumiofoundation said:

DiggerUK 
Getting rid of the mortgage, especially now, is the wisest move.

Just because you keep on saying something is wise doesn’t make it wise. 

Time is the judge of wisdom, not repetition.

Day traders hope to profit by fractions of a percent on huge volumes. Stoozing between mortgages and savings isn't going to profit anybody in a similar manner, especially when inflation is devaluing the cash on deposit.

Cash is a good king at the moment, so is cash flow. With mortgage payments reduced or eliminated then cash flow improves. Royalty comes in all shapes and sizes..._

You overpay mortgage, you therefore reduce the amount of cash you have available. Both in bank and in terms of what you can save each month. You seem to be struggling with this very simple concept. 



Since inflation is also devaluing your mortgage debt at the same rate thats pretty much irrelevant. Also unless you are on a shocking rate your mortgage interest should be pretty much the same as regular savers/fixed-term accounts currently available. 

By overpaying a mortgage you have to accept you are taking a risk. You are tying up cash that you may need at some point. In the current economic climate for the vast majority of people (and since you seem to not have an emergency fund apart from credit card debt you are one of these people) making sure they have the cash available to cover all eventualities should be a priority. Not overpaying off a mortgage which will likely save you at most hundreds of pounds over the next year or so. 

DiggerUK

If you are sitting on a high value asset and need large amounts of cash, then a remortgage sorts the emergency liquidity problem.
If you are in need of a four figure, as opposed to a five figure sum, then a cheap loan will do. 

Just leaving cash being constantly devalued by inflation is plain daft..._ 

Gary1984

Whereas paying off a debt that charges interest at rates lower than inflation makes perfect sense?  If you can save at around the same interest rate as your mortgage rate then overpaying the mortgage makes no sense (unless you're trying to get into a lower LTV band but that's not what's being proposed here). You're just tying up money that could be kept as easy access to cover emergencies.  In what way is remortgaging anywhere near as convenient or reliable as holding cash in a Marcus or NS&I account?

Sailtheworld

DiggerUK said:

If you are sitting on a high value asset and need large amounts of cash, then a remortgage sorts the emergency liquidity problem.
If you are in need of a four figure, as opposed to a five figure sum, then a cheap loan will do. 

Just leaving cash being constantly devalued by inflation is plain daft..._ 

Not sure I want to be relying on a mortgage lender to supply cash to deal with an emergency. Good luck with that if the emergency is a lack of cash flow due to a job loss.

port_of_spain

I think one of Digger's errors (and they are legion ) is assuming that everybody else has a reliable income from pensions, instead of earnings which might suddenly drop or disappear entirely.

steampowered

If you are getting a competitive rate on your mortgage, it makes no sense to be rushing to pay it off in an age where (1) interest rates are at record lows, and likely to remain there for some time and (2) incredibly tax efficient investment options are available. 

It is likely that you will do far better investing into a stocks & shares ISA which holds a balanced portfolio of shares, compared to overpaying the mortgage or holding money in a savings account. 

With a stocks & shares ISA you would need to accept volatility given current market conditions. That risk is mitigated if you are investing for the long term (i.e. at least 5-10 years). Stocks perform very well as long term investments, the long term return generated by the stock markets has historically been 7-8% per year.  That risk can be further mitigated, at the cost of lower returns over the long term, if you select a lower risk funds,

The above is doubly true for pension contributions, as those given you an instant top-up from the government (particularly if you are a higher rate tax payer). We cannot assess whether your workplace scheme is adequate based on the limited information provided.

I would not follow DiggerUK's advice. He seems to be simultaneously suggesting an ultra conservative approach (i.e. holding a big chunk cash) while adopting an ultra high risk approach with his own family's pension (as I understand it from other threads, he has put all of his family's pension fund into gold and silver). A diversified portfolio of productive assets - i.e. stocks and shares - is far better.