For people that have escaped the paycheck-to-paycheck cycle, how much has it impacted your life?

pecuniam_hominem

Very happy this thread has taken off, hadn't checked for a couple of days. It is great seeing everyone's stories, so very inspirational ones.

Breaking the cycle, still means I still check and reconcile all my spending. The only difference is now I don't have to worry about if I can afford to pay X bill, or do I have to not do X so I can do Y. I still very much stick to a budget, I don't spend money I haven't earnt on day to day things. Before, sometimes I was 'nervous' to open up my budget software, I don't get that sinking feeling, or dread an unexpected expense.

My biggest lightbulb moment was probably things like Christmas, or other annual things that happen that I never took into consideration.  I would rack up debt for Christmas, ignore the fact that other peoples birthdays cost money,etc.  Once I started budgeting for them, I knew the money was there.

blue.peter

annabanana82 said:

 
I tried looking at an offset calculator but couldn't make head nor tale of it.

OK, let's see if I can help with a simple example.

Say your outstanding mortgage is £100,000 and your savings are £95,000. You move them both to the same bank and get an offset mortgage. You'll only pay interest on £100,000 - £95,000 = £5,000. You won't get any interest on your savings. But since the interest rate on your mortgage is going to be higher than you'd get on the savings, you're quids in overall.

Let's suppose that your savings interest rate is 1% and your mortgage interest rate is 4%.

Without an offset mortgage, you'd be paying £100,000 x 4% = £4,000 a year in interest, but gaining £95,000 x 1% = £950 a year. The difference is a cost to you of £4,000 - £950 = £3,050.

With an offset morgage, the cost to you is £5,000 x 4% = £200 a year. That's a benefit to you of £3,050 - £200 = £2,850 a year. Your savings are still available to you but, of course, dipping into them will increase the amount of the mortgage on which you pay interest, and hence the interest that you pay. Conversely, adding to your savings reduces the amount of mortgage interest that you pay. But don't ever let the savings in that account exceed the mortgage, because you won't then get any interest on it. Put the excess into a separate account, preferably with a different bank.

You could pay that saved £2,850 a year into the mortgage and so pay it off more quickly (as I did, though my actual numbers were different). Or you could spend it. Or whatever: your choice.

Obviously, you can substitute your own numbers for my examples. Note that, for the sake of simplicity I've ignored the fact that the interest rates for the two types of mortgage might be different and any possible effect of tax rates. I have also ignored any one-off cost of switching.

It's certainly plausible that your colleague is only paying 4p a month in interest: that only implies a close match between his savings and outstanding mortgage. When I bought this house, I took out a mortgage, even though I didn't need it - I just wanted the extra flexibility. I ended up having that mortgage for five years, and it cost me exactly £4.32 in interest - and that was only because my solicitor drew the money down a few days earlier than I expected.

strawb_shortcake

blue.peter said:

annabanana82 said:

 
I tried looking at an offset calculator but couldn't make head nor tale of it.

OK, let's see if I can help with a simple example.

Say your outstanding mortgage is £100,000 and your savings are £95,000. You move them both to the same bank and get an offset mortgage. You'll only pay interest on £100,000 - £95,000 = £5,000. You won't get any interest on your savings. But since the interest rate on your mortgage is going to be higher than you'd get on the savings, you're quids in overall.

Let's suppose that your savings interest rate is 1% and your mortgage interest rate is 4%.

Without an offset mortgage, you'd be paying £100,000 x 4% = £4,000 a year in interest, but gaining £95,000 x 1% = £950 a year. The difference is a cost to you of £4,000 - £950 = £3,050.

With an offset morgage, the cost to you is £5,000 x 4% = £200 a year. That's a benefit to you of £3,050 - £200 = £2,850 a year. Your savings are still available to you but, of course, dipping into them will increase the amount of the mortgage on which you pay interest, and hence the interest that you pay. Conversely, adding to your savings reduces the amount of mortgage interest that you pay. But don't ever let the savings in that account exceed the mortgage, because you won't then get any interest on it. Put the excess into a separate account, preferably with a different bank.

You could pay that saved £2,850 a year into the mortgage and so pay it off more quickly (as I did, though my actual numbers were different). Or you could spend it. Or whatever: your choice.

Obviously, you can substitute your own numbers for my examples. Note that, for the sake of simplicity I've ignored the fact that the interest rates for the two types of mortgage might be different and any possible effect of tax rates. I have also ignored any one-off cost of switching.

It's certainly plausible that your colleague is only paying 4p a month in interest: that only implies a close match between his savings and outstanding mortgage. When I bought this house, I took out a mortgage, even though I didn't need it - I just wanted the extra flexibility. I ended up having that mortgage for five years, and it cost me exactly £4.32 in interest - and that was only because my solicitor drew the money down a few days earlier than I expected.

That's really useful thank you, I'd be hopeful by the time we come to remortgage our savings would exceed the outstanding debt.
We have access to a broker at work, I've had two good deals and I've not had any fees to date.

blue.peter

annabanana82 said:

That's really useful thank you, I'd be hopeful by the time we come to remortgage our savings would exceed the outstanding debt.
We have access to a broker at work, I've had two good deals and I've not had any fees to date.

If your savings are very close in amount to your mortgage, I'd say that it makes you an ideal candidate for an offset mortgage. It might even be worth your while considering switching now - assuming that you can extract yourself from your current deal. It's not inconceivable that paying a penalty and a higher interest rate on an offset mortgage would still be worth your while. I suggest that you look at what's available on the market and run some numbers for yourself. Certainly do this before talking to your broker. Don't discount the possibility that you could do better approaching a bank directly than by going through your broker. Even if you're not paying him a fee directly, he'll be getting remunerated somehow, perhaps involving commission.

strawb_shortcake

blue.peter said:

annabanana82 said:

That's really useful thank you, I'd be hopeful by the time we come to remortgage our savings would exceed the outstanding debt.
We have access to a broker at work, I've had two good deals and I've not had any fees to date.

If your savings are very close in amount to your mortgage, I'd say that it makes you an ideal candidate for an offset mortgage. It might even be worth your while considering switching now - assuming that you can extract yourself from your current deal. It's not inconceivable that paying a penalty and a higher interest rate on an offset mortgage would still be worth your while. I suggest that you look at what's available on the market and run some numbers for yourself. Certainly do this before talking to your broker. Don't discount the possibility that you could do better approaching a bank directly than by going through your broker. Even if you're not paying him a fee directly, he'll be getting remunerated somehow, perhaps involving commission.

We have a 5% ERC so about £3.5k to exit early,  we do take a look at the banks but we always seemed to be offered a good comparable deal

blue.peter

annabanana82 said:

We have a 5% ERC so about £3.5k to exit early,  we do take a look at the banks but we always seemed to be offered a good comparable deal

£3.5k? Ouch! That's a lot more than I was thinking. OK might not be worth switching early, then. Fair enough.

MovingForwards

@Fireflyaway have a read through this thread for ideas.