Overpaying mortgage instead of saving.

Aylesbury_Duck

I paid my mortgage off in 2017, many years early.  It wasn't the most purely financially advantageous thing to do but I'm naturally risk averse and the security of knowing it was dispensed with gave me the confidence to start investing more heavily into my pension and S&S ISA.  With hindsight, I would be in a better net financial position had I done it the other way around but this way felt comfortable and I'm now happy to take a little more risk with my pension and investments, so I hope to make up that position somewhat in the next 20 years.

MovingForwards

Albermarle said:

I'm paying into a DB pension, not sure how long I will stay with them; could be 2 - 5 years, could be longer. I prefer private sector employers.

I think most people would much prefer a DB scheme !

The pension scheme is ok, was better a few years ago due to being an 15% of the wages each year compared to my scheme.

Going into it later in life, and on a low grade, is a different game compared to those with long service. Or even those higher up.

I'm just not one for so much bureaucracy / red tape and waiting for the chain to approve / reject things. Hence saying I prefer private sector employers.

But I do agree, most would prefer a DB compared to DC.

Biggus_Dickus

solidpro said:

We paid our mortgage off in 2016. However I decided that whilst we saved some money on interest, it would be a good investment to re-mortgage £100k and use that towards buying a house a few doors away and renting it as a BTL through our own private limited company (which we personally provided a director's loan to).

The rent on a 3 bedroom house near us is £1350 a month which pays our mortgage, it's own mortgage and leaves about £350 a month left over. In 20 years we'll have the full income from it as a contribution towards our monthly income and the always have the value of the house when sold (less any CGT on profit).

It's a bit more work than sitting on a paid off house, but to us is a warmer feeling than simply sitting 100% of our on our money in bricks and mortar around our bodies and saving 2% of interest on £100k which is covered by the BTL house rent.

Today it's 75% of our money owning our own house and 55% of another - enough to easily weather a housing market crash and sit out any storms for 20 years.

Sounds like that should work out well for you especially as your BTL is nearby and you can check on it yourself;...my bezzie mate has been renting his (deceased) dad’s house out for the last 8 years or so.

His letting/management agency were supposed to do periodic checks but it seems the checks they did were cursory to say the least. The tenant, who had allegedly ‘slowly gone to pieces’ after his wife left him, absolutely destroyed the place;...to call it a squat would be very flattering.

My mate reckons the majority of the ‘profit’ he’s made has been eaten up in making the house habitable/rentable again.

I don’t know if there is a moral to that story but it could be that a good tenant can quickly turn into a bad tenant if left unchecked.

I considered buying 3 or 4 semis a few years ago when I retired  but I decided against it because I’m too old and I reckon the stress would probably have killed me.

 

 

solidpro

Biggus_Dickus said:

My mate reckons the majority of the ‘profit’ he’s made has been eaten up in making the house habitable/rentable again.

I don’t know if there is a moral to that story but it could be that a good tenant can quickly turn into a bad tenant if left unchecked.

I considered buying 3 or 4 semis a few years ago when I retired  but I decided against it because I’m too old and I reckon the stress would probably have killed me.

Having been landlords for a few years and having met other landlords in similar situations with very similar places I think it's all about making sensible choices. Many people don't do that and then complain about the outcomes.

If you buy somewhere nearby that is well built and well looked after, meet prospective tenants, have them checked in every way possible and be choosy about who lives there, have a slush fund and keep an eye on the place, we're never going to turn up 1 day to a bomb site. We do our own decorating and repairs. We've replaced a few white goods over the years, but have factored that in.

ElephantBoy57

MaxiRobriguez said:

Putting money into your pension comes with a 20%-42% (depending on your scheme and pension vehicle) tax dodge, which is significantly better than avoiding 1-2% interest on the mortgage.

I was trying to overpay my mortgage, but I have learnt from this wonderful forum that I may be better with AVCs.

I have sent my pension provider WYPF an email asking them for more details. I don't expect to have much free cash this year, but certainly a few thousand next year. That should work out ok, if I retire within the next three years.

enthusiasticsaver

There is a psychological boost from overpaying your mortgage but financially it makes sense to overpay into your pension and or invest instead or as well as.  There are no guarantees with that though and if you are very risk averse and only saving in a bog standard bank savings account with pitiful interest then yes overpaying your mortgage would be better as no doubt you are paying at a higher interest rate than you are getting from savings. 

Biggus_Dickus

ElephantBoy57 said:

MaxiRobriguez said:

Putting money into your pension comes with a 20%-42% (depending on your scheme and pension vehicle) tax dodge, which is significantly better than avoiding 1-2% interest on the mortgage.

I was trying to overpay my mortgage, but I have learnt from this wonderful forum that I may be better with AVCs.

I have sent my pension provider WYPF an email asking them for more details. I don't expect to have much free cash this year, but certainly a few thousand next year. That should work out ok, if I retire within the next three years.

I always over paid into my various pension pots down the years and apart from few notable exceptions it’s all worked out quite well.

I have a legacy (AVC) pension with Scottish Widows that I haven’t drawn on;...it’s quite  large in cash terms but not that good in terms of a monthly pension. I’ve just left it ticking over and it’s done ok’ish over the years.

However, this year Scottish Widows applied an MVR (market value reduction) which is intended to protect the long term viability of the pension fund;...in real terms it means that my legacy pension pot on 5th April 2020 is now worth 20% less than it was on 5th April 2019. God knows what they’ll do in April next year.

I really can’t complain though as my numerous pensions have all done ok;...there were a couple of exceptions though,...I lost a large sum of pension money many moons ago when a conman called Roger Levitt set up a company called Levitt Pension Consultants. He was a thief of epic proportions.

Equitable Life Pensions was another outfit run by Brigands,...£16,000 went down the drain in that debacle but the Governments compensation scheme pay-out  softened the blow;...I received a cheque for the princely sum of £17 !

It’s not all been Wine & Roses.  

 

 

 

 

 

MaxiRobriguez

solidpro said:

Biggus_Dickus said:

My mate reckons the majority of the ‘profit’ he’s made has been eaten up in making the house habitable/rentable again.

I don’t know if there is a moral to that story but it could be that a good tenant can quickly turn into a bad tenant if left unchecked.

I considered buying 3 or 4 semis a few years ago when I retired  but I decided against it because I’m too old and I reckon the stress would probably have killed me.

If you buy somewhere nearby that is well built and well looked after, meet prospective tenants, have them checked in every way possible and be choosy about who lives there, have a slush fund and keep an eye on the place, we're never going to turn up 1 day to a bomb site. We do our own decorating and repairs. We've replaced a few white goods over the years, but have factored that in.

I did the BTL game for a couple of years. Met a new partner so wanted to move out my smallish place she moved into, and our combined savings/earnings meant we could afford to buy a new property and rent out the old one.

Like you say, we looked after the house, met prospective tenants (found them on Gumtree having decided to not use EA services!), chose who we wanted, gave them a welcoming gift when they moved in and popped into seem them regularly after they had moved in.

It worked well - they treated the property with respect. The only problem I had is that they were too nice - they didn't raise a damp problem which wasn't easy to spot when I went over, so that over a period of months eventually became more costly to fix than it would have done if they had just said!

But all in all, the property was left in a good condition, and the tenancy was good, both in terms of profitability and not worrying about the house whilst it was being let.

JustAnotherSaver

george4064 said:

I totally understand the lines of your thought, but a few questions I would ask to help you decide:

1. What’s your current mortgage LTV? (Key point is if you made OPs would it bring your LTZ down to a better ‘sleeve’?)

I wonder what to fill out when getting quotes. First off i don't know what the house is valued at, i only know what i bought it at. Also do i enter what i've got left to pay or what i took out?

Either way we bought the house at £157k and took out a £102k mortgage over 30 years of which we're now 7 years in with £85,300 left to pay. We locked in for 2x 5yr fixes. Looking back it'd have been better to go variable (or whatever it's called) but if i had a crystal ball i'd be using it for lottery numbers instead.

george4064 said:

2. What’s your current mortgage interest rate?

2.14%

MovingForwards said:

Work backwards to see what you need.

What is your state pension age, what age would you like to retire, how old are you now, what's the difference between them.

Those sort of questions are not really good to me because my answer tends to be different from most people.

I'm 37 now. As for when i'd like to retire - yesterday.

Work isn't for me. The whole idea of the working life, i've never understood it. Sure i get that you need to work to pay to live, i'm not talking about that. I just think the idea of going out most of your life to do something that most of us don't particularly like or want to do is quite depressing. You essentially spent most of your life doing something you didn't want to do.

Sure, there's some people who love what they do. I'd wager that that is the minority though.

Many people were grumbling about lockdown and how boring it was. It was nothing to me. I loved it. No need to get up for work. In the end i only got 3 weeks but i've been off work for 6 months before and not bored once. "But years is different" - yep, it's enjoying not working for longer. The issue is the income.

So to answer the "when" my answer is simply - as soon as is possible, which is likely to be somewhere in my mid to late 60s

MaxiRobriguez said:

Rule of thumb of where your money should go once you've built a decent emergency buffer:
- Pension
- S+S ISA
- Pay off mortgage
- Savings

I currently have a SIPP and a LISA in terms of investments (as well as a workplace pension).

So from what i've read here it is likely better working to maxing out my LISA (have previously enquired about the pension vs LISA thing and apparently for me a LISA is the better option).

NottinghamKnight

Loan to value is what you have currently on your mortgage divided by the current valuation, the latter you can get very roughly from zoopla for example.
Despite what you have said the question about retirement is exactly the right one for you to answer. If the answer is asap then the next question is how little do you need to live on, then work out how much you need to generate that and how much you can save and invest to get there, then the number of years to reasonable retirement can be estimated.