Investments newbie and a little bit swimming

Help. We bought our first house this year and until this point, it was clear that I was saving for a deposit but now I am not sure where to save. Didn't bother to do a LISA actually, frustratingly. We have currently about 22k+ reasonably generous emergency fund in savings. Some of this is currently invested overseas short-term maturing in Jan. 2 kids child benefit has consistently gone into savings untouched so I need to open a Junior S&S ISA for them. Mort rate 2.4 fixed for next 4 years. Still with inflation, do we also overpay? How much? Is the First Direct 7% worth going after and opening an account? Already have Barclays Blue rewards. But then I am drawing a blank. I have not always saved for pensions. In fact, I have been out of work for a few years and on short-term contracts so I have only just asked for a pension contribution. It made sense to be in sporadic work and upskilling because of childcare, no other reason. In the new year, I will be doing agency work as I am finishing an advanced degree. I may be an information junkie and so I have looked at FIRE and everything and I am a little bit overwhelmed with the wealth of choice and information. I quite like the idea of being active with our investments but perhaps I need to wait on that a bit until I know what I'm doing. I have looked at ETFs mostly global but then how does one choose? Where to start? 
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  • AlbermarleAlbermarle Forumite
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     We have currently about 22k+ reasonably generous emergency fund in savings. Some of this is currently invested overseas short-term maturing in Jan.

    Normally an emergency fund should be held in an easy access savings account and not invested.

    However you say it is in savings but it is invested overseas, which does not make any sense.

    We bought our first house this year and until this point, it was clear that I was saving for a deposit but now I am not sure where to save. 

    I think you need to step back from firing off ideas in several directions and think about what you are trying to achieve.

    Do you want to save/invest for an early/comfortable retirement?

    Or save/invest to do lots of enjoyable things like nice holidays?

    Or do you want to focus on building up a pot for the children?

    Or the nice feeling of paying off the mortgage early?

    Or other dreams/ideas etc

    Hint - you can not achieve them all at the same time !

  • edited 7 December 2022 at 3:55PM
    ExodiExodi Forumite
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    edited 7 December 2022 at 3:55PM
    Albermarle makes some good points above and I'd agree thinking about a clear plan is in order.

    Just wanted to jump in on this point.
    TheKDs said:
    Mort rate 2.4 fixed for next 4 years. Still with inflation, do we also overpay? How much? Is the First Direct 7% worth going after and opening an account? Already have Barclays Blue rewards.
    This comes up time and time again, however it doesn't seem intitally obvious.

    If your mortgage rate is 2.4%, but you can get more in a savings account, it would make more sense not to overpay the mortgage, and to put it in the savings account instead - especially if you have access to 5-7% interest rates! Paying £300 a month off your mortgage would save you about £43 in interest after one year. Putting £300 a month into the first direct regular saver would grant you about £136 interest after one year.

    If you're plan is to overpay the mortgage, after 12 months when these 5-7% rates are removed/reduced, you can then dump the new sum+interest into the mortgage as an overpayment.
    Know what you don't
  • TheKDsTheKDs Forumite
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    That was meant to read 22 k + (as in 'and') an emergency savings fund. Some of that 22k is invested overseas, yes. 

    1. Survivable retirement.
    2. Some enjoyable things - yes, does it have to be either/or? I don't think we are there yet but I would definitely like both.
    3. The children's pot is the aim. They have a pot. I want to add to it and be able to retire.
    4. Not keen on nice feelings of paying mortgage early if they're not financially solid. That is where the savings rate and investment question comes in, I feel?
  • TheKDsTheKDs Forumite
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    Exodi said:
    Albermarle makes some good points above and I'd agree thinking about a clear plan is in order.


    Did reply to Albermarle. The clear plan is what is lacking which is why I made this post. Aware I sound like an idiot. So I feel like I am swimming and I'm not good at swimming! Was also thinking about the savings account, yes. Sorry, also totally aware it is a perennial question. This savings better than mortgage seems obvious to me but there is a 3% charge on early repayment for those 1st 5 years and so I'm wondering how that adds up. I guess I could just continue to save until just before the 5 year period and then pay up a lump sum as much as I can. Review each year. 
    This comes up time and time again, however it doesn't seem intitally obvious.

    If your mortgage rate is 2.4%, but you can get more in a savings account, it would make more sense not to overpay the mortgage, and to put it in the savings account instead - especially if you have access to 5-7% interest rates! Paying £300 a month off your mortgage would save you about £43 in interest after one year. Putting £300 a month into the first direct regular saver would grant you about £136 interest after one year.

    If you're plan is to overpay the mortgage, after 12 months when these 5-7% rates are removed/reduced, you can then dump the new sum+interest into the mortgage as an overpayment.
  • edited 7 December 2022 at 4:54PM
    ExodiExodi Forumite
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    edited 7 December 2022 at 4:54PM
    TheKDs said:
    Exodi said:
    Albermarle makes some good points above and I'd agree thinking about a clear plan is in order.


    Did reply to Albermarle. The clear plan is what is lacking which is why I made this post. Aware I sound like an idiot. So I feel like I am swimming and I'm not good at swimming! Was also thinking about the savings account, yes. Sorry, also totally aware it is a perennial question. This savings better than mortgage seems obvious to me but there is a 3% charge on early repayment for those 1st 5 years and so I'm wondering how that adds up. I guess I could just continue to save until just before the 5 year period and then pay up a lump sum as much as I can. Review each year. 
    This comes up time and time again, however it doesn't seem intitally obvious.

    If your mortgage rate is 2.4%, but you can get more in a savings account, it would make more sense not to overpay the mortgage, and to put it in the savings account instead - especially if you have access to 5-7% interest rates! Paying £300 a month off your mortgage would save you about £43 in interest after one year. Putting £300 a month into the first direct regular saver would grant you about £136 interest after one year.

    If you're plan is to overpay the mortgage, after 12 months when these 5-7% rates are removed/reduced, you can then dump the new sum+interest into the mortgage as an overpayment.
    You don't sound like an idiot at all, we've all searched similar questions in the past.

    I think you may be confused regarding 'Overpayments' and 'Early Repayment Charges' -

    Most mortgage lenders allow you to make overpayments without penalty, provided that the total amount across the years is less than 10% of the original mortgage amount each year.

    For example, if you take out a mortgage for £300k, you can overpay up to £30k each year without penalty. If you pay more than that in a year, you are liable to pay the lenders early repyment charge (which as you say, can be 3% of the amount).

    Typically this is only an issue for people who come into a large sum of money (e.g. inheritance/lottery win), or those breaking up (needing to sell the house early). Most people are able to organise their finances in a way they never need to pay ERC.

    Please note: check your mortgage terms and conditions regarding overpayments, while most allow 10% without penalty, it's certainly not all.
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  • AlbermarleAlbermarle Forumite
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    3. The children's pot is the aim. They have a pot. I want to add to it and be able to retire.

    The obvious point that stands out, is that you have no pension. The amount you have to build up to have a decent/early retirement can be quite a shock to people unfamiliar with the subject. Although the children having money for when they grow up is a good ambition, it should not really be at the expense of your own situation. They may well be able to easily support themselves and would prefer their parents to be financially comfortable as they get older.

    If you can get a pension where an employer contributes as well as you, that would be a good thing to stick with.

  • tacpot12tacpot12 Forumite
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    It doesn't have to be either-or. You can save for retirement and pay off the mortgage while also having some fun on the way. 

    Whenever I used to get pay rises, I would increase by pension saving using one third of the rise, pay off my mortgage with another third, and use the remainder to improve my standard of living, i.e. spend it!

    Many people aren't saving enough for their retirement. If you halve your age, then this number is the percentage of your salary/income you should be saving for retirement. The good news is that this number can be met, in part, by any employer contributions to your pension, so fi you are saving 8% and your employer is also contributing 8%, you are already contribution 16% of your salary to your pension. The amount this is actually costing you in take home pay is of course less than 8%, due to the tax relief on pension contributions. Ideally each of you would contribute to a pension to this level.  

    Once you have got an emergency fund, and the children's money in the right place, I would recommend you check whether you have any Income Protection insurance. This is a vital form of insurance that many people don't have. They manage their lives because they earn well, but should something happen and that income stops, it can cause very significant hardship because our benefits system is not generous. e.g. you won't get any help to pay your mortgage, and if you stop paying for too long your house will be repossed. Income Protection insurance needed be too expensive IF you delay the point at which it starts to pay out - if you have some savings, and can expect some sick pay from work, you can probably delay claiming on the insurance for 12 months. This reduces the cost significantly. 

    With your pensions being adequately funded, and some Income Protection Insurance in place, you can see what's left to spend and pay off the mortgage early.  
    The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always try to check official information sources before relying on my posts.
  • GazzaBloomGazzaBloom Forumite
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    We followed Dave Ramsey's Baby Steps and don't regret a single step.

    Being mortgage free is now a nice place to be, especially after being made redundant twice in my working life while I had a mortgage.

    Nowadays I get to shovel a lot more money into my pension via salary sacrifice and hoover up lower cost fund units while the markets are down. 
  • edited 7 December 2022 at 6:48PM
    jimjamesjimjames Forumite
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    edited 7 December 2022 at 6:48PM
    TheKDs said:
    4. Not keen on nice feelings of paying mortgage early if they're not financially solid. That is where the savings rate and investment question comes in, I feel?
    I agree and rather than paying off the mortgage I put the money for overpayments into S&S ISAs which have grown considerably over the last 15 years and are way above mortgage now. This obviously does involve some risk as investments can go down as well as up. However with the current state of the savings/mortgage market if you have a fix of 2.4% that is for the next 5 years (or whatever time period) then you have a guaranteed way to get a better return than paying down the mortgage now.

    If you don't want to risk investing then savings will still beat the mortgage rate and you can then pay off that lump sum when the fix expires and the ERC ends. If savings rates drop you still have the money there to pay into the mortgage should you wish.

    Say you have £1000 each year available to pay off and can get 3% interest (might be able to get more if you can commit to a fixed term account that would pay out in time for mortgage fix ending)

    End of Year 1 £1000 +£30 interest
    End of Year 2 £1000 + £1030 + £60.90 (interest on £2030)
    End of Year 3 £1000 + £2090.90 + £92.73
    and so on, the interest starts to compound as you get interest on interest in later years.

    Whereas the mortgage you'd only reduce your interest by £24 per £1000 at that fixed rate although slightly more capital would be repaid if the payments stay the same.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • P1FanaticP1Fanatic Forumite
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    Exodi said:
    TheKDs said:
    Exodi said:
    Albermarle makes some good points above and I'd agree thinking about a clear plan is in order.


    Did reply to Albermarle. The clear plan is what is lacking which is why I made this post. Aware I sound like an idiot. So I feel like I am swimming and I'm not good at swimming! Was also thinking about the savings account, yes. Sorry, also totally aware it is a perennial question. This savings better than mortgage seems obvious to me but there is a 3% charge on early repayment for those 1st 5 years and so I'm wondering how that adds up. I guess I could just continue to save until just before the 5 year period and then pay up a lump sum as much as I can. Review each year. 
    This comes up time and time again, however it doesn't seem intitally obvious.

    If your mortgage rate is 2.4%, but you can get more in a savings account, it would make more sense not to overpay the mortgage, and to put it in the savings account instead - especially if you have access to 5-7% interest rates! Paying £300 a month off your mortgage would save you about £43 in interest after one year. Putting £300 a month into the first direct regular saver would grant you about £136 interest after one year.

    If you're plan is to overpay the mortgage, after 12 months when these 5-7% rates are removed/reduced, you can then dump the new sum+interest into the mortgage as an overpayment.
    Most mortgage lenders allow you to make overpayments without penalty, provided that the total amount across the years is less than 10% of the original mortgage amount each year.

    For example, if you take out a mortgage for £300k, you can overpay up to £30k each year without penalty. If you pay more than that in a year, you are liable to pay the lenders early repyment charge (which as you say, can be 3% of the amount).

    Typically this is only an issue for people who come into a large sum of money (e.g. inheritance/lottery win), or those breaking up (needing to sell the house early). Most people are able to organise their finances in a way they never need to pay ERC.

    Please note: check your mortgage terms and conditions regarding overpayments, while most allow 10% without penalty, it's certainly not all.
    Just to clarify that point - the 10% is from the opening balance of the mortgage each year (at least it is with HSBC). So if you overpaid £30k on a £300k mortgage in the 1st year then the 2nd yr the maximum overpayment would be under £27k depending on how much capital you repaid via your regular mortgage payments.
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