Mortgage Advice

lastbigspender

Hi

What is the best way to tackle this, my mortgage is currently at £157k approx with 17 yrs left on it.

7 years the interest rate is 2.79% then jumps to around 4%.

Should I pay as much as I can over next 7 yrs or just keep the standard agreed payment?

I have been reading not to clear mortgages but I would have thought clearing it would be the dream 😊😊

Isthisforreal99

Why not invest any extra you have - you will get more than 2.79%, then pay off a lump sum in 7 years.

ACG

At 2.79% you can probably get a better savings account/ISA... You would need to check any taxes you might incur from savings, but financially it is probably better to put into savings. However, hassle wise etc for the amount you will save, you might just think its easier to throw it at your mortgage. 

MeteredOut

Isthisforreal99 said:

Why not invest any extra you have - you will get more than 2.79%, then pay off a lump sum in 7 years.

I'd change that to "you should get more than 2.79%". Those not infected by recency bias know there are periods of time where that is not the case. With a 7 year outlook, the chances are good, but many are forecasting not so good times over the next few years.

But the calculation is not just getting more than 2.79% over the next 7 years, but also what the additional 4% will cost over the final 10 years of the mortgage versus.

And for some, the psychologically positive feeling of being debt-free still outweighs any opportunity loss from not investing.

lastbigspender

Isthisforreal99 said:

Why not invest any extra you have - you will get more than 2.79%, then pay off a lump sum in 7 years.

I have only starting investing and not sure of how it works to be honest.

I have started £20 p/m in stocks ISA Vanguard FTSE All world - what are the thoughts on this?

Edi81

lastbigspender said:

Hi

What is the best way to tackle this, my mortgage is currently at £157k approx with 17 yrs left on it.

7 years the interest rate is 2.79% then jumps to around 4%.

Should I pay as much as I can over next 7 yrs or just keep the standard agreed payment?

I have been reading not to clear mortgages but I would have thought clearing it would be the dream 😊😊

I’d be very surprised if it will go up to as little as 4%. Sounds like you are taking this from the original documents - standard variable is a bit higher than this now. 

lastbigspender

Edi81 said:

lastbigspender said:

Hi

What is the best way to tackle this, my mortgage is currently at £157k approx with 17 yrs left on it.

7 years the interest rate is 2.79% then jumps to around 4%.

Should I pay as much as I can over next 7 yrs or just keep the standard agreed payment?

I have been reading not to clear mortgages but I would have thought clearing it would be the dream 😊😊

I’d be very surprised if it will go up to as little as 4%. Sounds like you are taking this from the original documents - standard variable is a bit higher than this now. 

Yeah agree Edi81 the 4% was a figure quoted around the time I took the 20 yr mortgage out 3 years ago so will be more come the time my locked in period ends 2.79% for 10 yrs.

Jemma01

I'm very short sighted when it comes to debt, I just want it paid off. How much monthly interest are you paying? And how much savings are you getting (or will be getting)? Will the savings actually generate more money than the interest you're paying, and by how much?

I worked out for myself that if I didn't overpay and used 5% savings account I would have made 700-800 in the period I had my mortgage (from Nov 24), but that's far less worth it compared to dropping the monthly payment from £1160 to £289, because I'm at a higher risk of losing my job as self employed and would rather feel safe in my house. It's all about risks and priorities. No right or wrong really.

Get your calculator out, understand your assumptions (drop in rates), figure out how much money you can put into your savings, what risks/concerns you might have, and see what numbers you get for 7 years.

Altior

Jemma01 said:

I'm very short sighted when it comes to debt, I just want it paid off. How much monthly interest are you paying? And how much savings are you getting (or will be getting)? Will the savings actually generate more money than the interest you're paying, and by how much?

I worked out for myself that if I didn't overpay and used 5% savings account I would have made 700-800 in the period I had my mortgage (from Nov 24), but that's far less worth it compared to dropping the monthly payment from £1160 to £289, because I'm at a higher risk of losing my job as self employed and would rather feel safe in my house. It's all about risks and priorities. No right or wrong really.

Get your calculator out, understand your assumptions (drop in rates), figure out how much money you can put into your savings, what risks/concerns you might have, and see what numbers you get for 7 years.

If employment risk is a concern, it's actually a stronger argument to keep optional cash resources out of the mortgage.

When the mortgage rate is 2.79% and savings can easily yield 7%, I find it very difficult to find any argument to overpay the mortgage.

There are so many factors at play, it comes down to suitability. Many people just won't have the discipline to park savings that are rubber stamped for future mortgage payments, and follow through on the implied commitment. At least for them, if they plough it into the mortgage, they can't spend it. 

There's a psychological variable as well, some people just want the tag of 'mortgage free'. Personally it doesn't mean anything to me, and if I can profit from leverage with no risk, I will certainly use the opportunity. 

lastbigspender

Thanks for everyone's advice and comments.

Think I might look at investing possibly long term as opposed to overpaying on mortgage.

The more I read advice about it the more I begin to realise other options give me better options.

Was just thinking at 2.79% rate I would not get this again

Altior

lastbigspender said:

Thanks for everyone's advice and comments.

Think I might look at investing possibly long term as opposed to overpaying on mortgage.

The more I read advice about it the more I begin to realise other options give me better options.

Was just thinking at 2.79% rate I would not get this again

It's important to distinguish the difference between saving and investing. Most people would consider 'saving' in general financial language as cash (theoretically safe), and investing as putting money into equities and/or investment bonds (risk based). Though of course Individual Savings Accounts cover both types! And holding cash can technically include inflation risk. 

Personally I wouldn't put funds intended for the mortgage at some point into equities, though many do.