MFW's - a dying breed?

Dithering_Dad

setmefree2 wrote: »

Sorry, since DD said he would hide*cough* his money from the tax man (not trying to get him into trouble;)), I assumed he was under-declaring his income. I have heard this before from other IT contractors (for years!) and I just can't believe it is still true (if it ever was) that people can hide money in premium bonds...I know the investment is tax free and I think DD knew what I was saying as he said that the tax man is not looking in this direction - ie Premium Bonds are off radar to the tax man. But given how long this sort of "evasion" *cough* has been going on, I'm just surprised that tax man hasn't cottoned on, that's all.

It's a case of "hiding" your savings interest from the tax man rather than hiding the capital. The money you put into an ISA, premium bond or NSANDI bond is all net of tax (i.e. you have paid tax on the money) bu the interest it earns is gross of tax (i.e. tax free). If IT contractors (or anyone else who works for themselves) took money directly out of their businesses Gross of tax, the revenue would spot it at source (the business bank account) rather than at destination (premium bond).

In my reply that sparked this whole "DD is a tax dodger" debate, it was a discourse on inheritance and lottery wins - one of which is tax free (lottery) and the other is covered by inheritance tax. No one mentioned hiding contract money.

You don't seem to have a very high opinion of me, IT consultants or even the tax man (and his ability to catch tax dodgers!!).

phizzimum

thank you - I get the reference now!

is this thread sufficiently off topic now?

setmefree2

Dithering_Dad wrote: »

You don't seem to have a very high opinion of me, IT consultants or even the tax man (and his ability to catch tax dodgers!!).

:rotfl:Glad we cleared that one up then:p....sorry to drag everyone off topic.:o

Dithering_Dad

setmefree2 wrote: »

:rotfl:Glad we cleared that one up then:p....sorry to drag everyone off topic.:o

Goodness me, if I'm not being slated for my blinkered pro-MFW ways, I'm being accused of criminal behaviour! :rotfl:

Erm, what were we talking about before... I forget?

owitemisermusa

michaels wrote: »

This is all quite correct, the headline rate is meaningless so I always work on the total cost in terms of interest, fees, charges, (lost interest on fees paid upfront), termination charges etc and choose the chepeast cost over a 2 or 3 year term (no longer as mentioned I don't want to lose flexibility with long lock ins. MY current deal overall is costing 5 basis points under base but as the fee is fixed, the more I borrow the lower the effective overall rate hence the 'additional' funds that are going into my isa paying 10%, my wife's paying 6.5% fixed and my wife's savings account (currently paying 6.5% net as she doesn't pay tax) are only costing me 4.5% as you quote. The sum involved is several times the 10k you mention so making say 1.5% net on a decent sum of cash is very much worth it for me but I am sure everyone's circumstances are different.

One thing I would say, the ISA allowance is use it or lose it so if the available isa rate is similar to the mortgage rate then paying in to an isa is financially equivalent and more flexible - for example suppose an unexpected lump sum (inheritence?) is received, if the mortgage has been paid down instead of an isa built up then the lump sum will have to be invested in a taxable account whereas if an isa has been built up the lump sum can pay of the mortgage and the tax free isa funds kept.

Funny, I can see both points of view (ISA/taxfree savings v Overpay). So what does that make me? Hmm.....

owitemisermusa

Y'know, I would love to be mortgage free, it's my dream (ie I'm a covert MFW). But I cannot imagine how to pay off ~150K in 5 years!

StuartGMC

HelzBelz wrote: »

Don't bow out, even the few pounds a month you can afford makes a difference in the long term

I have to agree with you make whatever overpayment you can if things are tight; we took out our repayment mortgage in 1994 just after the end of the last recession, interest rates around 8% standard +2% repayment quotes given also, but we insisted on knowing what the repayments were at 13% because that was typical over the previous 20yrs or so.... There were still people being repossessed at the time, so a little scary to step into the market at that stage as first time buyers, but it was the first chance we had to be able to buy in years, we just went straight in for a 4bed detached though because the marlet meant we no longer could only look at 2beds - there is hope first-timers!

We have always made some level of overpayment (back when this was very rare indeed and no internet to find other like-minded souls, which as noted in thes thread is still rare in the real world!), but balanced with spending which we could have reduced I am certain but one needs to enjoy life too (a lucky escape from a major car accident at 27yrs old brought this home; don't just plan for the future, but do plan for it AND enjoy time now in balance). We are debt-free except for the mortgage.

Anyway the purpose of posting here is to encourage people who think a few pounds or so overpayment won't make a difference, it will. We had to reduce overpayments once our daughter was on the way and wife went part-time in her job so I recall about £50 was all we could offer up each month. We still reduced the term by 3 years once we were about to remortgage in 2006 and took just a 10yr term.

Things do get better though; we moved to an offset mortgage in 2006 (£1000 saved just by offsetting so far) and now overpay by about 40% per month. We could do more (and I think I had better start reviewing this site in detail now I've posted!), but, we have chosen to invest in Stocks & Shares ISAs (again only in the recent few years) as the growth vehicle rather than pull down the mortgage to zero rapidly. The reason, just updated my spreadsheet and today am incurring 2.86% interest rate on the mortgage (NatWest Offset 6.45%, but only paying interest on 44.35% of the capital outstanding). Since 2006, we have further reduced the debt so should pay off at least a further 3yrs early (6 in total) giving a mnimum 2 1/2 yrs to save the money towards daughter's needs when she is 18 and cash each month then which she will need from us.

So I guess we don't qualify as true MFW in the sense we are not putting all our money in to reduce it, but rather we are pulling down the cost significantly whilst hopefully getting good purchase prices on the funds we invest in now while the market is down, and looking at these for 5-10yrs time for good returns.

Sorry this is so long-winded but I hope it encourages those with only a little extra available each month to continue to use it to over-pay now. If you can move to an offset mortgage we found it ideal to encourage saving as our spreadsheet tallies everything such that I know our total debt is only about £8k ie just the mortgage.

Keep focused on the end-game but enjoy getting there!
Stuart

setmefree2

For anyone who was interested in the Premium Bond discussion - I started a new thread here. The outcome was interesting....

http://forums.moneysavingexpert.com/showthread.html?t=866921

All The Best

SMF2

Martinslovechild

I can vouch that it's definitely worth overpaying on your mortgage and paying it off. Clearing your mortgage is one of the best things you can do from many perspectives including:-

• security of not losing your home should you find yourself in the wrath of redundancy
• protection against large interest rate increases like those mentioned by other posters (upwards of 15% in the 1980's)
• The option of taking a less-stressed-out job at any point, either closer to home or working less hours etc
• A higher amount of disposable income allows the option of luxuries such as meals out (or in my case - CDs ) without having to think too hard about where the money is coming from

Whilst I can totally relate to others' opinions which have been voiced many times previously about why it's not such a good idea to pay off your mortgage, I personally disagree with these - it's a fantastic feeling of freedom from the financial institutions; I no longer rely on them for anything lending-wise (stoozing excepted).

By the way - if anybody would like a copy of my Microsoft Excel spreadsheet which I devised some time ago to track my own overpayments prior to clearing my own mortgage, I'd be delighted to forward a copy on to you - simply send me a PM. The spreadsheet spells it all out - how much cash you'll save when you make an overpayment, how much more/less it will cost you when there is a change in your mortgage interest rate and how many years/months you can slash your term by with overpayments.

It's amazing how an overpayment of just £1000 can save you up to an additional £1000 in interest costs over the life of the mortgage and knock 6 months from the original term!! (depending of course on when the overpayments are made & how much of the original term remains).

Good luck to one & all MFW's

setmefree2

Hi MLC,

Can't wait for the day!:p It must be lovely - and I can totally relate to the CDs;):D