Mortgage Free v Savings

edited 30 November -1 at 1:00AM in Mortgage-Free Wannabe
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hertsbethertsbet Forumite
19 Posts
edited 30 November -1 at 1:00AM in Mortgage-Free Wannabe
Hi all, is there any guidance on ratios between savings and mortgages? I am really keen to pay off the mortgage but I have always been a compulsive keeping some aside for a rainy day type soul.

However i've worked out that if I used all of my savings I'd pay off 65% of my mortgage. I think my savings need to help with my MF journey, but how much to keep back?
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Replies

  • dimbo61dimbo61 Forumite
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    That depends on what type of job you do and if you have a partner
    3 months of income ( secure job with no chance of redundancy)
    6 months of income ( job might not be too safe !)
    6/9 months of income self employed and work might try up at different times of the year ( IE builder/ window cleaner ETC)
    Consider what would happen if you did lose your job ?
    If you have more than £16,000 in savings the nice benefits people expect you to live off your savings !
    So thats a good place to start and once you have £16k in cash ISA,s then overpay the mortgage if NO PENALTY or ERC
  • jamesdjamesd Forumite
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    You can't use your overpaid mortgage to pay your mortgage payment or other bills. If you're in a position to overpay as much as you seem able to overpay then you might consider whether you have:

    1. Sufficient savings to pay all of your bills for a year or more if you became unable to work for some reason.
    2. Sufficient savings to last you until you can take your pension income, then sufficient income until the state pensions start, then sufficient income for the rest of your life.

    Either of those two can buy you a lot more security than clearing the mortgage, though clearing the mortgage can be part of it. Extending a mortgage so that the payments go down and you can pay it on income from savings until it's cleared could be an improvement compared to overpaying and being unable to live for long enough on the remaining savings.

    I'm working on the second of those.
  • Thanks both. Very interesting. A large chunk of my Isa's (earning peanuts) will be on it's way to my mortgage account.
  • dimbo61dimbo61 Forumite
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    ISA,s must be considered as long term savings as its the only tax free savings account the taxman allowes.
    However no point paying a 4/5% mortgage rate while earning 1/2% interest on your savings
  • PeelerfartPeelerfart Forumite
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    This overpaying the mortgage lark is really addictive though.
    Even though I'm in the fortunate position of earning more interest on ISA's than I'm paying on mortgage,I just can't stop overpaying .
    Logic and common sense tells me to pour into ISA's but I've got a graph of my mortgage and just love watching that line going down.
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  • dimbo61dimbo61 Forumite
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    The thing to consider is what happens after I have paid off the mortgage !
    If you pay out say £12/15K a year in mortgage payments what do you do with the money once the mortgage is paid.
    You can only put £5100 into cash ISA,s each year per person
    or £10200 into cash/stocks& shares.
    I would rather be MF like most on this board and be debt free with my own home ( King of my castle) and then build up savings
  • miss_undastoodmiss_undastood Forumite
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    I too would rather pay off my mortgage as quickly as I can - whilst maintaining a reasonable life, with fun.

    I have 6 months income as savings, a couple of ISA's as fallback and I'm still renovating the house! I'm putting any spare cash away onto the mortgage and in 15 months I've probably cut down my mortgage to 13 years. This has been helped by the sudden drop in interest rates!
    Therefore I've decided whilst rates are low I should pay off as much as I can, so when rates rise again I'm not crippled by high interest payments.

    It's tough as I'm only 24, live on my own, but luckily I have a lot of support with the DIY.

    Everyone is different, it depends on your job, and how comfortable you are and whether you can claim back the money you've overpaid if the worst happens. You can always pull money out of savings, you can't always reclaim mortgage overpayments.
    Part time working mum of 2 terrors trying to build financial freedom.

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  • jamesdjamesd Forumite
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    Peelerfart wrote: »
    Logic and common sense tells me to pour into ISA's but I've got a graph of my mortgage and just love watching that line going down.
    What I do is keep a graph that shows net worth as well as savings, investments and debts. Net worth going up is success even if debts are also going up or staying the same.
  • DVardysShadowDVardysShadow
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    jamesd wrote: »
    What I do is keep a graph that shows net worth as well as savings, investments and debts. Net worth going up is success even if debts are also going up or staying the same.
    That is the fallacy which led to the BTL bubble.
    Hi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE ForumTeam
  • In 1997 we sold our 1st house and had £4k from the sale - we then moved into rented. We bought our house in April 2000. It cost £84k and we put £29k down (saved hard over 3 years) - mortgage £55k. We earn £27k pa between us, have 2 young kids and will repay the mortgage in April 2010 (currently owe £8k after making a lump sum reduction 2 years ago of £35.6k). Have £27k in savings - just waiting for fixed rate deal to end to avoid penalties. Will also have paid for a brand new car in April (bought last september mostly on interest free credit card) and will have around £20k left.

    Don't know how we've done all that in 10 years on our salaries but it sure feels good - would recommend it to anyone!!
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