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  • FIRST POST
    • Lungboy
    • By Lungboy 12th Mar 18, 11:10 PM
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    Lungboy
    Does being a MFW currently make sense?
    • #1
    • 12th Mar 18, 11:10 PM
    Does being a MFW currently make sense? 12th Mar 18 at 11:10 PM
    My wife and I are 2.5 years into our 30 year mortgage and have ~£91k left to go with the house worth ~£200k. We had always talked about paying down the mortgage as fast as we could to reduce the interest but haven't been in a position to do so. However, she has a sharesave about to end and a new job so we've started discussing it again. She can pay the allowed 10% this year from her sharesave and we could up our monthly payments next year to really speed up the end date, but I'm now wondering if that's the best thing to do.

    I can't help feeling that with inflation higher than our mortgage rate (2.39% for another 2.5 years) it doesn't make financial sense to pay it off any faster than we have to. Should we be using high interest current accounts, regular savers and putting money into our pensions instead? Does the mental relief of being mortgage free trump the financial side of it?
Page 1
    • daisy 1571
    • By daisy 1571 13th Mar 18, 7:21 AM
    • 274 Posts
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    daisy 1571
    • #2
    • 13th Mar 18, 7:21 AM
    • #2
    • 13th Mar 18, 7:21 AM
    That very much depends on your own views. Not every decision makes technical financial sense ie the snowball method of paying off multiple debts where it would make financial sense to pay off highest interest first but it often makes psychological sense to concentrate and pay off smallest balance first and get rid of one debt completely.

    If you are unsure then try allocating 50% of the spare money to mortgage balance and 50% to saving into isa, pension or wherever then you will feel you are getting ahead on both fronts. Percentages can change as your attitude changes over the years.

    Inflation, savings interest rates, future pension schemes all have an element of not being sure how they will stand in 10 years. Lots of people prioritise mortgage simply as it is a very definite amount that you currently owe and you will owe in 10 years along with definitely needing somewhere to live.

    Good luck with your pondering (but do *something* rather than ponder too long and 'waste' years trying to find the *perfect* plan)

    Daisy
    Last edited by daisy 1571; 13-03-2018 at 8:42 AM.
    "Never save something for a special occasion. Every day in your life is a special occasion" Take hold of every moment by anon

    The difference between what you were yesterday and what you will be tomorrow is what you do today
    • MM10
    • By MM10 13th Mar 18, 6:06 PM
    • 57 Posts
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    MM10
    • #3
    • 13th Mar 18, 6:06 PM
    • #3
    • 13th Mar 18, 6:06 PM
    There is a lot of uncertainty in forecasts .....but your decision is personal as it depends on your risk tolerance.....
    I personally do not wish to leverage my mortgage even though it is possible to get s higher return on the market
    Total mortgage when started £256,809 in May of 2011; 2018 MFW #5
    Main mortgage was £214,309; now £110,716 at Feb 2016 ; £63,645 at Feb 2017 ; £10,600 at May 2018
    Original repayment date 2036; Main mortgage free date July 2021; Dec 2020; January 2019 June 2018
    • Lungboy
    • By Lungboy 13th Mar 18, 6:56 PM
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    Lungboy
    • #4
    • 13th Mar 18, 6:56 PM
    • #4
    • 13th Mar 18, 6:56 PM
    Thanks both. It's not really about getting a higher return on the market, but if inflation being higher than my mortgage rate, and possibly getting higher again, then it becomes less and less attractive to pay it down any faster than necessary.
    • daisy 1571
    • By daisy 1571 13th Mar 18, 7:54 PM
    • 274 Posts
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    daisy 1571
    • #5
    • 13th Mar 18, 7:54 PM
    • #5
    • 13th Mar 18, 7:54 PM
    I'm not sure I get what you mean LB, if your outlook is that inflation is high and getting higher then the stuff you buy every week eg fuel, food etc costs more and takes a bigger percentage of your salary. Being in a situation where you don't have the large outlay of the mortgage means more freed up salary each month. Plus the security of knowing you won't ever go into arrears and have your home repossessed.

    Maybe I am misunderstanding your terminology but it's a personal decision what you concentrate on, unfortunately each pound can only be spent once so everyone has their own priority

    Daisy
    "Never save something for a special occasion. Every day in your life is a special occasion" Take hold of every moment by anon

    The difference between what you were yesterday and what you will be tomorrow is what you do today
    • ZTD
    • By ZTD 13th Mar 18, 8:20 PM
    • 23,730 Posts
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    ZTD
    • #6
    • 13th Mar 18, 8:20 PM
    • #6
    • 13th Mar 18, 8:20 PM
    Thanks both. It's not really about getting a higher return on the market, but if inflation being higher than my mortgage rate, and possibly getting higher again, then it becomes less and less attractive to pay it down any faster than necessary.
    Originally posted by Lungboy
    It doesn't matter if inflation is higher than your mortgage rate, only that if possible saving rates are higher than your mortgage rate. As inflation erodes your mortgage, it also erodes your savings.

    Unless of course, you're thinking of not paying off your mortgage early and spending all you earn.

    In that particular case, you also need to assign a monetary value to risk. Or risk mitigation in the case of paying off your mortgage.
    "Follow the money!" - Deepthroat (AKA William Mark Felt Sr - Associate Director of the FBI)
    "We were born and raised in a summer haze." Adele 'Someone like you.'
    "Blowing your mind, 'cause you know what you'll find, when you're looking for things in the sky."
    OMD 'Julia's Song'
    • Butti
    • By Butti 13th Mar 18, 10:53 PM
    • 4,636 Posts
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    Butti
    • #7
    • 13th Mar 18, 10:53 PM
    • #7
    • 13th Mar 18, 10:53 PM
    Paying off more than you need to buys you options if anything goes wrong. The bank see you as less of a risk and overpaying gives you flexibility were your circumstances to change.
    Debt LBM (08/09) £11,641. (08/12) £22,734. (2/15 )£7790
    Diary 'Butti's journey : A matter of loaf or death'.
    Diary 2 'The whimsical tale of the Waterbed of Debt'

    'one day I will be rich and famous…for now I'll just have to settle for being poor and incredibly sexy'. Vimrod Member of MIKE'S MOB
    • OnlyGuyWhoLikesTwix
    • By OnlyGuyWhoLikesTwix 14th Mar 18, 8:23 AM
    • 11 Posts
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    OnlyGuyWhoLikesTwix
    • #8
    • 14th Mar 18, 8:23 AM
    • #8
    • 14th Mar 18, 8:23 AM
    It is dependent on your circumstances and - without sounding like a doomster - what happens should you and your other half split up. These are all things to take into consideration. For example if one person overpays significantly more than the other, things could be messy in the event of a separation.

    But for myself, six months ago I was still paying down credit card debt. So overpaying made no sense as a good £400 of my paycheck was disappearing into credit card interest. It's a nasty cycle. But I'm out of it now. And ironically the second I'm out of it, that's where I get a little bit of a windfall.

    I am most certainly overpaying. Simply as I earn enough to do so, am a single person living alone and everything I pay in helps in a big way! I have the important things covered which is I have no more interest bearing debt, I have taken some money to do a few minor house repairs and I have enough in the bank to cover a few storms. So if I lose my job or the roof blows off, there is enough there to cover me for at least 1.5 tragedies.

    The amount I am overpaying, I'm likely to be mortgage free in 9 years (instead of my original 7 but I was misled by the stupid MSE Calculator). But two extra years won't hurt and I'm still only just into my 40s at that stage. So I can still follow a few life-dreams I have in mind at that age which I really can't right now.

    I would say if you can say to yourself, "I'm covered for a couple of tragedies" and can leave money somewhere to cover it, throw everything you can at it!

    EDIT:
    Though I do see what you mean; At the moment, London Capital are offering an 8% £5,000 minimum ISA over 3 years. For me my interest rate is 2.39% so wondering if I may be better off doing that myself...

    EDIT 2:
    OK you have me thinking now! Thanks for this post!
    Last edited by OnlyGuyWhoLikesTwix; 14-03-2018 at 8:37 AM.
    Mortgage when started: £186500 (2 year fixed when taken out in 2016)
    Current mortgage (13/03/2018): £146,922.15 (5yr fixed 2.39% + 10% overpayment limit)
    Mortgage free day: 0?/0?/2025
    • Lungboy
    • By Lungboy 14th Mar 18, 9:24 AM
    • 1,407 Posts
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    Lungboy
    • #9
    • 14th Mar 18, 9:24 AM
    • #9
    • 14th Mar 18, 9:24 AM
    I suggest you read the London Capital threads in the savings forum before you go anywhere near them. It's NOT an 8% ISA. At all.
    • getmore4less
    • By getmore4less 14th Mar 18, 9:44 AM
    • 32,192 Posts
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    getmore4less
    Does being a MFW currently make sense?

    always.

    Remember it is not just about putting money into the mortgage pot.

    MFW is about the net position with resources that are allocated to that task.

    think offset mortgage once you are 100% offset you are effectively mortgage free, it does not matter where the money is, offset, savings, another property, pension lump sum,...

    when the net position is possitive against the morgtgage debt you are a MFW
    • MM10
    • By MM10 14th Mar 18, 3:33 PM
    • 57 Posts
    • 173 Thanks
    MM10

    think offset mortgage once you are 100% offset you are effectively mortgage free, it does not matter where the money is, offset, savings, another property, pension lump sum,...

    when the net position is positive against the morgtgage debt you are a MFW
    Originally posted by getmore4less
    Your statement certainly makes a great point. Thanks for sharing
    Total mortgage when started £256,809 in May of 2011; 2018 MFW #5
    Main mortgage was £214,309; now £110,716 at Feb 2016 ; £63,645 at Feb 2017 ; £10,600 at May 2018
    Original repayment date 2036; Main mortgage free date July 2021; Dec 2020; January 2019 June 2018
    • Escapar2020
    • By Escapar2020 14th Mar 18, 4:02 PM
    • 79 Posts
    • 154 Thanks
    Escapar2020
    My original plan was to pay the mortgage off early, but I've recently switched to an offset approach that gives me more flexibility if I need it, but will still enable me to be MF !!!8221;in principle!!!8221; in a couple of years time.

    If you're worried about inflation, I'd think about reducing my other costs first, and put any spare cash somewhere productive ;-)

    Esapar2020
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
    • Xbigman
    • By Xbigman 15th Mar 18, 4:35 AM
    • 3,111 Posts
    • 1,348 Thanks
    Xbigman
    Looking at mortgages in isolation.
    I've seen the 'interest rates are low I'll pay my mortgage off when they are higher' argument before. It is dead wrong. When interest rates are low it is when you have the most disposable income to make extra payments. If you wait for interest rates to rise (the argument being that it is now worth paying off the interest) that is when your disposable income falls, so you end up paying off less. Making the extra payments when interest rates are low is definately the way to do it.

    Looking at the wider issue.
    Paying off higher interest debt is generally the way to go. You might have a siuation where you have a choice between paying off higher interest but fixed rate debt VRS paying off lower interest rate but likely to increase debt. Thats trickier as there is no golden rule but as a rule of thumb pay off the highest CURRENT rate first and you won't go far wrong.



    Darren
    Xbigman's guide to a happy life.

    Eat properly
    Sleep properly
    Save some money
    • AnotherJoe
    • By AnotherJoe 15th Mar 18, 7:59 AM
    • 9,608 Posts
    • 10,687 Thanks
    AnotherJoe
    It doesn't matter if inflation is higher than your mortgage rate, only that if possible saving rates are higher than your mortgage rate. As inflation erodes your mortgage, it also erodes your savings.

    Unless of course, you're thinking of not paying off your mortgage early and spending all you earn.

    In that particular case, you also need to assign a monetary value to risk. Or risk mitigation in the case of paying off your mortgage.
    Originally posted by ZTD
    Instead of saving as an alternative you can contribute to a pension and get tax breaks, there are many people in this forum wasting literally many tens of thousands of pounds by overpaying low rate mortgages and paying high rate tax instead. That would be a better alternative than "spending all you earn" . And even at standard tax relief rates, there are many scenarios where paying off early is not the best financial strategy.

    As always there's a happy medium between an interest only mortgage and shoving everything into a pension and living on baked beans for ten years whilst you pay the mortgage off. The person who took the middle position of paying off over a standard time of say 25 years whilst maximising tax breaks (especially if 40% is available) is almost certain to come out far better financially and also gain the advantage of inflation whittling down their mortage as well.
    • ZTD
    • By ZTD 15th Mar 18, 8:36 PM
    • 23,730 Posts
    • 42,867 Thanks
    ZTD
    Instead of saving as an alternative you can contribute to a pension and get tax breaks, there are many people in this forum wasting literally many tens of thousands of pounds by overpaying low rate mortgages and paying high rate tax instead. That would be a better alternative than "spending all you earn" .
    Originally posted by AnotherJoe
    I can see the benefit of tax relief at 40% and getting a pension taxed lower. But in that scenario, you are still in the situation where you're performing two tasks.
    1. Pay into a pension
    2. Pay off a mortgage

    The choice comes from which way round you're doing it.

    If you pay the mortgage off early, you have more money to throw at the pension (the interest rate saved). If you pay the pension early, you're relying on the pension gaining at a higher rate than the mortgage interest rate, and of course, don't forget the risk premium.

    People seem to *always* forget to price in risk.

    And even at standard tax relief rates, there are many scenarios where paying off early is not the best financial strategy.
    Originally posted by AnotherJoe
    Such as?

    As always there's a happy medium between an interest only mortgage and shoving everything into a pension and living on baked beans for ten years whilst you pay the mortgage off. The person who took the middle position of paying off over a standard time of say 25 years whilst maximising tax breaks (especially if 40% is available) is almost certain to come out far better financially
    Originally posted by AnotherJoe
    "Almost certain"? So why do a hundred thousand+ families lose their home every time there's a recession? (which happen on-average 10-15 years apart)

    Is your definition of "almost certain" different to mine?

    and also gain the advantage of inflation whittling down their mortage as well.
    Originally posted by AnotherJoe
    And unless they have defined benefit (or even if they do) whittles down their pension as well.
    "Follow the money!" - Deepthroat (AKA William Mark Felt Sr - Associate Director of the FBI)
    "We were born and raised in a summer haze." Adele 'Someone like you.'
    "Blowing your mind, 'cause you know what you'll find, when you're looking for things in the sky."
    OMD 'Julia's Song'
    • Lungboy
    • By Lungboy 18th Mar 18, 9:15 PM
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    Lungboy
    Thanks all. The split of opinions mirrors what I've been trying to weigh up. My wife is adamant she wants to pay down the mortgage though, so we'll be doing that with a lump and I'll set up a SIPP afterwards.
    • ZTD
    • By ZTD 18th Mar 18, 9:47 PM
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    ZTD
    My wife is adamant she wants to pay down the mortgage though,
    Originally posted by Lungboy
    You should have said that right at the beginning, then I could have told you what you would be doing...
    "Follow the money!" - Deepthroat (AKA William Mark Felt Sr - Associate Director of the FBI)
    "We were born and raised in a summer haze." Adele 'Someone like you.'
    "Blowing your mind, 'cause you know what you'll find, when you're looking for things in the sky."
    OMD 'Julia's Song'
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