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Is It Worth Overpaying The Mortgage?

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If I am on a fix until mid 2014 is it worth overpaying the mortgage?

Thoughts on this please? And before the cries go out of BTL evil speculator, its a small and modest mortgage on my own home ;)

Whilst it makes more sense to pay extra on the mortgage as the mortgage rate I have (5.1%) is more than I can get from a savings bank and arguably less than the return I could get from stocks over the next 3.5 years but due to the risk involved in equity purchasing over this term, I just cant work out if the rising inflation makes overpaying worth it? Likewise rates can only be higher in 3.5 years so the more I pay now the better perhaps?

So should you take rising inflation into this sort of calculation, as I anticipate my salary rising in line with say cpi but not the real rate of inflation or ignore it and concentrate solely on the difference between the mortgage rate and what that I could get by saving/investing the extra overpayment elsewhere?

Ta.

Edited by ringledman

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I guess that depends, if you pay you mortgage down you may leave yourself at a disadvantage if a real bargain comes along (I'm thinking currencies/stocks etc), but if you're not looking to invest then I suppose it's quite a good idea. Just make sure you've got some cash left in the bank. ;)

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I guess that depends, if you pay you mortgage down you may leave yourself at a disadvantage if a real bargain comes along (I'm thinking currencies/stocks etc), but if you're not looking to invest then I suppose it's quite a good idea. Just make sure you've got some cash left in the bank. ;)

Agreed. Paying down your debt in your own long-term house is never a bad idea but keep some cash aside in case you need it for a rainy day. Equity release will no doubt become harder and more expensive in the future so getting cash out of your house will be harder than just sticking it in a few ISAs.

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I'm in a similar position, and I over pay by £250+ a month while ensuring I have £5k - 5.5k in savings. The max I can overpay is 10% of the outstanding per year.

The reason for the £5k savings is so I don't loose out if I were to be made unemployed.

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Yes overpay it get rid of as much of it as you can . Don't just work out how much you can make by putting the money that you could use for overpaying in the bank . The peace of mind having a smaller mortgage is worth more than just money. Also it gives you many options if you ever got short of money in the future you could pay less or none of the mortgage for a while .

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Yes overpay it get rid of as much of it as you can . Don't just work out how much you can make by putting the money that you could use for overpaying in the bank . The peace of mind having a smaller mortgage is worth more than just money. Also it gives you many options if you ever got short of money in the future you could pay less or none of the mortgage for a while .

Yes I think your right.

My aim is to save as much as I can anyway and pay it off by 2014 so that I can change lifestyle and go freelance 1/2 year and travel the rest.

Just trying to justify an inflationary fix by which inflation and wages rises significantly to make the mortgage sum worthless in real terms.

Unlikely to happen in the next few years but would be a bit pissed by nailing the mortgage now and then seeing inflation take off some time down the line. However if this happens then would probably have to re-fix in 2014 on a much higher rate so defeates the object I guess.

I think if I was on a 10 year fix now, then I wouldn't overpay a penny but 3 years probably best to get as much cleared.

Cheers.

Edited by ringledman

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I've realised, thanks to this site, that you need to do as much as you can to pay off the capital. I was once told by the bank that the best way to fund a new car was to draw down on the mortgage. This is bonkers. The interest may be low, but it takes much longer to pay off the capital. As we all know now, it becomes a never ending loan.

In the early stages of the mortgage, the capital is only being very slowly erroded away, so it's at this stage that the overpayments can make a big difference. On that program tonight about the Irish banks, there was a young lady with a 40 year mortgage! The trouble with that is, the longer you keep pushing out the term, the less effect it has on the monthly repayments. 25 years seems about optimal for most people. Any longer and the total repayment for the whole loan is not worth the monthly saving. Poor girl. That's a crazy length of time to be paying that off.

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My view and what I am doing myself is to not overpay the mortgage and keep all my cash and savings out of the banks reach for the following reasons:

  • If house prices drop as much as the media or as much as most here think then I might end up back at a 100% mortgage so the money in the house will have gone and all (or 90%) of my eggs are in one asset - not good.
  • If the unexpected happens in my own personal life or the events in the World carry on at the pace they are doing then my cash would be better off if some precious metals and other items rather than bricks and mortar.
  • If at some point I need to get my LTV ratio down / think the house is worth ploughing money into I can bring some of my savings back into the system and pay off a lump sum so I am no worse off (less a few years interest)

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I have a philosophy to life, if you are in a position where you can never lose your home except for stupid behaviour, life goes quite well for you.

In 1980 I was made redundant after 22 years service, my Union negotiated voluntary redundancy terms of which I received a payment allowing me to repay a newly taken out mortgage 4 years earlier. In the difficult early 80s Mrs CTT returned and found a good job when unemployment was heading for 3 million and myself went into partnership starting with £500 in a new business account. We succeeded where others failed terribly and Mrs CTT climbed the ladder in the company she worked for. The £132 mortgage repayment were invested in Life Endowment Policies in £25 Units to mature in 25 years alongside the 2 I already held.

In 1998 Mrs CTT was offered early retirement with a Company Pension fair for the 18 years service she did, in 2005 the 7 Life Endowments Policies matured and paid out £40k each, move on to 2003 and my partner buys me out at a great price and comfortable retirement comes to me at 60 years of age.

For the last 10 years of our working lives we lived entirely on Mrs CTT`s salary and my share of the profits went straight into a savings account which increased greatly with the compound interest.

In the late 80s my Accountant said I was a fool paying up the mortgage in 1980, by the late 90s he said that was the best decision I ever made. :rolleyes:

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Just chuck it all on Long Run to win the Cheltenham Gold Cup.

6-1 widely available and it'll win by a country mile.

Thank me later.

Another lesson I learnt was never gamble heavily unless you are a Pro Gambler, have been quite satisfied doing the pools and Lottery. ;)

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In the early stages of the mortgage, the capital is only being very slowly erroded away, so it's at this stage that the overpayments can make a big difference. On that program tonight about the Irish banks, there was a young lady with a 40 year mortgage! The trouble with that is, the longer you keep pushing out the term, the less effect it has on the monthly repayments. 25 years seems about optimal for most people. Any longer and the total repayment for the whole loan is not worth the monthly saving. Poor girl. That's a crazy length of time to be paying that off.

My rule of thumb is if you cannot afford a 25 year repayment mortgage and have to go to 30-40 years you really cannot afford that house.

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careful leverage is great when assets are at the cheap end of the cycle, mortgages happen to be a cheap way of doing it, in sensible amounts (ie not the Wilsons!?!)

however, no investable asset looks good value right now, so pay it down, leverage doesn't seem correct right now with a view to risk/returns

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why not use the profits from your equity investmetns to pay more of the mortgage down in five years?

solid unbiased opinion, simple effective asset allocation, like it (genuinely)

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why not use the profits from your equity investmetns to pay more of the mortgage down in five years?

edit to add,personally I'd pay it down asap but I admire those with big cahunas

I guess because I would firstly have to ensure I can beat the 5.1% rate on my mortgage by investing in equities. Also over a 5 year period the odds of equities beating cash (assume that any overpayment is equal to a cash savings at the mortgage rate) are a lot lower than equities are at beating cash/bonds at 10, 20 or 30 years, which is what I want to hold stocks for.

Also I am top heavy on stocks in my savings accounts so probably a nice diversifier to pay the mortgage at essentially a cash savings rate of 5.1%, something I wouldn't get from a savings bank currently!

Overpaying makes sense as the risk on equities over a short period is a lot higher than equities over a long period.

My only reservation is the inflation one but I can't see real term & inflation beating salary rises over the next few years to justify not paying the mortgage down. Likewise 2014 could be a tricky time to re-mortgage :D

Interesting discussion. Thanks.

Edited by ringledman

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I would agree with most of the other posters on here: overpaying is a good idea, but ensure you have a wodge of cash, 5k minimum, so that you are liquid if something goes wrong. e.g. you lose your job or your cat gets sick.

The money that you don't put into the mortgage is costing you the difference between your mortgage interest rate and the best interest rate you can get on savings minus tax. This is probably about £200 per year - think of it as the cost of liquidity insurance. Also, it is always best to keep your cash in a different bank to the one from which you have your mortgage. This is because if you keep them both at one bank and it were to go bust, your savings would be matched against anything you owed on your mortgage, so you would lose your liquidity.

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if you over 30 with no deposit, or 35-40 with a deposit, its not worth paying a mortgage at all.

boat missed. your a 'prawn' in the big picture. an asset. a slave asset that get used to get the job of the super rich richer.

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Once you've got loft and cavity wall insulation I would pay off the mortgage in your situation. I find my situation a lot harder to decide I'm only paying 0.67%. On the one hand you may say don't pay off the mortgage you earn more in a savings account. But on the other hand if I loose my job if my savings aren't protected behind a fire wall (pension or equity in the house) I loose my savings.

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Once you've got loft and cavity wall insulation I would pay off the mortgage in your situation. I find my situation a lot harder to decide I'm only paying 0.67%. On the one hand you may say don't pay off the mortgage you earn more in a savings account. But on the other hand if I loose my job if my savings aren't protected behind a fire wall (pension or equity in the house) I loose my savings.

Couldn't you just pay into the mortgage if you get notice?

You are also allowed a certain amount of savings before your benefits are cut - I think it is about £6000. I'm not sure if your wife/husband is also allowed to have 6k. I'm sure it is easy to find out on that interweb thingy that people talk about.

Edited to add: Jobseekers allowance requires you have no more than £16k in savings, but is reduced by £1 per £250 above £6000.

Edited by Tiger Woods?

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wait for hyperinflation to wipe your slate clean with the price of a cup of tea.

Ofcourse, if house prices are falling ( they are) and inflation is rising (it is) you are throwing todays value cash into a decreasing asset and into a real value decreasing loan.

Id, say, keep the cash.

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I think that if you can pay off some of your mortgage you should do. The primary reason is to benefit from the peace of mind it gives you, but it also provides opportunities to invest your future savings into assets classes that are not depreciating. However, you should make sure you have some savings set aside; building up savings from scratch can take longer than you think and during that time you will need to know you have enough cash to meet any eventuality.

Also after paying off the mortgage have a look at the health/wealth balance and give some more attention to the former if necessary. After striving for something it is important to recognise the achievement when it is realised.

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wait for hyperinflation to wipe your slate clean with the price of a cup of tea.

Ofcourse, if house prices are falling ( they are) and inflation is rising (it is) you are throwing todays value cash into a decreasing asset and into a real value decreasing loan.

Id, say, keep the cash.

+1 - least someone else gets it.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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