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Johnny Cash

Overpaying Mortgage?

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Its generally accepted that overpaying your mortgage is a good idea, especially if you jhave money sitting in an account earning 2% and the interest rate on your mortgage is 5%.

However, how does this fit in with the factor of inflation eroding the capital?

Obviously one good argument for having a mortgage is that you borrow the money at todays prices and pay it back in the future when inflation has eroded some of the value of the capital.

I realise that the only type of inflation which erodes the capital is wage inflation but, given that wages should rise to a limited extent, by repaying a mortgage early, is one missing out on the benefits of future inflation?

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Its generally accepted that overpaying your mortgage is a good idea, especially if you jhave money sitting in an account earning 2% and the interest rate on your mortgage is 5%.

However, how does this fit in with the factor of inflation eroding the capital?

Obviously one good argument for having a mortgage is that you borrow the money at todays prices and pay it back in the future when inflation has eroded some of the value of the capital.

I realise that the only type of inflation which erodes the capital is wage inflation but, given that wages should rise to a limited extent, by repaying a mortgage early, is one missing out on the benefits of future inflation?

You would have a point if your debt was losing value faster than your cash, but it's not is it?

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Its generally accepted that overpaying your mortgage is a good idea, especially if you jhave money sitting in an account earning 2% and the interest rate on your mortgage is 5%.

However, how does this fit in with the factor of inflation eroding the capital?

Obviously one good argument for having a mortgage is that you borrow the money at todays prices and pay it back in the future when inflation has eroded some of the value of the capital.

I realise that the only type of inflation which erodes the capital is wage inflation but, given that wages should rise to a limited extent, by repaying a mortgage early, is one missing out on the benefits of future inflation?

Pay it down. At those differentials you would be mad not to. Just leave yourself enough bunce to cover capital items like replacement cars so you dont have to go down the unsecured personal loan route.

In my case my mortgage is a lifetime tracker at 1.5% above base rate. Outstanding sum is about £43K.

On cash in ISA's Im getting about 2%

On zopa im heading towards the 25K limit

FTSE Im getting a bit gittery

After filling the first two Im going to start paying down the mortgage again. No financial gain but securing roof over ones head is always a winner (although I don't live in it right now :lol: (

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I overpaid my mortgage for years but then my Mrs left me and got half of the equity in the house so I wish I had put it in my personal savings account instead.

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You would have a point if your debt was losing value faster than your cash, but it's not is it?

Hmm not sure.

My debt is losing value at the rate at which my income increases.

My cash however, isnt losing value, at least the cash in the bank isn't, since i only intend to use it to pay off the mortgage. I accept that relative to the cost of living (food, energy etc) my cash is losing value at the rate of RPI - interest received in the bank, but my non mortgage outgoings are relatively small, ie personal inflation rate probably quite low.

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Hmm not sure.

My debt is losing value at the rate at which my income increases.

My cash however, isnt losing value, at least the cash in the bank isn't, since i only intend to use it to pay off the mortgage. I accept that relative to the cost of living (food, energy etc) my cash is losing value at the rate of RPI - interest received in the bank, but my non mortgage outgoings are relatively small, ie personal inflation rate probably quite low.

All true, but you will get a better "return" by paying down the mortgage, enabling you to save and pay down even more in the future.

What Kurt said.

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Its generally accepted that overpaying your mortgage is a good idea, especially if you jhave money sitting in an account earning 2% and the interest rate on your mortgage is 5%.

However, how does this fit in with the factor of inflation eroding the capital?

Obviously one good argument for having a mortgage is that you borrow the money at todays prices and pay it back in the future when inflation has eroded some of the value of the capital.

I realise that the only type of inflation which erodes the capital is wage inflation but, given that wages should rise to a limited extent, by repaying a mortgage early, is one missing out on the benefits of future inflation?

It's a terrible idea.

For the financially astute it is far better to save the money in a tax free savings vehicle such as NSI or cash/stocks ISAs and keep your money flexible, at least while interest rates are so low anyway.

If you are on a higher mortgage rate and are a higher rate tax payer then a 6% mortgage would be givine you the same return as a 10% standard bank acount before tax on your savings interest.

Most higher tax rate payers are probably on low rate trackers (no evidence to sugges this)

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There's a value to the peace of mind of having a small mortgage or no mortgage at all. Part of the value is also that you are not beholden to your employer to any great extent so you don't have to take so much shit if you don't want to. Having no mortgage also allows you to make changes to your life that may well make you happier, wealthier, or both. It is very easy to underestimate this value when getting lost in the "I can get x% here and my mortgage is only y%"and seeing the short term monetary benefit only.

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It's a terrible idea.

For the financially astute it is far better to save the money in a tax free savings vehicle such as NSI or cash/stocks ISAs and keep your money flexible, at least while interest rates are so low anyway.

If you are on a higher mortgage rate and are a higher rate tax payer then a 6% mortgage would be givine you the same return as a 10% standard bank acount before tax on your savings interest.

Most higher tax rate payers are probably on low rate trackers (no evidence to sugges this)

Eh??

So in one breath you say its a terrible idea, then go on to say that to beat a 6% mortgage as a higher rate tax payer, you need to find a savings account paying 10% before tax. And where can I find one of those, pray?

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Eh??

So in one breath you say its a terrible idea, then go on to say that to beat a 6% mortgage as a higher rate tax payer, you need to find a savings account paying 10% before tax. And where can I find one of those, pray?

Maybe in Greece? :D

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Assuming you have no outstanding loans or credit card debts (which you should pay off first), I would definitely overpay while rates are this low. Nobody wants to be caught with a big repayment mortgage or worse an interest only mortgage once interest rates start to climb.

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Assuming you have no outstanding loans or credit card debts (which you should pay off first), I would definitely overpay while rates are this low. Nobody wants to be caught with a big repayment mortgage or worse an interest only mortgage once interest rates start to climb.

Sounds logical, but in fact, it's wrong.

You should only overpay when rates are high. I.e. you should use any spare monies to get a higher rate of return than your mortgage interest rate is, then use that money to overpay when your mortgage rate is above what you can get for your savings.

Read Liar's Poker for more info.

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OTOH....

I spent a decade living off baked beans and going on cycle camping holidays, finally paying off mine in about 2006. And since 2007 have had a big chunk of money every month with nowhere to go that (at best) doesnt devalue at the rate of inflation, the loss going to keep all the feckless buggers who were living it up for that decade in the style to which they have become accustomed.

Which sucks, let me tell you.

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There are other advantages to overpaying. If you worry about long unemployment or other benefits, they are affected by savings. If you already have a place with a mortgage on it its as good a place as any. In addition some mortgages let you borrow back overpayments at the same rate.

By paying a good chunk of it off you will find more Luxury income available, Overpaying took the niggling stress out of life, maybe its not the 100% best way to earn the maximum return from your money, but that is not everything to consider. We went from £131000 to 71000 over 6 years, payments are down to 400 a month (full repayment) we had a little luck with the interest rates but we still carried on overpaying.

Suddenly you find you can survive on a household income of 11k if you absolutely had too.

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Eh??

So in one breath you say its a terrible idea, then go on to say that to beat a 6% mortgage as a higher rate tax payer, you need to find a savings account paying 10% before tax. And where can I find one of those, pray?

My mortgage rate is 2.5% plus i pay 40% tax on the profit from renting it out.

If I was living in it and had a 6% mortgage then I'd overpay

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So long as your bank rate is < 5.5 put it in NS&I RPI + 0.5% certs.

Done that

And maxed out on ISAs

What next?

If you earn well and live frugal, have no mortgage/rent to pay and dont want to pour it into a bubble (property, yellow stuff, tulips etc), the cash can rack up pretty quick.

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There are other advantages to overpaying. If you worry about long unemployment or other benefits, they are affected by savings. If you already have a place with a mortgage on it its as good a place as any. In addition some mortgages let you borrow back overpayments at the same rate.

By paying a good chunk of it off you will find more Luxury income available, Overpaying took the niggling stress out of life, maybe its not the 100% best way to earn the maximum return from your money, but that is not everything to consider. We went from £131000 to 71000 over 6 years, payments are down to 400 a month (full repayment) we had a little luck with the interest rates but we still carried on overpaying.

Suddenly you find you can survive on a household income of 11k if you absolutely had too.

How would that work with an offset account? Is that savings or mortgage principal paid off but still 'accessible'?

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Pay it down. At those differentials you would be mad not to. Just leave yourself enough bunce to cover capital items like replacement cars so you dont have to go down the unsecured personal loan route.

If you overpay you build up a overpayment reserve that saves you having to get a personal loan. Mine is at about £15K at the moment and I can withdraw it whenever I want, no questions asked.

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Done that

And maxed out on ISAs

What next?

If you earn well and live frugal, have no mortgage/rent to pay and dont want to pour it into a bubble (property, yellow stuff, tulips etc), the cash can rack up pretty quick.

Why not yellow stuff? at least you can run your hands over it saying "My Precious" whenever you're feeling down with the world :P)

Alternatively, why not decrease your working hours? give yourself more time to do what is important in life.

If you're really pressed, I'm cash poor, and need money for a deposit (eventually!)...

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For the financially astute it is far better to save the money in a tax free savings vehicle such as NSI or cash/stocks ISAs and keep your money flexible, at least while interest rates are so low anyway.

The overpayment reserve is pretty flexible. I am tempted to take it and get another £15K of NS&I for my son and my daughter, but I'm going to hold onto it as I have a lot of bills to pay for a loft conversion.

Just a point of balancing the 2.5% of the mortgage against the RPI +0.5% of the NS&I.

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There's a value to the peace of mind of having a small mortgage or no mortgage at all. Part of the value is also that you are not beholden to your employer to any great extent so you don't have to take so much shit if you don't want to. Having no mortgage also allows you to make changes to your life that may well make you happier, wealthier, or both. It is very easy to underestimate this value when getting lost in the "I can get x% here and my mortgage is only y%"and seeing the short term monetary benefit only.

+1

I do my employer a favour by turning up each morning not them doing me a favour by employing me..

Since being debt free, can now afford bespoke suits and work shirts (albeit at the lower price end) which is something I shouldn't be able to do on my salary!

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How would that work with an offset account? Is that savings or mortgage principal paid off but still 'accessible'?

Just ring the mortgage provider and ask, they are all different. Our mortgage is a tracker with flexible features, not an offset mortgage.

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Done that

And maxed out on ISAs

What next?

If you earn well and live frugal, have no mortgage/rent to pay and dont want to pour it into a bubble (property, yellow stuff, tulips etc), the cash can rack up pretty quick.

Get some hobbies (partner dancing, cycling, mini festivals), and enjoy life while your still mobile. The amount of 55+ yearolds I see that suffer from being immobile with joint problems, depression, and generally very dull lives is astonishing.

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Done that

And maxed out on ISAs

What next?

If you earn well and live frugal, have no mortgage/rent to pay and dont want to pour it into a bubble (property, yellow stuff, tulips etc), the cash can rack up pretty quick.

Spend it and stimulate the economy.

:P

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  • 284 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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