Juggling savings

**moorfield** · 19 September 2007, 11:40

Northern Rock.

**DaveB** · 19 September 2007, 12:27

Originally posted by Gros View Post

Sorry, this isn't really an accounting or legal question, it's more of a personal finance thing - but I thought it was too serious for the 'general' forum. Mods, feel free to move it if you prefer.

I was just after some opinions on this, as I don't have a financial advisor!

I have a mortgage with roughly 100k on it, which allows overpayments of 10% per year. I am lucky enough to be doing ok with savings, and have enough sitting around to be able to do this without it crippling me. I don't need the savings for anything else, so common sense to me says that the money is better off being used to pay off part of the mortgage, rather than sitting in the savings account.

Sure I lose some interest in the bank account, but surely the gains in the reduction of my mortgage payments and long term savings in the interest more than offset the difference?

Would appreciate any opinions here...

Cheers.

Generally yes, paying off the mortgage is the best thing to do. However, if like me, your savings are attracting a higher rate of interest than your mortgage you might be better off hanging onto them. I hav'nt got around to doing the sums yet though.

**MrRobin** · 19 September 2007, 12:33

Yes, in short you will be better off. It is likely that your mortgage will be at a higher borrowing rate than your savings deposit rate, and even if it is not, it is more than likely that any tax you are paying on your savings (unless it is all in ISAs) will more than eat up the difference.

If you don't have a requirement to have the savings in place for a rainy day then overpay away I say. You may even wanht to consider an offsetting account if you do have a lot of cash stored away; you'll save even more in that case.

**XLMonkey** · 19 September 2007, 12:59

Depends on your personal circumstances. Specifically

1. How old you are. The closer you are to retirement age (whatever age you want to retire at), the better an idea it is to pay down the mortgage.
2. How big a burden the mortgage is. If your mortgage payments are more than, say, 35% of your net income, then its probably a good idea to bring it down. (35% is just my rule of thumb)
3. How confident you are in your future income. If you reckon you've got plenty of years left in you and the only way is up - then you don't need to worry so much about the mortgage (and of course, the opposite applies)

Although paying off your mortgage is not a bad way to invest your money (after all, you might think, I'm saving all that interest), there are a couple of downsides:

1. The money is tied up in your home and that means that it takes quite a bit of time to take it back out when you need it.
2. The value of the property will generally rise faster than the mortgage interest rate (I know, there's gonna be a crash. There's always gonna be a crash). So, you will be making money on what the bank has lent you, as well as what you've put into the house. This is the joy of leverage.

So... I reckon that its good to pay off the mortgage faster if....
- the payments are greater than 35% of the mortgage
- you're planning on hanging up your boots in the next ten years
- you reckon that you're income is not likely to rise very much over the next 5 years

but otherwise, I would actually put the money into higher risk investments and let the joy of leverage carry on.

**ChimpMaster** · 19 September 2007, 15:01

Agree with previous poster comments re: leverage etc. It can be a good way to make money if you know what to do with the savings in the bank, or are buying investment properties.

Personal opinions differ, and I have been taught another rule of the game which is to pay off all debts and build up capital and assets the old fashioned way. That way you actually own something and have something to fall back on if need be. Personally I don't like debt and am aiming to have my mortgage paid soon as possible -- at this moment I'm on a great fixed rate deal from 3 years back, so when that runs out I will (hopefully) bulk pay it all (or a large amount) off.

World economies today are built on debt, and powered by consumer spending. Total UK debt is now greater than annual GDP. It'll all collapse at some point, possibly 2 years now that the farce has been extended by the liquidity pumps and interest rate cuts.

When that happens, I don't want to be "debt rich", I'd rather be "asset rich" and cash-flow positive - and also have cash in the bank too.

Pay your mortgage off if it suits your circumstances. And congratulations - you're thinking along the right lines now.

**FiveTimes** · 19 September 2007, 15:31

Originally posted by MrRobin View Post

If you don't have a requirement to have the savings in place for a rainy day then overpay away I say. You may even wanht to consider an offsetting account if you do have a lot of cash stored away; you'll save even more in that case.

Regarding offsetting, I take it that there is no way to offset funds in the business account against a mortgage ?

I assume it won't be possible as the money in the business account isn't mine unitl its been withdrawn and therefore can't be used agaisnt in such a way.

Just a thought..

**MrRobin** · 19 September 2007, 16:15

Originally posted by FiveTimes View Post

I assume it won't be possible as the money in the business account isn't mine unitl its been withdrawn and therefore can't be used agaisnt in such a way.

Correct. Never confuse your own money with your company's money.

Of course, if you had a commercial mortgage for some business venture however, that would be different...

**Gros** · 19 September 2007, 16:44

Many thanks for these great responses everyone, certainly gives me something to go home and think about!

**someone has my name** · 20 September 2007, 12:20

thanks from me too ... I have a simaler dilema ..

Juggling savings