Reply to: Build savings or chip away at mortgage

[Old Hack]

I can understand the keenness to clear a mortgage, I chuck one other thing in to the pot -
Inheritance Tax is prompting some people to maintain a significant mortgage on their properties. It's relatively easy to transfer more liquid assets to others but if your house uses up your whole IHT allowance your dependants could be a bit stuffed.
Ok, some won't care but preference for me would be an offset with a chunk of capital in - same return but more flexibility.

This is true, but you can start giving money away, as much as you like, as long as you live 7 years after the gift. Our intention is to keep the house until we no longer need it, sell it, and give the money to the kids over and above what we need. The main problem is keeping all of your worldly goods until you die, then you get stiffed, best give it away a while before you die.

[lukemg]

I can understand the keenness to clear a mortgage, I chuck one other thing in to the pot -
Inheritance Tax is prompting some people to maintain a significant mortgage on their properties. It's relatively easy to transfer more liquid assets to others but if your house uses up your whole IHT allowance your dependants could be a bit stuffed.
Ok, some won't care but preference for me would be an offset with a chunk of capital in - same return but more flexibility.

[doodab]

Historically we've had wage inflation which has meant that a mortgage becomes relatively cheaper over time, whereas rents tend to rise. I know people who bought in London ten or fifteen years ago whose mortgage payments are now less than my weekly shop, and the places can be rented out for several times that. Obviously they have gained from the rise in property values as well.

We are unlikely to see the same sort of rapid rises in house prices for a while imo, historically after a downturn they bumble along for a protracted period. Rents are still going up in the longer term, so the advantages of buying are still there to be had imo

[SandyD]

Ok I'm half asleep, but this makes no sense to me. You want to pay more to own something faster that is decreasing in value? Surely better to pay less (effectively rent) , invest elsewhere , then pay off the loan if the property comes back into the black? So, if you have negative equity rent the place out , don't sell it unless you have to.

In the long term its not going to decrease in value, it will increase, but the increase (I believe and I can be wrong) is capped, so the house price is not going to double in 10 to 15 years like it used to do in the past but still it will increase a bit with inflation etc.

i.e. in the late eighties / early nineties a big farm house with an acre of land in the south would have cost around £180K which was quite expensive back then, same house would be around £800K nowadays

So the original mortgage even if it was 90% would have been a very good investment, but if one buys the same house nowadays for £800K the likelihood of it being worth 2 millions in 15 years is not high (but I could be wrong)

[aussielong]

In the old days people didn't bother paying off the mortgage because they didn't have much surplus money and relied on property market increasing the property value to offset the mortgage value (or in some cases makes the mortgage insignificant compared to the property value) but I am not sure in the future the property values will increase in the same way. Hence, paying off is a good option.

Like NLUK says, try so a few online calculators and play with some scenarios of offset vs fixed, even if offset mortgage % is higher, you are still saving a huge amount on the total debt.

Ok I'm half asleep, but this makes no sense to me. You want to pay more to own something faster that is decreasing in value? Surely better to pay less (effectively rent) , invest elsewhere , then pay off the loan if the property comes back into the black? So, if you have negative equity rent the place out , don't sell it unless you have to.

[proggy]

Try and get the mortgage payments down to very manageable levels, i.e. £400-200 a month. You can do this quickest by down sizing and getting the lowest rate possible. Then just forget about it and save very penny whilst still having a decent life. Invest the savings to get a decent return. Then as your savings grows you can start taking months off until you only need to top up the savings say working 6 months a year. This is my plan and I will be at the last step in 2 years.

[Old Hack]

We did our budget recently and council tax + utilities + groceries are easily pushing a grand a month. Hardly free from financial pressures - our rent was only about 1/3 of our monthly outgoings.

So everything, all in, is £12k for two people a year. I'd say £6k each a year is being free from financial pressure, relatively. My mortgages combined were around 3600, and now, with my only mortgage, soon to go, it's £780. Not having to pay, say a grand, in mortgage a month, frees you up significantly. If you say you both clear £12k a year, you go from living, to having £1000 a month in your pocket. It does make a difference. That's my only point.

[SandyD]

We did our budget recently and council tax + utilities + groceries are easily pushing a grand a month. .

Yep, same for me, while in the past all that would have come to ~ £400 a month, heh during that time I also used to have the gas fire place all the time.... nowadays no can do !!

[SandyD]

We have a lot of sustainable renewables in our place, ground source heat pump, Solar water, PV panels and it's reduced the bills dramatically. Council tax id the one I loathe paying the most...

Can you give me some information, I tried to get quotes for solar panels but the price was too high, I am aware there is ways to get them free and the companies would get the profit, but please do provide links/information.

However, in another country where the sun shines all year round about 20 or 30 years ago everyone started using solar energy for heating and water... guess what?? the government in that country decided to tax them on the solar usage, and its more expensive than installing electric, hence all new houses/flats now reverted back to using electric heating !!

[d000hg]

We did our budget recently and council tax + utilities + groceries are easily pushing a grand a month. Hardly free from financial pressures - our rent was only about 1/3 of our monthly outgoings.

[Old Hack]

Heh, not sure about the utility thing, my utility bills have more or less doubled in the last couple of years !!
If you want the truth I have no idea how most retired people who are not on benefit can afford it.

We have a lot of sustainable renewables in our place, ground source heat pump, Solar water, PV panels and it's reduced the bills dramatically. Council tax id the one I loathe paying the most...

[SandyD]

We've been clearing the decks for about a year to make sure we're mortgage free. It means, if anything, all of the money, is yours, all you have is the utilities and such like. But your biggest expense will be gone. You then also have a nice fat asset to either use, or sit on.

I have been both sides of the fence, Investing gambling and having debts and I can assure you, I sleep better now, knowing that's all coming to an end.

Heh, not sure about the utility thing, my utility bills have more or less doubled in the last couple of years !!
If you want the truth I have no idea how most retired people who are not on benefit can afford it.

[SandyD]

In the old days people didn't bother paying off the mortgage because they didn't have much surplus money and relied on property market increasing the property value to offset the mortgage value (or in some cases makes the mortgage insignificant compared to the property value) but I am not sure in the future the property values will increase in the same way. Hence, paying off is a good option.

Like NLUK says, try so a few online calculators and play with some scenarios of offset vs fixed, even if offset mortgage % is higher, you are still saving a huge amount on the total debt.

[Old Hack]

We've been clearing the decks for about a year to make sure we're mortgage free. It means, if anything, all of the money, is yours, all you have is the utilities and such like. But your biggest expense will be gone. You then also have a nice fat asset to either use, or sit on.

I have been both sides of the fence, Investing gambling and having debts and I can assure you, I sleep better now, knowing that's all coming to an end.

[BankingContractor]

Agreed - best course of action is simply pay down debt and become free of the burden as quickly as possible.

Personally, I don't believe in using "surplus" cash to invest in an ISA, etc even if the rate is better.

By that rationale, once you've paid off the mortgage, would you consider taking out a loan/mortgage to invest in such as ISA if the rate was better?

This is your family home, and to my mind, some things are beyond the scope of profit.. so if it was me, pay off the mortgage and have security for yourself and your family.

That's my tuppence worth..