Soldato
Nationwide is 10% as that's who I'm with
Overpay mortgage or save? (necro thread, scroll to bottom)
- Thread starter ChrisD.
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Soldato
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I am not insulting you, I am correcting you, thats different
They have virtually disappeared from the marketplace because the main scenario they provide a benefit under does not exist now, highish interest rates.
The real gain comes from the savings rate as you correctly identify, but at that time, most current accounts were non interest bearing, so leaving money just in current accounts was wasted. Ok its negligible now, but equally by current standards so are interest rates.
You have to look at the whole environment, a lot has changed. In those days endowment was the norm, interest rates were high on borrowing, more people sat on SVR, ISAs with large allowances existed
And the main reason I had to disagree was you said they were a good option instead of paying overpayments, they aren't.
If you had said they were a good option for people with high debt, who kept lots of money in their current account, whilst sitting on an SVR mortgage I would probably have agreed
I don't doubt they will come back into fashion, at some point as they do have a place and benefits.
If they suited you and triggered good behaviour then great, but people already talking about clearing mortgage early are already signed up to that mindset.
Wouldnt say they triggered good behaviour as it was always my mind set anyway but it definitely helped set the focus to getting it paid off as quickly as possible as I could see the benefits immediately (interest paid each month on the mortgage dropped).
Interesting thoughts and always good to hear differing opinions.
Although I agree interest rates are different hence offset mortgages are out of fashion, when fixed rates end the interest rates of mortgages is often exceptionally high vs the base rate so unless people constantly remortgage interest rates on mortgages are actually pretty high. It saddens me people are trapped into the forever re-mortgaging hassle, especially when they come with additional fees. I do wonder if they're also out of fashion as not encouraged - less money to be made?
Many people believe they have to have debt, and it's acceptable. Even leasing I just see as a different spin on borrowing money but others will disagree and just say it's like renting a car for x amount of time - and they justify it to themselves
. Just depends how you look at things. Some financial vehicles are overly complicated, people don't even bother comparison (ie, vs loan vs buying with cash).Of course people need to do what's right for them and their circumstances and also their own mind set. I think many do however just settle for paying x amount a month for the rest of their working lives to pay for a house and of course long term debt costs much more.
Must admit the last time I took an offset mortgage I worked under own company and as I do I just take a few big dividends a year, so it was easy for me to pay the monthly mortgage and then just chuck £20k into the offset account. I'd then take some out if I needed it during the year and kept minimum in my current account.
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My ISA is with AJ Bell. Main products in there are FTSE 250 ETFs. Which is where the risk is, at some points the markets will crash, I just plan on having the money in there a very very long time. I use a regular investment, so my transaction fees are very low, and reinvest all the dividends.
Good point there. I need to get my LTV down too.
Soldato
We are going to shove £900 a month into savings for 6 months then start overpayment of £900 pcm (the effective maximum allowed with nationwide for us). This will clear it 10 years early and save us about 45k in interest. The six months savings are a cushion which will form the final 6 months overpayment, paid in one lump. Our current LTV is about 30%
The answer is not one or the other, it's a mix. Over pay some, invest some, and keep some reserve cash in case of job loss, emergencies or whatever.
I find the stance of those recommending to have no significant savings in case of job loss very strange indeed. I'd far rather have 6 months worth of savings and know I'll be OK than be attempting to survive by depending on some non guaranteed help from the government that I highly doubt would cover a £2k mortgage and let me live in the manner to which I'm accustomed. Sounds like a terrible idea and might even lead to loss of your home!
I find the stance of those recommending to have no significant savings in case of job loss very strange indeed. I'd far rather have 6 months worth of savings and know I'll be OK than be attempting to survive by depending on some non guaranteed help from the government that I highly doubt would cover a £2k mortgage and let me live in the manner to which I'm accustomed. Sounds like a terrible idea and might even lead to loss of your home!
Soldato
Your reading it wrong.
I don't think anyone says do not have any savings, I always recommend 6-12 months depending on your situation, the more specialised, the more senior your role the longer it may take for a job to come up.
BUT, if you have an offset mortgage with £40k in savings you will get no support.
You are allowed upto £6k in savings and still claim unemployment etc.
I don't think I read anything wrong. You described having healthy savings as a risk, but it's the opposite. Maybe you wrote it wrong.
Soldato
Soldato
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It all depends on your lifestyle and total ongoing financial commitments but as @Mercenary Keyboard Warrior noted, too much in savings will limit benefit claim opportunities, if that was a direction you wanted to take. However, 6-12 months salary in savings could be £20-£100k plus which goes a very long way when in between jobs and trimming down your lifestyle.
Furthermore, usually overpayment on your mortgage allows you to take an underpayment break which is different from payment holidays up to the current calculated value of overpayment once you readjust for interest accrued etc.
Mortgage providers also often allow payment holidays or reduced payments if you are out of work.
On this basis, overpayment + savings is by far the most prudent approach.
Nice fantasy, bro!You don't think, but you indeed did
It would be a pretty dumb direction to take unless either you weren't able to build up the required safety net (largely irrelevant consideration in a thread about overpaying and saving) or you didn't expect to get another job once you lost it, in which case you have bigger issues.
Expect the best, plan for the worst.
Soldato
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It isn't the ideal direction and yes largely irrelevant in this thread but circumstances change. Plus others viewing the thread may find it useful to ponder and be aware of it. The rest of my post in context also clearly set out my opinion of the best approach.
A lot of families find themselves in this position though. One example is where a child or two comes along, sometimes planned sometimes not, and income drops considerably due to one partner subsequently not working longer term or being on maternity with a short term break and then costs of childcare etc on return to work.
Another is where savings deplete pretty quick if on the backfoot with limited time for lifestyle adjustments. Main earner loses their job, family committed fully on mortgage, cars, phones, loans, credit cards, children's activities and clubs etc etc which were all serviceable but lose one income and it all unravels very quickly.
In one of my previous roles we had several hundred weekly paid staff and many lived their lives on the financial limit; on a week to week basis in a never ending cycle of soap opera lifestyles. Benefits were the backstop. Bar the occasional few who lived very 'complicated' lives where actually prison was the likely backstop.
Soldato
L&G have focussed on this in the past couple of years with their Deadline to the Breadline campaign. Some pretty shocking statistics in there, but unfortunately that is the reality for many, even the majority.
http://www.legalandgeneral.com/adviser/protection/news-and-insight/deadline-to-breadline/
http://www.legalandgeneral.com/adviser/protection/news-and-insight/deadline-to-breadline/
Soldato
It wouldn't, again your fixating on a straw man you came up with.
No one, me included thinks its wise to go with no savings if thats possible.
We were specifically debating the benefits off an offset mortgage. Where if it was a decent size you could quite easily end up with significant savings, particularly if you were working hard to pay it off significantly early and hence building a large sum of savings vs a still large outstanding capital.
I always recommend sensible savings, if you search my posts on here you would see so.
And anyway its still logical for many reasons to make some overpayments. 1) The vast majority of mortgages allow drawdown or more commonly payment holidays when you have an overpayment reserve.
2) Bar investments with risk, its almost impossible for most people to match savings rates to mortgage rates, without significant effort running multiple current accounts. So your literally losing money keeping money in lower interest places compared to getting the mortgage down. If your matching rate its either a small amount or your increasing risk, not so wise when there is a better option available.
So if I have a £2k pcm mortgage. I pay off £24k as overpayment, I can then take 12 months holiday.
You keep your £24k in the bank. If something bad happens, first call I make is to mortgage co and say, need to take a payment holiday please, set it to 12 months, I will update to follow.
You just keep paying the £2k mortgage. After 12 months you are in the same position, you have paid off £24k, I have used £24k overpayment.
But at some point based on savings you start to become liable to support, council tax etc. Having money in the bank but still having to pay the mortgage pushes that further away. Now if your too proud to claim it then thats one potential reason to do so as you won't be putting yourself IN A BETTER POSITION.
There is another reason which also suits people, money in the bank often leads to unplanned or excessive spending as its harder to (for some) keep the regime of not spending. Certainly one of my mates who had an offset found this, he kept spending his savings on new PC games and bits. Making the overpayments moves the money out of sight, your far less to be tempted to just splash some if you need to make a call to ask for a drawdown or payment holiday in order to fund it.
Incorrect. Nobody had mentioned offset mortgages before your post in this thread and neither did you - the OP was not asking about them either, as he has an HTB loan. You might want to articulate yourself a bit more clearly when attempting to give financial advice for the sake of the people you are advising.
I don't care enough to research your previous posts.
Soldato
Your right, but then you came in and made a sweeping statement so its hard to know, when its a couple of liner as you seem only capable of producing.
Good point we have been round so many avenues as tends to happen in these threads, i got the order slightly out, points remain valid however.
This is not giving financial advice at all, saying something like best is a balance is just as inaccurate as its completely individual dependent, for some people investments are a really bad idea, they can't afford to take the risk (you can take that as advice if you want) or because of the nature of many investments being illiquid again they don't provide a good safety net in regards needing cash if losing a job (not advice just pointing out a fact). The point of these things to to throw people options and open their eyes to avoid simple advice as no one yet I believe has ever posted enough detail to even start to get financial advice.
And I still go back to the first comment that I don't see any posts where people did what you accused them of saving to have no significant savings, so I still go back to your first post was a strawman reply to something that hadn't been suggested, but your interpretation of something written.
Someone else gave you some other reasons, I guess I should have done the same and ignored you at that point, it may have avoided some pointless clutter.
Not surprised you wouldn't look elsewhere, post n run seems to be the way for many.
I will add you to ignore, saves both of us wasting time.