Soldato
Mortgage Rate Rises
- Thread starter glenimp617
- Start date
I always find it a bit ironic that we have these detailed threads about optimising finances in terms of mortgages/savings etc but then people are worried about savings burning a hole in their pocket! I mean, to me it's all interconnected as part of the plan, you put money aside in savings categorised for your future mortgage payments and don't spend it, it's a non-issue, so if people are worried about that it makes me wonder how they are so careful in other areas. People might say "aha, but what if something unexpected comes up you need the money for young man, your nerdy saving will fall flat on its face and then you've spent the mortgage money amirite???" but surely that's an even bigger problem if the money has already gone into the mortgage as you'd have less liquidity to deal with the unexpected short term cost before getting things back on track? I just don't get it, it's all about a timing offset that gives you both more money at the end of it and also more short-term flexibility by having cash not yet sunk into the mortgage prematurely.
Of course, where people recognise this as a genuine issue for themselves, I'm not going to criticise, repaying a mortgage is never THAT bad an idea (compared to blowing a huge wedge on luxuries or whatever) even if it is sub-optimal.
By nothing, you mean £347.31 ?
That's saving £200 a month at 5% savings rates vs paying off mortgage each month by £200 using your mortgage rate of 4.52% over a 7 year period.
EDIT: Assumptions made in my example was £1500 a month payment.
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I don't think I'd bother with maxing savings vs mortgage overpayment when the difference is 4.57% to 5% ish tbh, whilst yes it's better, it does add some extra work
In my case though, mortgage is 1%, and savings is 5%, this is a no-brainer and is potentially a lot more than £167, so I am maxing the savings.
But as we discussed many times, savings can be a lot more flexible in how you deploy them, mortgage overpayment you can't get back easily and use for anything else.
Yeah I wouldn't bother either at fractions of a percent.
But at 1+ percent it may be worth it.
At 3+ percent...yeah I'd definitely be in savings and not overpay
Soldato
How did you calculate that?
Depends if you mean mathematically worth it, or a worthwhile time investment.
Time investment is minimal. Savings also brings flexibility if you ever come to need that money. Tax implications are zero on £200 a month savings even in the final 7th year. (£926.68 interest earned).
EDIT: Scrap that. I was being a **** there. There are tax implications. Spreadsheet was wrong.
EDIT2: Actually no I'm pretty sure that's right. Tax would be under personal allowance even over 7 years.
Time investment is minimal. Savings also brings flexibility if you ever come to need that money. Tax implications are zero on £200 a month savings even in the final 7th year. (£926.68 interest earned).
EDIT: Scrap that. I was being a **** there. There are tax implications. Spreadsheet was wrong.
EDIT2: Actually no I'm pretty sure that's right. Tax would be under personal allowance even over 7 years.
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I see debt, mortgage, isa, pension as basically one big cash value.
At home I have a spreadsheet that I update every so often with it all.
At the very high level I have a easy access value
(credit debt + isa + bonds + bank account)
The above that I have house equity
And above that pension added too.
Its all one big value. I've accrued a lot of 0pc credit cards while the balance sits in premium bonds to buy the van. As its better than a loan/finance.
I've never had an issue with it myself (willpower) and will happily move money around and not be overcome with sentiment (ie clearing a mortgage in fastest time).
I'd rather have emergency money in an isa that I can get than locked away in in my property that's often really difficult to extract.
Also. If I lost my job I could carry on paying the mortgage from savings. Although I know you can sometimes use past overpay for this.
But for people who do struggle with self control, it makes sense to overpay (lock out away)
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I just put it in excel. It's just an example. There are other online calculators linked above as well. Not sure how good they are.
Probably just using one of the simple savings calculators.
I'd say I do spend some time moving money around. Mainly my regular savers. But it's a once a year thing.
Saver ends. Dump it into bank account, close it, open new one and set up standing order.
That's the extent of the hassle.
Probably under an hour a year. Maybe another hour checking for best place to save
Saver ends. Dump it into bank account, close it, open new one and set up standing order.
That's the extent of the hassle.
Probably under an hour a year. Maybe another hour checking for best place to save
It’s entirely dependent on what your priorities are and how strong your desire is to pay your mortgage down.
Priorities can change as can their desire to pay it down or not.
For most people we are talking an about a few hundred a month of unspent salary and not tens of thousands. For those people, they are probably using regular savers as they tend to offer a decent rate on the relatively small amounts of money you have from spare salary every month. They also tend to top out at £3k - £5k in total value after a year.
It’s very easy for an extra few K here and there to get spent on a good holiday or to buy a slightly nicer car which you otherwise wouldn’t do if you knocked that off your mortgage every month.
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Regular savers are one of my favs favourite high street bank products.
Its perfect for holiday pay (or mortgage etc) as rates often are 2 percent above at least best isa/easy access.
I should hit 400+ interest from those this calendar year. Not too sniffed at.
Soldato
Haha OK. More that I don't get where £367 sits in the scheme of things
The balance remaining on your mortgage at the end of the 7 year period would be £347 less if you had saved at 5% vs over paid your mortgage at 4.52% per month with the same £200 monthly amount. Does that explain it? (example used a £1500 monthly base mortgage payment)
So I'm just saying, when people say "nothing", it's good to call out the actual amount because when people hear the amount it often changes their feelings on it. For you, £347 may well be pocket change I don't know.
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Soldato
How so? Inflation dropping, jobs starting to be impacted....?
Inflation sticky, wage growth high, services inflation high.
'Markets' were pricing in 4 cuts this year, now its down to 1. Of course 'markets' dont know anything and its all a guess but hefty cuts look unlikely anytime soon.
Pound Sterling in Inflation Boost vs. Euro & Dollar as Rate Cut Hopes Fade
www.poundsterlinglive.com
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Inflation is more than 50% above target currently, even if it is heading in the right direction.
The way I'd position it is that inflation is now at a level that reduces the chances of rate rises (compared to 5%+), but it's above 3%, that's not normally the sort of level you'd be scrambling to cut rates, unless there were some other drivers at play.
Exchange rate wise we're not out of the woods, 1.25 USD again that's not screaming at me to expect rate cuts, especially with the signals coming from the Fed suggesting the US aren't planning to slash rates https://www.washingtonpost.com/business/2024/04/16/interest-rates-powell/
The way I'd position it is that inflation is now at a level that reduces the chances of rate rises (compared to 5%+), but it's above 3%, that's not normally the sort of level you'd be scrambling to cut rates, unless there were some other drivers at play.
Exchange rate wise we're not out of the woods, 1.25 USD again that's not screaming at me to expect rate cuts, especially with the signals coming from the Fed suggesting the US aren't planning to slash rates https://www.washingtonpost.com/business/2024/04/16/interest-rates-powell/