This is easily solved with some maths.
We need:
We ( not really "we", more the OP) also need to know how close OP will be to his financial limit once the new rate kicks in. His childcare costs will plummet in 2 years in a way that will make his mortgage increase seem like peanuts. But for those 2 in between years he may well be right on the limit.
In which case the best idea may well be to bank the next 12 months spare and then use it as a monthly top up for the tricky 24 months to keep his head above water.
Using that 12 months cash to lower the mortgage balance will make comparatively zero difference to keeping him afloat for the 24 months tricky period.
He could then start chucking the £2,500 a month saved childcare costs into the mortgage and be mortgage free in no time at all 🙂
from where im sat with 30ish years to pensionable age – the ladder is slowely being pulled away to when i can even begin to draw down that pot would have me saying approach that “no brainer” with caution. dont put all the eggs in one basket
I think you can still draw down on private pension plans earlier though? Everything is a risk, and pension pots could potentially lose money I know, but 30 years to go isn't a bad time to start thinking about these things. I've been paying decent amounts into various pots for the last 20 or so years through various employer provided plans (no final salary unfortunately!), but I only really started paying attention in the last year or so. I'm 51 and am now doing what I can to stuff as much as possible into a private plan and paying the mortgage down.
I thought I'd never retire, but last year I took 4 months off work and decided that actually I'd quite like to retire, especially while I'm still healthy and ideally with some money to spend. I wish I'd paid more attention in my 30s.
For what it's worth, this country is in such a financial mess that by the time I hit retirement age I am not expecting the state to provide me with very much at all. By the time you get there hopefully things will have reversed a little but I wouldn't count on it.
its a no brainer if your only concerned with making a spreadsheet number look bigger and/or your approaching pension age.
from where im sat with 30ish years to pensionable age – the ladder is slowely being pulled away to when i can even begin to draw down that pot would have me saying approach that “no brainer” with caution. dont put all the eggs in one basket.
That was the point. Mortgage thread - over pay, pension thread - stick more in, savings thread - save, save, save. Its good advice in general and way better than doing nothing but there isn't a one size fits all solution. It's not even a one size fits one person solution as circumstances change over time.
Even the "maths" solution isn't totally correct. Yes, one answer will have the best numbers so wins but you may lose other things like flexibility. Also things like the feeling of having less debt hanging over you have to be factored in. Its a quantitative and a qualitive issue.
I think you can still draw down on private pension plans earlier though?
not from 2028
It was 50 when i entered the workforce.
its currently 55
its rising to 57.
State pension age was 65 - its now 67 to go to 68 in the 2030/40s.
ITs far from a no brainer - that said i do have a private pension - it would be foolish not to but to use that as your only savings to get the tax break is only a no brainer if you are planning to be forced to work to the bitter end. Hence why one of my "savings pots" is to have no mortgage/ low living costs.
Yes, one answer will have the best numbers so wins but you may lose other things like flexibility. Also things like the feeling of having less debt hanging over you have to be factored in. Its a quantitative and a qualitive issue.
Of course, but the information exists in the ether to have both outputs. OP probably already knows the qualitative, what they "want" and has a desire to make the best decision. Best decision comes from using the maths to inform of possible outputs.
Hang on trail_rat, are you only 37?
One final chip in from me then I'll leave it.
Whilst there's a lot of good advice on here, all of it well intentioned, most of it well informed, threads like this can be counterproductive.
Someone in that group of, let's call them 'financially less literate', people I've been talking about may well see the thread title and think "Hmm, I've been wondering about that".
They then open the thread and see the talk of websites, calculators, spreadsheets, qualitative and quantitative assessments etc. It's quite natural that they might think "f_k me, that looks complicated", close the thread, move on and end up doing nothing. And, yes, the same could be said for similar threads about pensions, but let's just stick to mortgages for now.
So, again, for those people, if you're thinking about overpaying your mortgage, and you have the money to do it, it is very, very rarely a bad idea.
Hang on trail_rat, are you only 37?
not even 😉
i may have missed in the above so i will state it anyway
a lower LTV under 60% will 'always' ** offer better rates, hence if you have ltv of 65% ie you have £65k loan against a house worth £100k (ie 65k mortgage left and 35k of equity) then getting over the 60% LTV threshold will almost certainly lower your rate.
rates will likely peak and then drop back a little within 20m i reckon..
i just set up a bog standard bank account bonus saver hsbc 3% upto £10k, current mortgage rate 1.25% expires next summer.
so will lump it then.
then getting over the 60% LTV threshold will almost certainly lower your rate.
Under?
yes @thegeneralist definately under, I'm thinking get over the 60% barrier for better rates, definately under 60% ltv
with reduced risk to the bank comes better rates for mortgage customer
example: todays 2 year fix, fee free @ hsbc
LTVs Interest Rate
60% 4.54%
70% 4.64%
80% 4.99%
85% 5.04%
90% 5.34%
95% 5.74%
Just an update on the MSE Mortgage overpayment calculator. I emailed MSE off the back of this thread discussion, and they have altered their results wording.
As it currently stands, the mobile site isn't showing the updated results wording that you get from the desktop site. But I've pasted both below for comparison using same dummy figures in calculations obvs, and the new desktop wording is much clearer to me.
Desktop results wording (NEW):
COMPARED TO SAVINGS
If you had instead put the overpayment amount(s) into a savings account paying 3.5%, over the same period (5 years and 11 months), you'd have made a net gain of £4,360.
That's because your remaining mortgage balance would be £74,630, while your savings would be worth £78,990. You could potentially use this to clear your mortgage and still have £4,360 left over, though this doesn't account for any early repayment fees charged by your lender - so check this first.
Mobile results wording:
COMPARED TO SAVINGS
If you had instead put the overpayment amount(s) into a savings account paying 3.5%, you'd have made £7,990 in interest over the same period (ie 5 years and 11 months).
Taking this into account, there is a net gain from overpaying of £4,870.
Edit - So, confirmation that I had misunderstood what the results were saying before, but if I'd have seen the results text as it is now, there would have been no confusion. Time to alter my overpayment/savings approach!
Have to say, I still don't understand how the old (mobile) results wording is saying the same thing as the updated (desktop) results wording! 🙂
Well done for getting them to change it
As it currently stands, the mobile site isn’t showing the updated results wording that you get from the desktop site.
All updated on mobile site now. Good work by the MSE team on the improvements to their calculator.
