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Based on another thread on here about doing buy to let or saving cash...
Myself and Mrs FD are not in a position to be saving money currently but may be soon, now I was thinking just save in to the ISA.
However if our mortgage rate is 5.25 ish percent. Wouldnt we be better paying off the mortgage rather than putting in to an ISA that might be getting 2.5%?
given that there is a risk that the base rate will rise soon. pay off the mortgage.
Mortgage unless you might need quick access to that money in which case, maybe do a bit of both.
Does your mortgage allow overpayments? You need to factor any early redemption penalties into the calculations, but at the moment it looks like you'd be better paying off the mortgage, given you're paying out almost 3% more than you'd be getting from the ISA...
Mortgage unless you want the flexibility. It's good to have some savings squirreled away in case of emergencies.
That's not a great ISA rate btw.
mortgauges normally allow 10% of remaining value as overpayment without penalties, but worth checking
as above though, if you have a cushion of money to fall back on if you need it, paying of the mortgauge is a good idea. Clear all your unsecured debt (Credit Cards, Overdrafts etc) first though
My wife's a financial advisor and says:
how long is a piece of string?If these savings are to built up to meet some kind of short, medium or long term objective then they won't be accessible if paid into the mortgage unless the mortgage has offset facilities or they remortgage to release the funds back, this will be a costly exercise and will depend on circumstances at the time. Therefore not appropriate if that's the purpose.
Also said 'buy to let or cash', if buy to let then interest paid on the mortgage is offset-able against income received for tax purposes. Depending on tax rate payable this could save 0, 20, 40 or 50% so it might be better having the money in cash than paying off mortgage.
I could go on and on in this regard but ultimately the question is not answerable without a thorough analysis of objectives, income and expenditure and ideally a cash flow model.
Don't ask a bikers forum for investment and savings advice and I won't ask Single Track [sic] their opinion on the new pension draw down rules!
to be fair, your other half underestimates the power of STW
but that will not be held against her when she comes crawling for pension draw down rules advice.
tomdebruin, can you ask her what tyres for financial advice and scorning STW?
I think this is in danger of becoming over-complicated, but Tom's missus mentions the most important thing which is
do you need easy access to the cash?
If not, then pay off the mortgage. I'm not sure what inflation is at the moment, but most savings are barely matching inflation, so saving money seems a bit pointless if you have debts to pay off (unless you need easy access to the cash).
The compromise? Offset mortgage. I had one of these and it was great. I still had easy access savings but instead of earning interest the savings capital was offset against the mortgage, thus saving interest on my mortgage. Since interest on borrowing will always be higher than interest on saving, it seemed a no brainer to me. That's before you even consider tax on savings interest, although that's not relevant to cash ISAs
Obviously you have to check the offset mortgage rate is competitive with other mortgages, but I think it's worth looking into. My offset mortgage had no over-payment penalties either, so if we had a spare lump sum we paid off the mortgage.
Don't ask a bikers forum for investment and savings advice and I won't ask Single Track [sic] their opinion on the new pension draw down rules!
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😆
Pay of mortgage as you won't get an ISA that gives you 5%! Simple. Also are you stuck in the mortgage! Paying 5% .. we are paying 2 1/2%
Loving Geoff's pic! Point is you ask on STW as you KNOW there is bound to be someone on here with the same job as your Missus... whoops you should've edited that bit.
1.25% here 8)
0.98% for me. So there. 🙂
Oh, and i'd pay some off the mortgage but also save up a bit of rainy day money as well. It's a nice feeling having a bit of cash behind you in case unforseen expenses crop up.
I personally save at the moment rather than pay down my mortgage, but that's only because i get more interest on my savings than i get charged by HSBC on my mortgage.
0% here, paid it off about 5 yrs ago 😆
Obviously you have to check the offset mortgage rate is competitive with other mortgages, but I think it's worth looking into. My offset mortgage had no over-payment penalties either, so if we had a spare lump sum we paid off the mortgage.
Why haven't I ever had a "spare lump sum"???? 🙄
Personally I'm saving a minimum of 3 months of mortgage repayments before I consider overpaying the mortgage ... safety net, 4 months in and I'm 2/3's of the way there, not to bad considering I've had to buy a fridge and cooker since I moved in, fingers crossed the boiler and the washing machine keep going too - and don't even mention the CRT TV (8 years old and going strong).
And for those of you with preferable rates, you try buying last year with a 10% deposit and see what rates that gets you, if it's a 'size of interest rate' willy waving competition then I'll win so just leave it there ok!
Aren't you an accountant!
It's not worth saving as the inflation rate is higher than any savings rate you'll get - so you'll end up losing spending power.
It's not worth paying off the mortgage as inflation will diminish the debt over time.
Put your money in an inflation proof investment - let me know when you find one!
Do you have any savings?
It used to be common wisdom do have 6 months wages in the bank so that should anything happen you are not up the creek with mortgage payments and bills.
Might be worth considering as once you've paid it to the mortgage company you can't get it back if you need it a year later.
jonb +1
(and offset comments)
We overpay into the mortgage, with the long term plan that we will use the stash to put towards the next house deposit when we move. Which will be a while away as our house is worth the same as when we bought it four years ago, so we haven't built up a deposit in the equity.
Our mortgage is with Nationwide and you can use the overpayment stash either take payment holidays if things get tight, or borrow back on a rainy day, or just leave it in there to reduce the interest.
Am getting 12% back on my current ISA, so put your money in something like that, High income (but its reinvested) medium risk european isa.
Am making hay while the stock market is on a run