Money...

2»

Comments

  • Headhuunter
    Headhuunter Posts: 6,494
    Butterd2 wrote:
    Headhuunter wrote:
    Exactly! This is my question! There's no point paying off the debt if it's accruing interest more slowly than I can earn interest somewhere else. It's not just a given that you should mindlessly pay off debt when you can get an arbitrage between what you pay in interest and what you earn somewhere else....

    Look at it this way. If that were possible then you should increase your mortgage and invest the extra money in ISA's pocketing the difference in interest as profit. Sounds unlikely to me.

    Best solution is an offset mortgage that way use reduce interest payments but can always access the money quickly if you need it. You cannot take money out and then put it back in the ISA later.

    Anyway, hope you are well, long time no see.

    Yeah it is in an offset, when I say "pay off" I mean stick it in a current account offset against the mortgage so it's instantly accessible...

    Yeah long time. I did the Pearson 150 last weekend, half expected to see you there like last year!
    Do not write below this line. Office use only.
  • Headhuunter
    Headhuunter Posts: 6,494
    DaxPlusPlus wrote:
    Do both!

    Get a mortgage where you can link your ISAs to your Mortgage. Put your money in the ISA. You get to keep your ISA allowance (and can access the money quickly if your really have to) but in the meantime it's offset against your mortgage.

    Maximum flexibility.

    Yeah I'm not sure that's possible with my bank and I'm reluctant to change mortgage because my rate seems to be very low at 1.5% at the moment and it doesn't ever seem to change... I originally signed up for a fixed tracker at 0.1 over base for 2 years or something, so I was paying 0.6% interest for a while, then it went up to 1.5% and it hasn't changed since then... Most mortgage deals out there seem to be 3-5% (same as the average ISA rate). Not sure if mine is locked at 1.5% for a reason but I'm happy with that in the current market...
    Do not write below this line. Office use only.
  • Butterd2
    Butterd2 Posts: 937
    Headhuunter wrote:
    Yeah long time. I did the Pearson 150 last weekend, half expected to see you there like last year!

    I was on the Isle of Wight doing a sportive with the wife. 37 miles in 3.5 hours! Still at least it wasn't raining.....
    Scott CR-1 (FCN 4)
    Pace RC200 FG Conversion (FCN 5)
    Giant Trance X

    My collection of Cols
  • il_principe
    il_principe Posts: 9,155
    Buy a new bike!

    Cannot believe I am the first person to suggest this.
  • Headhuunter
    Headhuunter Posts: 6,494
    Butterd2 wrote:
    Headhuunter wrote:
    Yeah long time. I did the Pearson 150 last weekend, half expected to see you there like last year!

    I was on the Isle of Wight doing a sportive with the wife. 37 miles in 3.5 hours! Still at least it wasn't raining.....

    You could've walked it faster than that!
    Do not write below this line. Office use only.
  • Headhuunter
    Headhuunter Posts: 6,494
    Il Principe wrote:
    Buy a new bike!

    Cannot believe I am the first person to suggest this.

    You aren't! And I specified that I wouldn't be using it to buy a bike...
    Do not write below this line. Office use only.
  • Stone Glider
    Stone Glider Posts: 1,227
    Paying down debt is always the way to go , if you can. The 1.5% mortgage deal is such a bargain (with inflation @ 5% it is paying you money, in a strange way ) you are wise to hang on. The best ISA rates are not much more than 3.5% but with you, probably, paying 40% Income Tax that is a decent reward in the present climate. The trouble with an "offset account" is the rates of return can be rubbish, they are popular with people who like the idea of being shrewd with money but aren't :)
    The older I get the faster I was
  • Headhuunter
    Headhuunter Posts: 6,494
    Stone Glider wrote:
    Paying down debt is always the way to go , if you can. The 1.5% mortgage deal is such a bargain (with inflation @ 5% it is paying you money, in a strange way ) you are wise to hang on. The best ISA rates are not much more than 3.5% but with you, probably, paying 40% Income Tax that is a decent reward in the present climate. The trouble with an "offset account" is the rates of return can be rubbish, they are popular with people who like the idea of being shrewd with money but aren't :)

    How can offset returns be rubbish? You mean when the mortgage rate is so low?
    Do not write below this line. Office use only.
  • Stone Glider
    Stone Glider Posts: 1,227
    Ah! I misunderstood, you are obtaining an off-set arrangement whilst maintaining your 1.5% mortgage? That is an outstanding result, I doff my hat :lol:
    The older I get the faster I was
  • optimisticbiker
    optimisticbiker Posts: 1,657
    Stone Glider wrote:
    Ah! I misunderstood, you are obtaining an off-set arrangement whilst maintaining your 1.5% mortgage? That is an outstanding result, I doff my hat :lol:
    Err...isn't that what all offset mortgages do?

    Mine is 0.49% above base for life, so currently I'm paying 0.99% interest on the balance of my mortgage, which is offset against the money in savings accounts, our joint account and Mrs OBs and and my own current accounts. The effect is the same as if I had paid off the same value of the mortgage but the money remains accessible. Nevertheless I also have an instant draw down facility on the mortgage account so I can use anything already paid off to raise funds in an emergency.
    Invacare Spectra Plus electric wheelchair, max speed 4mph :cry:
  • Headhuunter
    Headhuunter Posts: 6,494
    Stone Glider wrote:
    Ah! I misunderstood, you are obtaining an off-set arrangement whilst maintaining your 1.5% mortgage? That is an outstanding result, I doff my hat :lol:
    ??? Do you actually know what an offset mortgage is?!
    Do not write below this line. Office use only.
  • optimisticbiker
    optimisticbiker Posts: 1,657
    Headhuunter wrote:
    Stone Glider wrote:
    Ah! I misunderstood, you are obtaining an off-set arrangement whilst maintaining your 1.5% mortgage? That is an outstanding result, I doff my hat :lol:
    ??? Do you actually know what an offset mortgage is?!
    I don't think he does :)
    Invacare Spectra Plus electric wheelchair, max speed 4mph :cry:
  • Stone Glider
    Stone Glider Posts: 1,227
    When I was interested in such things, the deal was that you had to buy the package, with your mortgage, current account and any other facility tied to the one lender and the rates were rubbish. They were heavily sold by Virgin ( IIRC ) and generally represented some of the worst 'smoke and mirrors' arrangements to be found. I am happy that those times have passed and that shrewd financial operators, such as your good selves are able to avail yourselves of such beneficent products.
    The older I get the faster I was
  • itboffin
    itboffin Posts: 20,052
    I've been investing our money in carbon fibre and its paying dividends :lol:
    Rule #5 // Harden The Feck Up.
    Rule #9 // If you are out riding in bad weather, it means you are a badass. Period.
    Rule #12 // The correct number of bikes to own is n+1.
    Rule #42 // A bike race shall never be preceded with a swim and/or followed by a run.
  • noodles71
    noodles71 Posts: 153
    I'd buy £5k worth of silver and wait for the US to raise their debt ceiling or print some more money at the end of the year. It's an elephant size issue currently waiting just around the corner in some very long grass. As you can expect, you can't kick an elephant very far into the long grass and they say this issue will be back before the presidential elections.
  • HebdenBiker
    HebdenBiker Posts: 787
    There is a lot of fuss and misinformation on this thread about a very straightforward decision. The OP has the opportunity to earn either 1.5% PA on his cash, or 3%. To those saying "pay off the mortgage", what would be the advantage of this?
    My Blog
  • daviesee
    daviesee Posts: 6,386
    HebdenBiker wrote:
    There is a lot of fuss and misinformation on this thread about a very straightforward decision. The OP has the opportunity to earn either 1.5% PA on his cash, or 3%. To those saying "pay off the mortgage", what would be the advantage of this?
    As I said on page 1, if you reduce the amount of the mortgage but keep your payments similar you can then reduce the length of term of the mortgage. If you reduce the length of term then the savings are immense compared to a simple percentage gain.
    None of the above should be taken seriously, and certainly not personally.
  • Headhuunter
    Headhuunter Posts: 6,494
    HebdenBiker wrote:
    There is a lot of fuss and misinformation on this thread about a very straightforward decision. The OP has the opportunity to earn either 1.5% PA on his cash, or 3%. To those saying "pay off the mortgage", what would be the advantage of this?

    On the face of it, it seems like an utter no brainer - 3% gain vs 1.5% saved but I was under the impression that mortgage interest is calculated differently to savings interest, hence my question
    Do not write below this line. Office use only.
  • Headhuunter
    Headhuunter Posts: 6,494
    daviesee wrote:
    HebdenBiker wrote:
    There is a lot of fuss and misinformation on this thread about a very straightforward decision. The OP has the opportunity to earn either 1.5% PA on his cash, or 3%. To those saying "pay off the mortgage", what would be the advantage of this?
    As I said on page 1, if you reduce the amount of the mortgage but keep your payments similar you can then reduce the length of term of the mortgage. If you reduce the length of term then the savings are immense compared to a simple percentage gain.

    Yes, I suppose this is the crux of the issue, mortgage repayments remain the same over the term but the proportion of those payments taken up by interest reduces later in the term, so the amount of interest saved depends on how far through the mortgage term I have come.... Am I getting this right?!
    Do not write below this line. Office use only.
  • daviesee
    daviesee Posts: 6,386
    Headhuunter wrote:
    On the face of it, it seems like an utter no brainer - 3% gain vs 1.5% saved but I was under the impression that mortgage interest is calculated differently to savings interest, hence my question
    Repayment or endowment?

    With a repayment the majority of you monthly payments are only covering interest payments at the start and paying off the "loan" towards the end. The mortgage is loaded so you give the bank their share before you pay off the loan.
    Picture a chart curving from high on the left down to low on the right. That is the interest part of your payments.
    Picture a chart curving from low on the left up to high on the right. That is the repayment part of your payments.

    If you are in the early years then the savings that can be made in paying towards your mortgage are higher than can be made in the latter years.

    Edit:- Funny how I answered your question before I read it :P
    None of the above should be taken seriously, and certainly not personally.
  • optimisticbiker
    optimisticbiker Posts: 1,657
    Assuming a £100,000 mortgage (present value) with 15y still to run, paying 1.5% interest. Throw in £5k overpayment and you save £1,225 in interest* and pay it off 11months early at a total saving of £6,831. Thats equivalent to an ISA paying 2.1% held for the same 15 years.


    *assuming interest is calculated daily, or if annual, after the date of overpayment.
    Invacare Spectra Plus electric wheelchair, max speed 4mph :cry:
  • HebdenBiker
    HebdenBiker Posts: 787
    OptimisticBiker wrote:
    Assuming a £100,000 mortgage (present value) with 15y still to run, paying 1.5% interest. Throw in £5k overpayment and you save £1,225 in interest* and pay it off 11months early at a total saving of £6,831. Thats equivalent to an ISA paying 2.1% held for the same 15 years.


    *assuming interest is calculated daily, or if annual, after the date of overpayment.

    You could choose to cash in the ISA any time and pay it off the mortgage anyway. It doesn't matter whether you have the cash in an offset account or in an ISA. In the mean time, in an ISA you would be earning 3.5% or more, rather than 1.5% in the offset account.

    There might be a case for offsetting if the OP is already using his and his spouse's ISA allowance, but even when taxed at higher rate, there is still probably better value to be had from conventional savings accounts.

    However, I should add that if the OP is intending not to spend the money for 15 years then personally I wouldn't be leaving it in cash, and would consider investing rather than saving. That, though, is a whole new can of worms :wink:
    My Blog

Categories