Mortgage for everyone

[shiftwork2]

Thanks to covid we got a 5 year fixed rate at 1.86%

Amortized that bad boy over 30 years, no problemo.

Tasty.

🎶 Friday night I'm going nowhere
All the lights are changing green to red
Turning over TV stations
Situations running through my head
Looking back through time
You know it's clear that I've been blind
I've been a fool
To open up my heart
To all that jealousy, that bitterness, that ridicule
If you want it
Come and get it
For crying out loud
The love that I was
Giving you was
Never in doubt 🎵

What are you driving these days?

[TrenterPercenter]

As trenter said, rent payments disappear into the ether / someone else's pocket, but mortgage payments are essentially payments into life savings. It's almost impossible to pay rent and save for a deposit, but if you can do it, then once you're in a house, the mortgage payments save the deposit for you.

Ie, trenter's equity isn't 60k, it's 60k plus however much he's paid off his mortgage.

Exactly, and once this has been understood we can go back to the morality question here in which private renters are actually paying money into a landlords pocket which is increasing and concentrating capital into fewer peoples hands.  Which of course they can then use to acquire more of land benefit everyone feet (which is what capitalism is about, not owning the land under your feet, owning the land under others).

<Eddie Murphy some guy called Roll Safe head pointing meme>

[Dex Sawash]

I got big into cheese-making about 6 months ago, I can make a mozzarella that'll knock your socks off (not literally). Make some 58% hydration dough the night before with 00 flour, add crushed tomatoes from the garden, and chunks of the home-made mozz, pop it in the barry-homeowner-tier gas pizza oven and make all your friends hate what you've become. Can't put a price on that.

I reckon @mook didn't go to prison, just finished his wood pizza oven and is on a diabetes forum now

[MojoJojo]

Everything is a bit up chaotic at the moment, but there have been times when you can get a fixed term savings bond that pays more interest than you pay on a fixed price mortgage. If you set that up then technically you're better paying into the savings bond than overpaying your mortgage. However, you lose A LOT of flexibility and the extra money you save has never been worth it, IMO at the times I've looked.

[Ferris]

Counterpoint: it's nice to have money now when you're somewhat young, rather than squirrel money away for when you're too old and fucked to enjoy it.

There's probably also an NPV argument around the interest amount saved across the life of the mortgage and whether it's worth it, vs the cash in your hand right now. Is the purchasing power of the money you saved in 20 years going to be worth the extra you overpaid? That's a terribly constructed sentence. Sorry.

[Ferris]

What are you driving these days?

2011 Toyota Corolla, slate grey, no extra features.

Let me tell you about the mileage on this bad boy.

(Etc)

[TrenterPercenter]

Counterpoint: it's nice to have money now when you're somewhat young, rather than squirrel money away for when you're too old and fucked to enjoy it.

Well yes of course and I'm utterly bitter and miserable about having owt when I was younger years whilst trust fund arseholes were all pretending to be edgy-poor whilst going on skiing holidays, living in nice houses/areas and eventually now being given loads of cash/equity by mummy and daddy - it's not a coincidence that the same people that back then wanted to pretend to be poor are a lot of the same people that now pretend to be quite strident on identity politics over class based politics. It's a beard of sorts.

This "struggle" when you are young is exactly what makes an older resentful Tory, Boomers were not as rich as they are now, that is what monetarism and house prices eventually did to some of them.  There is a warning from history there for anyone relying on younger folk not turning suit when their time comes (they are already at this in the tech industry), without an understanding Marxism they will simple fall back on their own version of pulling themselves up by their bootstraps.

On the broader point though being fucked when you are old, because you are already fucked is the other side of the coin isn't it and old age is a lot longer than people often account for, being mortgage free at 55 means another 20-30 years of surviving for most people, being poor and in your 70s is not good (and I speak from experience from a family that has had to try and support poor grandparents).

[Pseudopath]

<Eddie Murphy head pointing meme>

Ya daft racist: https://nymag.com/intelligencer/2017/02/roll-safe-the-guy-tapping-head-meme-explained.html

[TrenterPercenter]

Everything is a bit up chaotic at the moment, but there have been times when you can get a fixed term savings bond that pays more interest than you pay on a fixed price mortgage. If you set that up then technically you're better paying into the savings bond than overpaying your mortgage. However, you lose A LOT of flexibility and the extra money you save has never been worth it, IMO at the times I've looked.

Yes this is what I thought Jasha was getting at.  In the same vein it seems a lot of faff for minimal gains but looking last night I did see variable savings account at 5% minimum payment £500 pcm which back of the fag packet calculation is about £159 extra a year if that rate stayed at 5% which you could then overpay in a lump sum.

[TrenterPercenter]

Ya daft racist: https://nymag.com/intelligencer/2017/02/roll-safe-the-guy-tapping-head-meme-explained.html

No way! I always thought that was Eddie Murphy! Because he looks like Eddie Murphy in his delirious days, whilst i get the "they all look the same" implications it is quite possible that one black person (like a white person or any person for that matter) can look like each other.

Anyway I stand corrected <Roll Safe head pointing meme> to myself for trying to be too down with internet culture.

[Pseudopath]

No worries. To be honest, I initially thought it was Paterson Joseph.

[Jasha]

@shoulders
This is a calculation based on a mortgage of 200k, 25yrs at 3% interest and overpaying £500 a month (this might be quite high for some people) the first line is with overpaying.  That is a saving in interest alone of £38,784 over 14 years at which point you will be mortgage free (though in reality by year 10-11 your mortgage is about £200 a month)



If you can find a better saving or way of paying off that debt sooner/for less money then I would be very interested to know what it is.

Just to note a renters graph would just be a straight line.

£200k over 25yrs at 3% = a total repayment of £285k :£200 of initial borrowing and £85k of interest

With your £6k per year overpayment you'll pay £45k in interest, so far so good you think you're saving £40k. But with every overpayment you're reducing the saving as you're reducing the capital debt, to the point that you're no longer saving because you've paid the loan off early, again you think this sounds good.


Now take that £6k per year overpayment and put it into AVC's, it instantly becomes £7.2k. You are now no longer reducing compound interest (which stops at £0 it's now growing at compound interest. Over the same 25yrs as your mortgage term even at your same 3% it is now worth £268k. Ahhh you say, pension fund growth isn't guaranteed and you'd be right it's not,

but during 2020 (some pandemic or something) it was 4.9% (£350k for the same £6k per year in AVC's

last year growth was 9.5% (£737k for the same £6k per year)

average growth over the last 7 years was 7% (£490k for your £6).


Ahhh but but with my overpayments I'll be mortgage free after 14yrs while you're still paying off your mortgage, I could take my overpayment AND £950 pm that I'm not paying as a mortgage and THEN go the AVC's route, but at the 7% average your 10yr 10 month schedule will only build to £340k plus your £40k in interest not paid so a total of £380k opposed to the £405k (£489k-£84k in interest over 25yrs).

The important point is overpaying a mortgage reduces future overpayment savings whilst the same payment via AVC increases your saving

[beanheadmcginty]

At what point does frozen orange juice play a key role in this?

[jamiefairlie]

The following applies to Canada, not sure if the same tax laws apply in the UK.

See the real trick is to get your first house, no matter how small. After your first term ends (say five years), you remortgage the house to the max they'll give you (hopefully it's gone up in value during that five years so you can get more cash out) and use that cash as a deposit for your new house. Rent out the first house, the interest you pay is tax deductible and hopefully the rent covers most of your mortgage so it takes care of itself. Now, every five years you do the same, remortgage the rental to the max and use that cash to pay off your mortgage on the second. Effectively constantly transferring your mortgage debt from your actual home (interest not tax deductible) to your rental property (interest tax deductible).

Doing this you can start small and keep trading up as you go. The point is to get the initial capital asset and the rising housing market takes you up with it.

[Buelligan]

When would you suggest putting hotels on there?

[MojoJojo]

The following applies to Canada, not sure if the same tax laws apply in the UK.

In the UK they changed it some time ago so that interest was not tax deduct able.

[Alberon]

I can't remember if the Canada model applies in the UK. When I rented out my first home (to some friends) to buy my second one there were a few tax deductibles but I can't remember if the interest was one of them. I had an interest only mortgage on my first house and rent did cover it and the tax I had to pay on the bit I earned over that. I've sold my first house now and managed to pay off the mortgage on my second.

No way am I going to go back into that to upgrade now, though. Just sit tight for the next decade.

It's ridiculous. If you include the house we've got assets equaling half a million quid. If you don't count the house, it's thirty grand.

[Fonz]

£200k over 25yrs at 3% = a total repayment of £285k :£200 of initial borrowing and £85k of interest

With your £6k per year overpayment you'll pay £45k in interest, so far so good you think you're saving £40k. But with every overpayment you're reducing the saving as you're reducing the capital debt, to the point that you're no longer saving because you've paid the loan off early, again you think this sounds good.


Now take that £6k per year overpayment and put it into AVC's, it instantly becomes £7.2k. You are now no longer reducing compound interest (which stops at £0 it's now growing at compound interest. Over the same 25yrs as your mortgage term even at your same 3% it is now worth £268k. Ahhh you say, pension fund growth isn't guaranteed and you'd be right it's not,

but during 2020 (some pandemic or something) it was 4.9% (£350k for the same £6k per year in AVC's

last year growth was 9.5% (£737k for the same £6k per year)

average growth over the last 7 years was 7% (£490k for your £6).


Ahhh but but with my overpayments I'll be mortgage free after 14yrs while you're still paying off your mortgage, I could take my overpayment AND £950 pm that I'm not paying as a mortgage and THEN go the AVC's route, but at the 7% average your 10yr 10 month schedule will only build to £340k plus your £40k in interest not paid so a total of £380k opposed to the £405k (£489k-£84k in interest over 25yrs).

The important point is overpaying a mortgage reduces future overpayment savings whilst the same payment via AVC increases your saving

Don't forget that you will have an asset, that you will own quicker, with the accompanying equity.
Sure, if you don't pay off your mortgage, you may still have equity, but you're a lot less likely to end up with negative equity if/when the crash happens.

[TrenterPercenter]

The important point is overpaying a mortgage reduces future overpayment savings whilst the same payment via AVC increases your saving

Right you are talking about stocks and shares aka gambling.

I understand this, not sure on your figures by your estimates I would be a millionaire in 7 years from an investment of £84k (Which I could actually do rinsing my pension and directing all savings into it).  It's gambling, dress it up how you like.

[Alberon]

Interest rates up to 1.75%. Bank of England now predicting inflation will peak at 13%.

If you're not on a fixed rate now is probably a very good time to investigate one.

[TrenterPercenter]

Yup

Interest rates up to 1.75%. Bank of England now predicting inflation will peak at 13%.

If you're not on a fixed rate now is probably a very good time to investigate one.

Yep I fixed late last year, reckon inflation will go higher than 13%.

[Dr Trouser]

Jesus wept the BoE are useless, or more likely trying to protect the house price assets they and their ilk hold.

1.75% in the face of double digit inflation, mental.

[Alberon]

Yeah, that isn't going to be the last rise is it?

[shoulders]

Jesus wept the BoE are useless, or more likely trying to protect the house price assets they and their ilk hold.

1.75% in the face of double digit inflation, mental.

And one of them voted against any rise at all.

[MojoJojo]

Right you are talking about stocks and shares aka gambling.

I understand this, not sure on your figures by your estimates I would be a millionaire in 7 years from an investment of £84k (Which I could actually do rinsing my pension and directing all savings into it).  It's gambling, dress it up how you like.

AVC (additional voluntary contribution) is additional pension payments, and with the length of time you'll be invested and the conservative way pension funds are managed the odds of the gamble are heavily stacked in your favour. Every investment carries some risk.

What Jasha doesn't mention which is where AVCs get a real benefit over mortgage contributions is you can claim them against income tax - so instead of over paying your mortgage by £60 you can invest £100 into AVCs for the same net loss (higher rate tax payer), and you get all the interest on that larger amount. The downside is you can't touch or do anything with that money until you're 55 at the earliest, so you do it when you have more income than you know what to do with.

[katzenjammer]

Now take that £6k per year overpayment and put it into AVC's, it instantly becomes £7.2k.

What are AVCs? Additional Voluntary Contributions to your pension? Is that how it 'instantly becomes £7.2k'? because it's tax deductible? If so doesn't the amount depend on which tax bracket you're in? And you need to consider money lost to charges on pensions schemes, plus you may end up paying some tax when you withdraw, and you've got to live long enough to be able to spend it.

but during 2020 (some pandemic or something) it was 4.9% (£350k for the same £6k per year in AVC's

last year growth was 9.5% (£737k for the same £6k per year)

average growth over the last 7 years was 7% (£490k for your £6).

How's it working out for the year to date?


I'm not saying you're wrong by the way, I think 'it depends'. I'm fortunate enough that I could overpay my mortgage but don't at the moment because the rate is very low and I think over the long term I'll get a better rate investing in broad based index funds. And should I need to I could sell them much more easily than remortgaging my flat.  On the other hand there is an emotional appeal to entirely owning your own home that most people can relate to so I understand the appeal of paying off the mortgage ASAP too.

[katzenjammer]

Right you are talking about stocks and shares aka gambling.

It's not the same as gambling, you are buying shares in businesses. As well as being able to sell them you get a share of the profits

[TrenterPercenter]

It's not the same as gambling, you are buying shares in businesses. As well as being able to sell them you get a share of the profits

I'm not really familiar with this stuff but I'm presuming that AVCs are backed by investment funds on the stock market. 

It is interesting.  Each month I pay  into my NHS Pension, some overpaying the mortgage and then try and save bit if possible.  My NHS pension doesn't kick in until 68 (ugh) so having an AVC from 55 would be great in terms of retiring early and not dying from work by continuing until I'm 68.

I will look into it.

[Mr_Simnock]

£200k over 25yrs at 3% = a total repayment of £285k :£200 of initial borrowing and £85k of interest

With your £6k per year overpayment you'll pay £45k in interest, so far so good you think you're saving £40k. But with every overpayment you're reducing the saving as you're reducing the capital debt, to the point that you're no longer saving because you've paid the loan off early, again you think this sounds good.


Now take that £6k per year overpayment and put it into AVC's, it instantly becomes £7.2k. You are now no longer reducing compound interest (which stops at £0 it's now growing at compound interest. Over the same 25yrs as your mortgage term even at your same 3% it is now worth £268k. Ahhh you say, pension fund growth isn't guaranteed and you'd be right it's not,

but during 2020 (some pandemic or something) it was 4.9% (£350k for the same £6k per year in AVC's

last year growth was 9.5% (£737k for the same £6k per year)

average growth over the last 7 years was 7% (£490k for your £6).


Ahhh but but with my overpayments I'll be mortgage free after 14yrs while you're still paying off your mortgage, I could take my overpayment AND £950 pm that I'm not paying as a mortgage and THEN go the AVC's route, but at the 7% average your 10yr 10 month schedule will only build to £340k plus your £40k in interest not paid so a total of £380k opposed to the £405k (£489k-£84k in interest over 25yrs).

The important point is overpaying a mortgage reduces future overpayment savings whilst the same payment via AVC increases your saving

THIS IS YOUR BUTTERFIELD INVESTSMENTSTS HOME OWNERSHIP PLAN

UP DOWN YIELD OF SERVICE BANKS WORKINGS MAY APPLY TO YOU, REEAD ATOMIC SCALE PRINT

[MojoJojo]

I'm not really familiar with this stuff but I'm presuming that AVCs are backed by investment funds on the stock market. 

It is interesting.  Each month I pay  into my NHS Pension, some overpaying the mortgage and then try and save bit if possible.  My NHS pension doesn't kick in until 68 (ugh) so having an AVC from 55 would be great in terms of retiring early and not dying from work by continuing until I'm 68.

I will look into it.

You get the money from the AVCs when you retire. Since the NHS is a defined benefit scheme, this translates into getting a lump sum of cash when you retire.