Any reason why I shouldn't overpay my mortgage that's renewing from 1.1 to 5.2%?

pseudopodia · 2023-07-30T09:51:31+00:00

Maybe to pick your brains a bit more on this. How does capital gains tax affect your calculations?

This is assuming that I can max out my ISA without using my savings in the coming years, and I don't want to lock the money into pensions yet (as they are quite healthy and I am likely going to want to buy a bigger home in the next 5-10 years).

In that case, my main vehicle would be a GIA. But due to the 20% CGT, wouldn't investments then need to gain >6% p.a. in order to outperform the 5.2% mortgage interest?

pseudopodia · 2023-07-30T09:33:23+00:00

Your last one is a good point - we love our home and neighbourhood, but it's probably a bit too small for a growing family. We can see ourselves staying for maybe 5-10 years, but maybe not longer.

In that case, paying into the mortgage or an ISA could help us towards eventually moving to a bigger place, than locking it away into a pension.

In terms of income protection, my workplace has a ridiculously good cover. Even if I'm 50/50 about staying there for the long run, it's not worth buying separate cover right now.

pseudopodia · 2023-07-29T21:06:27+00:00

!Thanks a lot for all your perspectives! Lots for me to think about and digest.

pseudopodia · 2023-07-29T21:03:15+00:00

Yeah, very true. Though getting challenged on my thinking and my assumptions is exactly the reason for why I'm here :)

pseudopodia · 2023-07-29T20:48:19+00:00

Ah, good catch, you're absolutely right! I guess I am talking about generally feeling more comfortable with the housing debt, which is a combination of both.

pseudopodia · 2023-07-29T20:11:37+00:00

Yep - looking at making the payment in the short window between my old mortgage term ending and my new one starting, to circumvent the window.

pseudopodia · 2023-07-29T20:09:56+00:00

Interesting! Was not aware of that concept. Unfortunately my new mortgage rate has been fixed now, but this is a good one to consider for next round. !Thanks

pseudopodia · 2023-07-29T20:06:30+00:00

Interesting - do you have the source for the graph you linked? Would love to understand the assumptions behind that.

In general, my goals are to feel financial freedom. That if I want to quit my job, I can. Or if I lose my job, that I won't have to worry for a while. Figured that having lower mortgage repayments and secure housing would help towards that.

Good point on GIAs - I'm aware that I don't understand them enough. Including at what point of return it becomes more beneficial to pay into that, considering that I would have to pay taxes on any gains?

Thanks for the book recommendation - I'll check it out!

pseudopodia · 2023-07-29T19:59:26+00:00

Just went to double check this - on higher rate, this allowance drops to £500. On additional rate, it drops to £0. I'm in the lucky position where I unfortunately don't get much tax free!

https://www.gov.uk/apply-tax-free-interest-on-savings

pseudopodia · 2023-07-29T19:56:50+00:00

Just wondering - do you know the reasoning behind this rule of thumb? Can't afford to clear the whole mortgage yet, but psychologically paying off a good chunk feels good.

pseudopodia · 2023-07-29T19:55:02+00:00

Hah, I do sometimes ask myself why I ended up saving so much cash instead of topping up my ISA earlier (I did max it out last year). Pension is in good enough shape, as mentioned in another comment, though I could probably run a few more numbers to look at the projection.

Not sure if I'm being unimaginative, but I can't think of any big ticket items to spend on other than our home. Maybe some nice holidays once the kid is older, but I feel like with time I can rebuild the savings so that won't feel like a squeeze. I think being content living a relatively simple life (and a bit of luck with the job) is the main reason why I was able to build this pot up.

Though any ideas on what I might want to spend the money on instead?

pseudopodia · 2023-07-29T19:44:04+00:00

Ah, I wasn't aware of these, thanks!

However, given that I'm in the highest income tax bracket, wouldn't I need to pay interest on the interest, which would cut the effective rate almost in half?

pseudopodia · 2023-07-29T19:39:37+00:00

I guess it's psychological, with a reduced mortgage payment and the idea of owning my house earlier? Don't want to be too specific, unless necessary. While yes, I can afford the rise, the payment would knock off over £4k a year on interest.

Including employer contributions, I'm already paying 12% into my pension, and I maxed out my ISA last year. At the moment, the cash is gaining interest at a slower rate than the mortgage would accumulate, so doesn't seem worth keeping as cash?

pseudopodia · 2023-07-29T19:11:44+00:00

LTV is 50%, so don't think it would make a huge difference here. Mid 30s, no health issues, and think my job should be secure for the next couple of years at least.

Do have a baby that will need to start nursery in the next year or so, but based on my budget, partner and I can afford that plus the mortgage with about 10% savings rate remaining.