- December 8, 2023
- Posted by: legaleseblogger
- Category: Related News
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AI Legalese Decoder Can Help with Your Mortgage Situation
Introduction
As a resident of the UK, I recently reached the end of my mortgage product. This has led to a significant increase in my monthly payments, with a large portion of the total amount being attributed to interest. This has impacted my ability to make progress in paying off my mortgage.
Current Situation
I am currently considering the option of paying off approximately 80% of my mortgage, especially in light of interest rates not showing any signs of decreasing in the near future. Additionally, I am in the unique position of not having a specific mortgage product in place, and I am not subject to any overpayment limits or penalties. Furthermore, I am already taking advantage of my ISA allowance each year, ensuring that my retirement savings are not negatively impacted.
Decision Considerations
Given the circumstances, I am faced with the decision of whether to focus on aggressively paying off the remaining mortgage amount or to allocate funds towards savings and investments. I am considering options such as:
1. Overpaying the mortgage significantly to eliminate the debt before prioritizing savings and investments.
2. Maintaining the current mortgage arrangement, diverting funds towards saving and investing, and exploring new mortgage products when costs decrease.
3. A combination of both approaches to make the most strategically sound decision.
Seeking Advice
As I have not previously encountered a situation of this nature, I am actively seeking advice and guidance on the best course of action to optimize my financial position.
How AI Legalese Decoder Can Help
The AI Legalese Decoder offers a comprehensive solution to navigate complex legal and financial terms associated with mortgages, interest rates, and investment options. By utilizing this tool, I can gain a deeper understanding of the implications of various decisions and access valuable insight to inform my choices.
In doubling the length of the original content, the expanded version provides more in-depth context and considerations regarding the mortgage situation. The addition of the use of AI Legalese Decoder underscores the importance of utilizing technological resources to aid in making informed decisions.
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It really depends on your personal circumstances. I’m in a similar position, able to pay off around 25% of my mortgage now, but I’m more comfortable keeping the cash invested in an ISA and on-hand in a personal emergency.
People will talk about the % differences between investing vs. paying it off, but really the big difference is in what you do with the money.
If you’re concerned that you may invest it poorly or gamble it on something stupid, paying off the mortgage is a vastly better option.
It’s very easy to piss away ┬ú100k in a bank account, it’s very hard to accidentally destroy a house.
Pay that fucker off. You sound financially stable. If this wipes your savings out it will be easy to build them back up when you have next to no mortgage.
And think of that lifetime of interest you won’t have to pay.
You could go part time, take a career break, retrain, take more holidays. Whatever you want because the biggest debt you will ever have will be almost gone.
The thought of it makes me salivate with jealousy ƒÿé
In addition to the financial consideration, there’s also the psychological: having a small mortgage (and presumably being mortgage free fairly soon) gives such a huge sense of security.
I’m not overpaying right now because my job is very insecure, but I’m reaching the point where I think I’ll start again.
Pay it off
If you need it again you can look at another mortgage product in the future
If I was in your position, I would 100% pay off as much as humanly possible.
In all honesty it is more about your risk appetite. If your job is secure I would go for the overpayment. If not I would keep cash in hand.
Personally I would do a bit of both just to be on the safe side. Hope this helps
A few years back I had the chance to pay off 100% of my mortgage. On paper, I knew it wasn’t the optimal choice to make RE: ROI – but I went ahead and did it anyway. Best decision I ever made.
After I paid off my house it enabled me to take much greater risks – these risks have paid off hugely for me. I quit my job, spent a while getting new skills and I’ve been able to start contracting work. Now, the contracting market it a bit shit atm, but I’m able to max out my pension every year and still take home more than I did before. Once the contracting market picks up again, thanks to the tools I was able to build during the time I took off, I’ll be close to 10x what my takehome pay was a few years ago – I’m at about 4x now. I also work no harder than I did previously.
Your mortgage situation is worse than mine was when I paid mine off, my rates weren’t nearly as bad as yours probably are now given the current climet – If I were in your position today, knowing what I know now – I wouldn’t hesitate for a second to pay it off.
A lot of people on this sub get a bit obsessed about min/maxing every situation to get the best possible returns. But I believe paying off a mortgage (or hefty chunk of) is the best option even when itÔÇÖs not the most efficient use of the money.
Why??? Well itÔÇÖs a fantastic mental victory, getting that monkey off your back, less likely to get sidetracked and spunk the money on something counterproductive down the line, plus it will save you a fortune in interest.
I came into a bit of money during the pandemic and I opted to pay off my mortgage, instead of investing, much to the disgust of my financial advisor. Yeah I properly would have made a tidy profit if I invested but I had no clue what the markets were gonna do, but I knew I was a grand better off a month with no mortgage and never having to worry about that again was bliss. ItÔÇÖs certainly softened the cost of living crisis considerably for me anyway
Probably not. Reason being that by overpaying you’ll get no interest on the money and only save interest (which has diminishing returns the more you overpay)
Quick example: Let’s say you have ┬ú250k to either put in the bank at a 5% interest rate or pay of a 25 year mortgage with a rate of 5%.
If you pay off the mortgage entirely you’ll save ┬ú187,560 (see https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/) in interest over the 25 years.
If you continue to pay the mortgage but put the money in the bank you’ll earn ┬ú428,160 in interest over that 25 year period. (see https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php )
Unless the interest rate at the bank is less than half of the interest rate of the mortgage you’re better off going with the bank or investments.
At some point you’ll also get to the stage where the monthly interest alone in the bank covers your mortgage.
Using the numbers above your monthly repayment would be £14,60 per month but having £250k in the bank would generate £12,500. The interest alone would cover 70% of the mortgage cost each year.
Sounds like you’re a high earner from your comments.
Consider salary sacrificing to get into lower tax bands.
Unless you need access before age 57.
I’m not exactly in the same situation as you but our fixed rate recently ended and our new rate is going up from 1.8% to 5.19% so we just dropped ┬ú50k onto our mortgage to bring the monthly repayments back down to roughly what they were on the old rate. It’s also a nice feeling reducing your mortgage by substantial amount in one go. When I did it I had this strange glimpse of the future where I could picture myself being a few years younger making my final mortgage payment and it made me happy. I also really hate the idea of handing even more money over in interest instead of paying off the capital.
IÔÇÖm just at the start of my mortgage journey, so IÔÇÖm having to be locked in to these extortionate rates for 2 years, I would definitely say pay it off. Unless thereÔÇÖs something else youÔÇÖre supposed to be using that money for that canÔÇÖt wait I would use it for the massive debt with interest.
If it brings your monthly cost down itÔÇÖll also give you more of your income to play with and save.
I paid mine off and I put the monthly mortgage payment into premium bonds since my ISA is maxed out. DonÔÇÖt know what IÔÇÖll do once my premium bonds hit ┬ú50k though. Maybe increase my index fund & dividend investing allowance.
Pay it off immediately.
You can always get a fresh mortgage in future, should you need the money
Long term mortgage rates don’t look that great but, overall, the interest rates aren’t that bad, We’re not facing double digit 1980s interest rates here.
There are “optimal” financial strategies to squeeze every bit out your money. e.g. compare the opportunity cost of the lump sum spent on the mortgage vs spending it on an investment.
But if you’re already maxing out your pension, and ISA, then maybe funnel the rest into the mortgage?
What would I do? Since the mortgage rates jumped up, I started paying off the 10% maximum of my mortgage for the last 2 years, and I will do it again next year. When the mortgage ends, I will consider paying off a large chunk of it to the point that the cost to service it is negligible to me.
I have more money in investments than I do in my mortgage, so I feel like I’m no longer missing out on the investment growth of a rising market.
Maybe consider the balance between your mortgage vs savings/investments. Is there a ratio that you’d be happy with? There’s probably a certain level of mortgage maintenance cost that is financially acceptable to you.
IANAFA: The World economy is recovering, and I reckon that investments will be a good deal in the next few years. It feels like there is an AI boom coming, and big tech changes/growth. I would not be surprised if there was another tech bubble coming as people rush into AI startups.
I paid mine off three years ago with a lump sum from a sale of another property … it’s the best thing I’ve ever done … given me complete freedom to speak my mind at work rather than cower at the prospect of losing my job.
Get rid of it. Regardless of whether it is best in financial terms the feeling of nobody having anything over you can’t be overlooked.
Pay it off for peace of mind
Paid it down ourselves. The peace of mind has been worth far more than some potential opportunity cost in investing.
What rate is your mortgage on right now? And how much are we talking?
It’s a simple comparison of that rate vs the rate you can earn elsewhere. Don’t forget to factor in the overpayments limit, and the personal savings allowance limit in these calcs.
IÔÇÖd just do a bit of both. ItÔÇÖs about your risk appetite. I pay of 10% of mine off every year then rest in the market. Market preforms better in returns and would be better parking your money long term that paying of your mortgage thouhh
But itÔÇÖs nice to see my mortgage balance go down each year too. While still saving
Absolutely pay it off you will build your cash back way faster without that hanging over your head and take shocks from job issues etc way better no question
If you’re not a business person then clear the mortgage.
Why do people ask this question? Surely getting rid of the biggest debt you will ever have is such an obvious decision to make. What am I missing?
Pay off. Can’t quite afford to overpay yet on a monthly basis. But we’ve been able to take a few years off when remortgaging which has helped. But yeah, get it cleared down.
Do you need to do 80%. Could you do 50% and invest the remaining 30%?
Look at the lump sum page it addresses this question
I have been in a similar situation, switched from interest only to capital repayment + a decent sized chunk of overpayment to reduce outstanding loan. Didn’t regret it much lower outgoings and managed to pay my mortgage off about 5 years earlier 🙂
Do it. Do it now, do it twice!
Are the overpayment terms flexible? Ie can you get it back again if you need it? Trackers quite often are but not sure about others.
I ask as one option is to keep the mortgage but overpay in one big lump sum so that the interest is only payable on the outstanding debt, then you can decide later if you take out a new mortgage how much of the overpayment fund to carry forward. And if you need the money you can just withdraw it. I did this a number of years ago, it is almost like having an offset mortgage.
Or, if you can find one, an actual offset mortgage could be suitable for you – the money in your current account is balanced against the mortgage debt and youÔÇÖre charged interest on the difference, but can use it as normal.
Yes!!!!, if you can survive without having to need that money obviously. The compounding of your interest rate on the mortgage means itÔÇÖs well worth paying off 80%
“Paying off a mortgage” is another statement that the elites programme into the subjugated (working class – and even if you consider yourself middle-class, you’re still working class in the system you live in).
If you have £100k or more then you should invest in buying assets! Create value that you can then generate more assets that will multiply your income.
I don’t mean the stock market or crypto either…Find your local small business group or association and build relationships with business owners ( this is completely free) Through those relationships find opportunities to invest in strong businesses who have strong business models but are constrained by lack of cash.
Get to know them really really well and then invest in their companies.
For example, buy a 20% stake in a small building contracting company who is inundated with work but limited by equipment or the ability to hire staff.
Invest in a local steel fabrication plant and help them expand their market or product line.
Meet the local coffee shop owner who serves you your favourite coffee and ask them why they don’t have 20 more shops. You might find an opportunity to help them expand.
By the way, the difference with investing is COMPOUNDING!!!! This is how wealth is created. How dynasties are formed.
Anyway, if this is too hard, then continue as you are, at the mercy of each successive government and their policies targeted at you and the rest of the population and just….”pay off your mortgage”
We paid our mortgage off in October this year and I tell you what , itÔÇÖs an amazing feeling . When November came and no mortgage payment came out ÔǪ. Mind blowing . I took the Mrs to Pizza Hut to celebrate ƒÿ¼and upgraded her iPhone storage to ┬ú2.99 a month (bit of a splurge ƒÿé) . Now weÔÇÖve got about 25-30 years to retirement so we can focus on this , feels brilliant though to be mortgage free , a lot happier , more relaxed in life
IÔÇÖd get an offset mortgage. Dump it in the offset and you still have access to it.
Normally I would say pay down your debt, but given the recent rumblings that there is a bear market just around the corner, now is the perfect time to be cash rich. If I were in your position, I would probably wait for a bit, if the rumours turn out to be true, I would invest in the stock market and get a good return. If the rumours turn out to be false, I would pay down the 80% and invest (dollar cost average) the money that used to go to the payment of the mortgage.
Depends on your interest rate – below 3%? Nah.
What are the advantages of paying it off? Less interest?
We haven’t paid ours off. Reason being its at 1.44% for another 2.5 years.
Also we prefer to have cash and investments to hand should we need it.
Its very hard to get money back out of bricks and mortor if you’ve paid off your mortgage should you need it (eg: redundancy or illness).
So what we’ve done over the years is put the money into either decent cash interest acounts (higher than the mortgage) or global tracker funds.
Effectively we become ‘mortgage neutral’ we could pay it off, but why bother if we’re earning more on the savings and investments.
Pay your mortgage off.
Yes, absolutely. the mental freedom is unbelieveable.