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Mortgage overpayments

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  • pbcold

    Does anyone have any experience of bendy-barclaycard mortgage overpayments to Nat West incurring a charge or not? Thank you.

    Thegasman

    They don’t like bendy full stop based on it being the common factor in a few reported account closures on here.

    Colin MacKinnon

    Why overpay? Inflation is reducing the real amount of your mortgage by 10% a year, tax free!

    So get a long fix, and use the extra cash to buy the things you’ve always wanted before they soar in price.

    Way back in 1986, I got a fixed rate interest only mortgage on the principle that £37k some 25 years later would only be the price of a modest new car in 2012.

    JDB

    @Colin MacKinnon – good point! When I read about/listen to what people are saying about inflation generally, I don’t think most have the first clue about just how pernicious it is / will be for their incomes but potentially good if you have debts.

    I note on this site people complaining about sky high prices for hotels/flights/car hire “at the moment” or “currently” – I’m not so sure this is temporary unless we have a recession which will bring its own issues.

    Colin MacKinnon

    @JDB One of my pals is about to be 60 and works for the local council. As he points out, the lack of a pay rise anywhere near inflation is going to affect his income for the rest of his life.

    But yet he is reluctant to take his pension, without retiring (which is allowed under his scheme), and so enjoy a 10% pension increase in March next year. An increase which he will enjoy for the rest of his life!

    So here’s a question:

    Do I sell some shares and buy a small flat in a prime location in Edinburgh with a, say, 50% mortgage fixed for 10 years. Say a £300,000 property.

    So I can get an interest-only buy-to-let £150,000 mortgage at just under 4%, about £470 a month.

    At 10% inflation, the 150k debt is being paid off at £15k a year. Which would cancel out the £15k a year loss due to inflation in my deposit.

    If I went for a 65% mortgage, then I would “gain” twice as much from inflation eroding my debt as I would “lose” from inflation eroding my deposit.

    So even if the price of the flat falls to £250,000 in the next year or two, it should build back up to more than the £300,000 by 2032 simply because of the rising costs of building materials. And there will be some income too, since the fixed rate mortgage is about half the projected rent.

    If I wait until next year for it to fall £50,000, then I would doubtless have to pay a far high mortgage rate – which would probably outdo the fall in purchase price!

    Cautious about much else to preserve capital in the medium term – ie 7- 10 years. Don’t believe companies like Unilever really have much pricing power anymore due to the rise of the Aldis etc with their “own label” stock.

    • This reply was modified 52 years, 7 months ago by .
    JDB

    @Colin MacKinnon yes, I didn’t mention the effect of inflation on pensions or other savings (particularly at the same time as falling markets) and as you say it affects people on final salary schemes in a specific way.

    Re the property, assuming you buy well in a good location it looks a good deal although I’m a big believer in shares and I don’t think that inflation at 10% will last too long, but it is still very corrosive at 4-5%. The only new property I’m investing in is in South America in case Angie becomes PM or Rachel Chancellor.

    There are opportunities in niche, nimble property companies with some index linking of rents, utility/infrastructure cos also with index linking and I have been opportunistically been buying healthcare tech/pharma companies, even biotech, music back catalogues. Not a time (if there ever was) to be in index funds – need to be selective and defensive for now.

    In respect of markets, it’s very difficult; some calm this week because interest rates may not go up so much, but that’s because of recession fears, also not good for markets! I have always preferred Nestlé over Unilever but I don’t think the likes of Aldi/Lidl pose such a threat, it’s global, lots or corporate fat to cut and now more focussed on premium.

    Reney

    Does anyone have any experience of bendy-barclaycard mortgage overpayments to Nat West incurring a charge or not? Thank you.

    I had a NatWest mortgage up to last year, my experience was if you overpay via online system no charge on several credit cards (no curve needed), but if you pay via the phone there is a charge. The Barclaycard did not exist then so can’t help.

    pbcold

    Thank you, I had not thought in those terms at all. I have £37k left to pay on my mortgage at £2k a month, fixed at 2.4%. So my best play is simply to leave it and pay it off in the year and 9 months remaining? Thank you for your insights.

    pbcold

    Thank you Reney – I was thinking of using the Hilton Barclaycard with Curve but it sounds as though you are saying there is no need.

    Reney

    Thank you Reney – I was thinking of using the Hilton Barclaycard with Curve but it sounds as though you are saying there is no need.

    You understood me correctly, a year ago website accepted cc directly. Usual advice applies, try a small amount to check no fees first.

    Aquarius12

    I have a fixed mortgage with Nat West & am limited to paying 10% of outstanding balance a year anything more & I get a charge. When you go on the Nat West app it will tell you how much you can pay without charge. I know your question was cc charge related but just another thing to think about. Nat west will charge you as they will be missing out on their 2.4% charge if you pay off early even if not charging for using credit card.

    pbcold

    Great, thank you Aquarius. They are allowing just under £4k so I assume it is 10%. Great advice.

    Blindman67

    One of my pals is about to be 60 and works for the local council. As he points out, the lack of a pay rise anywhere near inflation is going to affect his income for the rest of his life.

    But yet he is reluctant to take his pension, without retiring (which is allowed under his scheme), and so enjoy a 10% pension increase in March next year. An increase which he will enjoy for the rest of his life!

    I don’t follow this line of thinking.

    If he takes his (assumingly)Work pension whilst he is also working then surely he will be paying more tax due to his increased earnings?

    If he waits until he retires then he most likely be taxed less due to his retirement pension + state pension?

    And where does the 10% increase come from – unless you are saying he can take his STATE pension at 60?

    And how does the 11% cost of living offset the mortgage interest so that you say it’s not worth paying off?

    I could pay off my daughters mortgage (20K, 5 years, 2.5%) now
    Or I could give her the £20K in 5 years time

    By your thinking the latter is the better option.?

    Confused

    • This reply was modified 52 years, 7 months ago by .
    Thegasman

    One of my pals is about to be 60 and works for the local council. As he points out, the lack of a pay rise anywhere near inflation is going to affect his income for the rest of his life.

    But yet he is reluctant to take his pension, without retiring (which is allowed under his scheme), and so enjoy a 10% pension increase in March next year. An increase which he will enjoy for the rest of his life!

    I don’t follow this line of thinking.

    If he takes his (assumingly)Work pension whilst he is also working then surely he will be paying more tax due to his increased earnings?

    If he waits until he retires then he most likely be taxed less due to his retirement pension + state pension?

    And where does the 10% increase come from – unless you are saying he can take his STATE pension at 60?

    And how does the 11% cost of living offset the mortgage interest so that you say it’s not worth paying off?

    I could pay off my daughters mortgage (20K, 5 years, 2.5%) now
    Or I could give her the £20K in 5 years time

    By your thinking the latter is the better option.?

    Confused

    His pension will increase by September CPI every year in retirement. His pay rise if he stays in full time employment will be at best 2-3% for next few years.

    If he retires early then pension will be actuarially reduced by approx 3% for every year before Normal Pension Age. 3 years of this will be more than written off by the index linked increase in pension.

    Remember no NI (13.25%) or pension contributions (14.5% for me in NHS scheme) on the pension payments which reduces the salary/pension differential even further.

    If you’re within 5 years of retirement in a public sector defined benefit scheme you’d be mad to not retire at the moment. Can always return part time or find a different job to top up pension until previously planned retirement age.

    Colin MacKinnon

    I don’t follow this line of thinking.

    And how does the 11% cost of living offset the mortgage interest so that you say it’s not worth paying off?

    I could pay off my daughters mortgage (20K, 5 years, 2.5%) now
    Or I could give her the £20K in 5 years time

    By your thinking the latter is the better option.?

    Confused

    OK, my thoughts are:

    We have lots of demands on our cash. Saving it in the bank at almost zero interest is pointless when costs are going up at 10%+ per annum. On the other hand, no “safe” predictable investments will give you 10%!

    A box of oatcakes costs £1 – so, today, you can either: pay off your daughter’s mortgage, or buy 20,000 packs of oatcakes!

    At 10% a year, that box of oatcakes will cost £1.65 in 2027. But if she rolled up the interest on a £1 of mortgage, it would only be £1.14! So if you pay off her mortgage now, and then she wants to buy 20,000 packs of oatcakes in 2027, she’ll have to find a whole load more money!

    And the money she would have saved up, that would otherwise have gone to pay the mortgage, will not be enough by a very long chalk!

    Of course, it may be that she would have rather had a new car, a round-the-world flight or a new kitchen. The principle is the same. Better to spend now, than pay off debt – especially if, as with a mortgage, you can get a long term fix at rates well below inflation.

    Downside, if you lose your job you’ll maybe regret the round-the-world trip and wish you had paid off the mortgage. But then again, when you need the money, banks won’t give it to you!

    I don’t have a mortgage, but am thinking this makes debt for a buy-to-let very worthwhile as an inflation protection. But it would need to be in an absolute prime location, because quality always sells. Just in case!

    Most financial advisors aren’t old enough to have experienced those 1970s/80s inflation spells – so their advice is geared towards their own experience. And in a low interest rate/low inflation environment, it makes sense to pay off the mortgage.

    In the high interest rate/high inflation of the 1980s, it also made sense (and we even go tax relief on mortgage interest!)

    But this time, we have low interest rates/high inflation – that’s a new one!

    If we get high/high, we are all doomed! So what’s to lose?

    Colin MacKinnon

    @JDB Unilever’s Mr Jope was the year below me at school, and we had a teacher called Jimmy Jope – perhaps his father?

    I don’t remember Jope Jnr, though he may recall me since I was an infamous rebel in that small pond. I got arrested for demonstrating against the Queen in the 1977 jubilee and suspended from school, and was the only boy in the Sixth Form never to be made a house monitor or prefect!

    DevonDiamond

    If within LGPS (which he probably will be if working for a council) Colin’s friend can also take flexible retirement and continue working at reduced hours which I suppose hedges the bets

    Blindman67

    I don’t follow this line of thinking.

    If we get high/high, we are all doomed! So what’s to lose?

    Thanks (both) for the explanation.

    FlyingPtarmigan

    At the age of 60, Colin’s friend may well have accrued the maximum number of years service their pension scheme anyway. In which case, one option would be to opt out of the pension scheme. Their salary would then be frozen at today’s salary and uprated at CPI. They wouldn’t accrue any more service, but even without maximum accrual they may be better off opting out.

    The local government scheme also has a very funky “Rule of 85” that means that “Member’s whose age plus scheme membership (in whole years) equals 85 may be able to take their pension before their Normal Pension Age, without it being reduced for early payment.”

    Whatsthepoint

    Retire as early as you can afford to. I’ve talked to many newly retired people and very very few say they retired too early, most say they left it too long. Most newly retired people don’t spend enough during the early years it seems, heard that from multiple people. I’m going to retire at 56 in 3 months time. I won’t be rich in terms of money but much richer in terms of life and have enough for a comfortable life. I know I’m fortunate, but I planned this for a long time.

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