Fine minds of UKB, at what point should you stop saving into a rainy day fund (instant access, 1% interest) and start paying off your mortgage.I've seen 3 months regular outgoings mooted. I'm past that, so considering overpaying the mortgage. I don't think we have penalties, but will check.
I would always put some money into some sort of rainy day/savings fund, but one way to look at it is to look at the interest rate on the mortgage and compare it against what you might get in savings/investments.So if your mortgage is at 5% interest, you'd be better off putting your money into a savings pot that was giving you 10% interest. If your mortgage was 5% but the best saving rate you could get was 2.5%, you'd be better off overpaying the mortgage.
My LTV is quote low, so interest is about 1.85%. I guess in that case some kind of stocks and shares isa might be worth a look?
Any other thoughts on where best to invest? I'm a lefty hippy, so no tobacco or climate change deniers...
Though mortgages are compound interest - so if you have a significant amount outstanding and/or many years to go - you would save on interest payments for all of those years... non?
No one has championed the overpaying option so here goes.Housing costs are the biggest the expense that most people have. Paying it off early will give a massive amount of freedom as your monthly outgoings will be drastically reduced. It provides a huge sense of security knowing that no matter what happens your house is yours.
Awesome folks, lot to think about. I'm maxing my pensions with work, so that's good.
HarryBD: you don't need an ISA on a normal savings account unless you're above the threshold of interest - £500 for higher rate tax payer or £1000 for normal. Which at current interest rates means 40-50k for most people. Anyway, cash ISA is unlikely to be useful for most people and usually worse interest
Not sure if that threshold interacts with gains on stocks and shares or trackers but I assume not.
HarryBD: you don't need an ISA on a normal savings account unless you're above the threshold of interest - £500 for higher rate tax payer or £1000 for normal. Which at current interest rates means 40-50k for most people. Not sure if that threshold interacts with gains on stocks and shares or trackers but I assume not.Anyway, cash ISA is unlikely to be useful for most people and usually worse interest
It's about thinking about each individual pound of surplus and how to make it "worth" the most.In your example, after one year of having your £1000 you would have turned it into £1100 in the 10% savings account (you're up £100).Your 5% interest on £200k is £10,000. 5% interest on £199K is £9,950.So you either spend a grand overpaying the mortgage and save £50 or put it in savings and get £100.Don't you work in the finance industry, James