Talk some sense into me! Mortgage

[Twoshoesnewshoes]

I’ve seen a house which is great, nice garden, character, great location.
we want to downsize as we’re rattling around in ours now the kids have left home.
there would be just enough room for people to stay in the new one (I mean our adult DC).
if we paid at our current rate, our mortgage term would go from 18 years to 3.

im nearly 50, DP is early 50’s
we have agreed we need to put more into pensions, also we go away on holiday a lot so quite high spend on that. We’re within our means though.

i can’t visualise the reduction in years, I can’t get my head round the implications of it. I think, because we can afford out mortgage payments now I just think ‘so?’

talk sense to me!

I don’t understand the problem / question.

Downsizing will free up loads of money in a short period of time with no real impact on lifestyle otherwise… what’s the problem exactly?

If someone gave you 12x your monthly mortgage payments tomorrow, what impact would that have on your life? Pension contributions, holidays, life style.

Moving to the house you've described means that in 3 years time you would be in that position every year.

Does that help make it any more real?

Well multiply your monthly repayment by 12 and think about having that much extra a year. How would you feel about me handing that cash to you in crisp £20 notes today and again every year for the 14 years after that?

Op, in 3 years time, you can put the £££ you current spend on your mortgage , towards your pension. You may also benefit from tax relief on that ( Rachel permitting)

So, potentially you have 15 years to top up your pensions.

Plus, instead of paying mortgage interest , you are earning interest on your income .

Yes, yes this is helping
im imagining @WalnutsAndFigs giving me…um…£12360 pounds in crisp notes. It’s a lot!
then every year for 14 years! It’s a lot!

Oooh think about doing snow angels in all that dosh!

Then pop along to MSE investment calculator to see what putting say £400 a month in your pension or your S+S ISA would get you after those 14 years. Historical returns on the stock market are approx 8%, so use that as the interest rate

And also think about having 14 extra holidays too

The holidays is a definite incentive
this is very helpful, I hadn’t thought about the ‘14 times’ aspect in that way.
okay, going to mse now…

You might do well to keep a mortgage for the longer term eg 15 years and put the money in pensions instead, because a mortgage is going to cost you 4% while a pension should grow at a much higher rate, especially as you get tax relief on contributions.

Plus also you need to budget for pension contributions and holidays. Look at your whole budget for your new home. Make sure you're on a good deal with utilities, broadband etc. Also check you're not wasting money by paying for subscriptions you don't use or groceries you throw away and how much you're spending on day to day 'stuff' that can end up costing a lot and you might not value. These add up enormously over time. A £5 spend every weekday is £100 a month, £1200 a year or close to £15k a decade once interest is taken into account.

With what's left, decide how much to pay into your pensions, spend on holidays, save for annual and irregular expenses, emergency fund etc and put the money away. Then you're saving for a pension and have a pot of money available for holidays.

You could think about what it is you really value about holidays and whether you can reduce the cost to make your money go further. Even little things like going Tuesday to Tuesday instead of Saturday to Saturday can save hundreds of pounds a time and you'll have a lot more flexibility now you don't have school holidays to factor in (unless you work in a school of course). Or go to slightly cheaper destinations, eg Malaga instead of Barcelona for a Spanish city break.

Put your mortgage payments into pensions, you can then retire with an income and keep going on the holidays

@Bjorkdidit @OnceIn thank you, really appreciated. Yes, it’s such a good point that I’m paying interest on my mortgage but will be paid interest on my pension/savings.

we have a Campervan which we use loads, and I think more European/Scotland etc trips beckon when we are semi retired. It’s a cheap way to holiday, for us, as it’s also our second car.

Oooh imagine the Campervan upgrades!

Does the mortgage permit overpayments?
If it did I would possibly go for a half way house an get the mortgage over say 5 years but overpay the mortgage at the amount you currently are doing but it means that if one month you want a bit more money you have the option of not overpaying.

Generally though I'd prioritise paying off your mortgage.

Yes it does, but we can’t really pay more than we are.
i mean, got holidays to pay for!
we are also saving a lot for our kids house deposits

What I mean is getting it over a slightly longer period of time and say that monthly payment is £200 less than you would pay over 3 years. On months when you don't have extra costs you overpay the £200 so it's the same as having the mortgage over 3 years but if you have a month with extra expenses you can just pay the lesser amount. So you are still hopefully paying the mortgage off in 3 years but you have that flexibility of not being committed to paying that higher amount every month.

Also don’t forget if you pay into your pension, the government give the 20% uplift.

Oh I see @Superscientist yes that’s a good idea