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Original poster

would you pay off your mortgage

51 replies

moneytistheverydevil · 19/03/2010 19:52

if you had 330K of school fees over the next seven years, a mortgage of 70K, and an income of 60K, and 110K in the bank?

It's about 650 a month at the moment. School fees will be half of gross and about two thirds of net income. About 2500 a month. We're kippered. But we have to try to make it work somehow.

Independent school is non negotiable even if we have to remortgage eventually. Remortgage or pay it off? I don't know. There's loads of equity in the house, about 500K. We can't move though, so it's useless to us unless we release it.

Thanks for any advice. I've probably pissed of loads of people now.

OP posts:
thisisyesterday · 19/03/2010 20:32

don't feel bad about the thread being about money!

so you have plenty of money and you send your child to independent school. so what?

i don't get why people are allowed to come and say "i have no money, help me out" and people swarm like flies to give advice, but if someone says "hey i have tons of cash, i really need advice with what best to do" it's all "oh you're just sooooo smug and boastful"

get a grip people! some people in the world have more money than you. it doesn't make them bad, it doesn't make them posers, it's just a fact of life.

LeninGrad · 19/03/2010 20:32

This reply has been deleted

Message withdrawn at poster's request.

MarionCole · 19/03/2010 20:32

All an offset means is that they net off savings and mortgage when working out whether you pay/receive interest.

If your savings are higher than your mortgage (as in your case) then you pay no mortgage interest. In your case you would receive interest on £110k - £70k = £40k of savings.

It is fully liquid - if you wanted to spend your savings you still could. If you spent £40k of your savings then you would neither pay nor receive interest. If you spent say £60k of your savings, you would pay mortgage interest on £110k - £50k = £60k of mortgage.

MarionCole · 19/03/2010 20:35

Sorry, maths has let me down.

If you spent say £60k of your savings, you would pay mortgage interest on £20k of mortgage.

duckyfuzz · 19/03/2010 20:35

god yes get an offset, you;ll save loads, first direct, great service, great rates

activate · 19/03/2010 20:36

pay off mortgage

remortgage when you need to

explain to DH that of your current mortgage payments £x is thrown away in interest per year

seriously £47K a year in school fees - holy crap!

Original poster
moneytistheverydevil · 19/03/2010 20:40

Have just printed off this, thanks for amazing fantastic advice from knowledgable people. Marion and preggers, very very helpful thank you. Lenin you know a lot about this don't you. Am just realising how little I do know. Indaba, we were stuffed twice (dullards) on endowments so this informs my choice

this is yesterday: phew and ta mdear, I do feel a bit about the whole thing

OP posts:
LeninGrad · 19/03/2010 20:44

This reply has been deleted

Message withdrawn at poster's request.

ASecretLemonadeDrinker · 19/03/2010 20:46

Pay off your mortgage. If everything goes tits up financially (personally/globally) a roof over your heads is a roof over your heads. Besides, if you are paying £650 I'd say at least £400, if not more, of that is intrest.

Lonicera · 19/03/2010 20:51

I would pay off the mortgage without a moment's hesitation

We paid our off a few years ago and it's a great feeling

ThatVikRinA22 · 19/03/2010 20:59

somewhere at the back of my mind (tiny though it is) my (very loaded) ex boss once explained to me why you should not pay off your mortgage but for the life of me i cannot remember what his (very money savvy) reasoning was....

and as he is an ex boss i cant ask him. but there was a reason. a good one. this isnt really going to help you though is it? i think i didnt really take it in as im not likely to be in a position to pay mine off anytime soon!

yellowcircle · 19/03/2010 21:05

Your school fees is going to eat a massive amount of your income on a monthly basis.

So...if the fees are £2500 per month (shitting hell!), then are you left with £1250 for everything else out of your salary? Not sure how many kids you have, but if your house is worth £500k-£600k, I don't think that £1250 is enough to run a big house (+ food etc) with 2/3 kids and 2 adults for a month. Although I am just guessing here.

So you will be needing to dip into that capital of £110k all the time, won't you? So I would keep the capital intact but make sure the mortgage is fully offset so you don't pay any interest.

Can you pay any school fees upfront (out of money that is over and above the offset) - some schools offer a % reduction for fees paid upfront I believe. Does the school offer a sibling discount (I'd beg for one in your position). Can either/any kids get scholarships? Finally, are there any cheaper independent schools around - this one sounds expensive, although again here I am just guessing.

MarionCole · 19/03/2010 21:45

It won't be anything like £1,250 yellow circle, more like £500 after tax.

Lonicera · 19/03/2010 21:49

some advice here

LaDiDaDi · 19/03/2010 21:52

My mortgage costs are currently similar to yours and my salary similar to your income, more if include dp's. Nowhere near that sort of equity in our house though.

BUT

No bloody way would I be spending 2.5k per month on school fees !!

Send them state!

noddyholder · 19/03/2010 21:55

60k a year is not enough to pay those school fees

LeninGrad · 19/03/2010 21:58

This reply has been deleted

Message withdrawn at poster's request.

noddyholder · 19/03/2010 21:59

I know people on that salary with modest lives and no private schools or fancy hols etc.Take your savings and move somewhere with a decent state school.

legscrossed · 19/03/2010 22:34

we were considering similar prob.......save for LO future or hammer away at mortgage.
We came to conclusion while IR are low beat the banks and shift mortgage debt. There's no point saving for LO at mo as IR are crap from that perspective.
we're doing offset mortgage to overpay, take into account savings and keep options open if poo hits fan (payment breaks and wonga pot to call on if needed)
And when mortgage is shifted IR are higher and saving makes more sense, all disposable income will be able to go into schooling.
Well thats the theory

Def shift mortgage, fantastic to not be beholden to banks, economy and IR.

Eurostar · 19/03/2010 23:00

QE = quantitative easing, AKA, printing money, which along with low interest rates brings inflation.

Yes, if there is high inflation, savings are also trashed but I was thinking they were going on school fees anyway. I asked if they were already in the school because deals can be done on paying a few years in advance. So, if you were on the side of thinking much inflation is due, leaving the mortgage debt and paying fees in advance could work....HOWEVER...you are on a flexible mortgage so your payments could be going up a lot in the future as interest rates are likely to rise unless you fix the mortgage. If you did want to keep the cash for fees you could get a 10 year fix (there are a few around) so you are certain of your payments over the school years. This would cost you more in interest payments but if it's the only way to get access to the cash then it's cheaper than borrowing it through loans.

If it was me, I would pay off the mortgage I think because we are living in a very uncertain financial world and it removes one level of uncertainty and then I'd try and work out what we could realistically afford in terms of fees and factor in that there might be job losses/changes at some point. It would not be ideal to have to pull children out of private school to go state part way through their GCSE schooling. If you think there's a doubt you can keep up the fees I'd put them in state from Day 1.

When I last looked at offset mortgages I didn't find one that allowed total offsetting (so your savings had to be something like 30k short of your debt and then there was a repayment term on that) but that might have changed now

Original poster
moneytistheverydevil · 20/03/2010 07:52

Thankyou for all further replies yesterday, I will be reading closely later but thank you in the meantime.

OP posts:
oldenglishspangles · 20/03/2010 08:19

What eurostar said

Original poster
moneytistheverydevil · 20/03/2010 16:22

Hi. The ball has been thrown in my court as dh sees paying off the mortgage as "spending" I think! Anyhoo I think I am going to pitch for paying off a third, getting an offset mortgage for the rest, keeping about 20 in the bank and preparing to sell a kidney.

I did my numbers wrong, it's 180K over seven years. I need to get a job that's for sure.

Thank you to all who gave time, advice and opinions.

OP posts:
ArcticFox · 22/03/2010 23:40

"If of any interest, research shows financial planning decisions generally tend to follow sex lines: women tend to be more cautious and pessimistic re rates of return"

Unfortunately this is true and this, together with women's far worse knowledge of investment products, is one of the reasons why women generally have much lower levels of savings than men (others being disrupted working lives, lower earnings).

If you keep savings in the bank then all you do (at best) is preserve capital because inflation will erode the rest.

Quattrocento · 22/03/2010 23:49

I think it makes sense to pay off the mortgage to reduce the squeeze and also because you are paying more in interest than you will be earning.

We like to have a year's worth of school fees in reserve in case the worst comes to the worst - but it sounds as though you will still have that even if you've paid off the mortgage