Stoozing is making a comeback.

[normal rules]

Not for everyone of course. But with interest rates on some savings accounts becoming attractive it’s an easy way to make money.

Take out a 0% spending credit card
Use this for all of your everyday spending
Save the cash that builds up in your bank account at as high a rate of interest as possible
When the 0% deal ends, use your savings to clear the card, or transfer the balance to another 0% card.

[Wiltshire Exile]

Not for everyone of course. But with interest rates on some savings accounts becoming attractive it’s an easy way to make money.

Take out a 0% spending credit card
Use this for all of your everyday spending
Save the cash that builds up in your bank account at as high a rate of interest as possible
When the 0% deal ends, use your savings to clear the card, or transfer the balance to another 0% card.

Maybe this should be in “Off Topic”, nr?….only asking?   

[Donnywolf]

Probably knew but once you have posted a new Thread you can't "down" it yourself

Have to wait for admin ....

[Wiltshire Exile]

Probably knew but once you have posted a new Thread you can't "down" it yourself

Have to wait for admin ....

Ah, got it! Thanks, DW!

[normal rules]

Should have been in OT. Sorry.

[big fat yorkshire pudding]

Also for those on things like fixed mortgages. Cut your payment to the very minimum and look at putting the money saved in to an interest bearing account, you'll probably end up making a decent amount out of it.  Lots of little tricks right now.

[BillyStubbsTears]

I don't know if I'm missing something I should have done many years ago.

If you have a work pension, you get tax relief on your contributions. When you finally come to take your pension, you don't pay full tax on the income you take (I think you get the first 25% tax free in any given year.) So wouldn't it make sense to pay off as little of the capital on your mortgage every year as you can get away with, and out the money you save into pension contributions. Build up a bigger pension pot then draw that down when you retire and pay off the mortgage capital?

I can see the problem if you have a very high capital amount to pay off. If say you owed £200k, when you took the lump sum out at retirement, you'd go into the top tax bracket for that year and lose a huge amount. But if you have £30-40k left on a mortgage, it feels like a no-brainer.

[Bentley Bullet]

Surely you're not planning on becoming one of the much-maligned filthy rich pensioners BST?

[BobG]

Absolutely typical....

BobG

[Bentley Bullet]

Absolutely typical....

BobG

That's exactly what I thought, Bob!

[normal rules]

I don't know if I'm missing something I should have done many years ago.

If you have a work pension, you get tax relief on your contributions. When you finally come to take your pension, you don't pay full tax on the income you take (I think you get the first 25% tax free in any given year.) So wouldn't it make sense to pay off as little of the capital on your mortgage every year as you can get away with, and out the money you save into pension contributions. Build up a bigger pension pot then draw that down when you retire and pay off the mortgage capital?

I can see the problem if you have a very high capital amount to pay off. If say you owed £200k, when you took the lump sum out at retirement, you'd go into the top tax bracket for that year and lose a huge amount. But if you have £30-40k left on a mortgage, it feels like a no-brainer.

It depends what pension you have. Some pension funds have lost a lot of value of late.

[BillyStubbsTears]

Surely you're not planning on becoming one of the much-maligned filthy rich pensioners BST?

I have every intention of being as well off as I can when I retire. I don't mind those people as a group. Just the ones who are selfish, ignorant  t**ts with it.

[BillyStubbsTears]

I don't know if I'm missing something I should have done many years ago.

If you have a work pension, you get tax relief on your contributions. When you finally come to take your pension, you don't pay full tax on the income you take (I think you get the first 25% tax free in any given year.) So wouldn't it make sense to pay off as little of the capital on your mortgage every year as you can get away with, and out the money you save into pension contributions. Build up a bigger pension pot then draw that down when you retire and pay off the mortgage capital?

I can see the problem if you have a very high capital amount to pay off. If say you owed £200k, when you took the lump sum out at retirement, you'd go into the top tax bracket for that year and lose a huge amount. But if you have £30-40k left on a mortgage, it feels like a no-brainer.

It depends what pension you have. Some pension funds have lost a lot of value of late.

Yeah I know but over a long period they should give a decent return unless shockingly badly managed.

[selby]

  Easiest of the lot, don't know if you can still do it with mostly direct debit payments, but, when you had to pay over the counter, if you paid January's mortgage payment before December the 31st because interest was charged on what was owed January the first interest was not added for January as it had been paid.
  Shortened the mortgage length by a few years. did it every December.

[Bentley Bullet]

Surely you're not planning on becoming one of the much-maligned filthy rich pensioners BST?

I have every intention of being as well off as I can when I retire. I don't mind those people as a group. Just the ones who are selfish, ignorant  t**ts with it.

Like who?

[BillyStubbsTears]

I'm sure you know a selfish, ignorant t**t when you see one BB.

[BillyStubbsTears]

  Easiest of the lot, don't know if you can still do it with mostly direct debit payments, but, when you had to pay over the counter, if you paid January's mortgage payment before December the 31st because interest was charged on what was owed January the first interest was not added for January as it had been paid.
  Shortened the mortgage length by a few years. did it every December.

That hasn't worked for years. They calculate the interest owed on a daily basis.

[Bentley Bullet]

I'm sure you know a selfish, ignorant t**t when you see one BB.

I know I do, but that wasn't the question.

[Colemans Left Hook]

Judging by someones nanananineteen posts yesterday that someone certainly is getting in training to be a pensioner. Maybe we can look forward to an average 50+ posts per day then 

Opportunity knocks next weekend when the clocks go back . Just think 25 hours of posting in a 24 hour day

 

[Superspy]

I don't know if I'm missing something I should have done many years ago.

If you have a work pension, you get tax relief on your contributions. When you finally come to take your pension, you don't pay full tax on the income you take (I think you get the first 25% tax free in any given year.) So wouldn't it make sense to pay off as little of the capital on your mortgage every year as you can get away with, and out the money you save into pension contributions. Build up a bigger pension pot then draw that down when you retire and pay off the mortgage capital?

I can see the problem if you have a very high capital amount to pay off. If say you owed £200k, when you took the lump sum out at retirement, you'd go into the top tax bracket for that year and lose a huge amount. But if you have £30-40k left on a mortgage, it feels like a no-brainer.

Broadly this is correct, although in a lot of cases it can be even better than that as well. You can take the 25% lump sum tax free as soon as you start drawing down, which if you have a big enough pot, deals with the issue of owing a bigger lump sum, and this doesn't immediately drop you into the highest tax bracket, it just means you end up being treated like PAYE for tax purposes (12k personal allowance, etc etc etc).

The bottom line is, whichever way you cut it, if you can make more money than the cost of the interest on your debt, consistently via another mechanism, then in pure numbers terms it makes more sense to do so...doesn't matter if we're talking about putting money in a pension instead of paying a mortgage (which is the easiest way due to the tax relief), or putting it into a high interest savings account instead of paying of a 0% credit card.
This is why, for a long time, I've opted to invest more than overpay my mortgage....beating my 2% mortgage rate in the market is a piece of cake. However, I'm about to remortgage at 5.29%, and that becomes harder, and the feeling I've had over the last couple of weeks where rates have been completely out of my control is not a feeling I've enjoyed, so I've decided to start overpaying the mortgage to get it paid off as soon as possible, just to get the weight off my shoulders and give me more flexibility. Current plan is to get my mortgage down from 36 years to a maximum of 10. Wish me luck.

[big fat yorkshire pudding]

It depends on your own horizon though, bst is exactly right it is a tax effective method but it depends on the term and volume you have left. I'm 35, the interest on a mortgage for 20 more years far exceeds the benefit.

The problem as SS says is you have to estimate longer term and too many people have estimated rates would stay lower, which was and is never going to be the case.  It's going to hurt a lot of people.

[Superspy]

I'm not sure how you come to the conclusion that the interest on a mortgage with 20 years left exceeds the benefit of tax efficiency in a pension BFYP. What numbers are you using?

The term is rendered almost irrelevant on the basis that the compounding effect is being applied for the same period of time...either you've saved on 20 years worth of interest on the mortgage, or you've gained 20 years of compounding.
The amount of debt (I assume that's what you meant by volume) also isn't as big an impact as some might think because you only save interest on the amount you pay off.

For example (numbers completely out of thin air) - a 300k, 20 year mortgage at 5% with an overpayment of £200 per month is a saving of £28.5k in interest.
Taking that same £200 a month and investing it in an S&S ISA for 20 years at 7% (long term growth of the S&P 500) results in a pot of £105k, of which £57k is growth.
Take that £200 and put it in a pension instead, making it £250 a month if you're a basic rate payer, and it's £130k with £71k being growth.

The discrepancy is bigger the further the rates are from each other.

To highlight the point I was making about the size of the debt not being as important a factor, if you double that mortgage to 600k, the amount you save by overpaying by the same 200 a month only lifts from 28.5k to 31k.
In terms of timescale....upping from 20 years to 30 changes the saving on the mortgage interest to 70k, but the growth by going the alternate route increases from 57k growth to 173k. This shouldn't be a surprised because compounding means the longer you leave it the better it is.

The nuance is you can make up some of the shortfall of choosing to overpay the mortgage first, by investing your mortgage payment once the mortgage is paid off.

Obviously a lot of this goes out of the window if you're somebody who plans on retiring earlier than the age at which you can take your pension...as then you need to be able to pay your mortgage while not being able to access the money.

On the point of pain...my mortgage is about to jump by 400 a month...wonderful.

[big fat yorkshire pudding]

I think that's the point though isn't it?  In a simple method as you've chosen it potentially does make sense for a lot of people absolutely.  But there's so many other variables that make it not always the fit for everyone.  Eg if you think you'll need the capital in the next 20 years (as I expect to) it's clearly not appropriate as once it's in your pension it's in there and you can't get that back.

Not to mention the golden rule one of my university professors once said (I have a degree in financial management), don't assume the rules as they are now will be the rules in 10 years.  I would be surprised if the lump sum withdrawal still exists when we are 55, particularly if we get a labour government.

[Superspy]

Yeah that's all perfectly reasonable - and is the reason why when I started my piece in this thread I said I was basing my comments in terms of pure numbers.

[BillyStubbsTears]

I suspect the first thing any Govt (and certainly a Labour Govt) on the issue of pensions, is to limit everyone's tax relief on pension contributions to the lower rate of income tax.

Frankly it is shocking that we subsidise the private pensions of the higher paid by 40%, while having one of the lowest state pensions in the developed world.

I'm a higher rate tax payer so I'd get hit by that. But I'd still vote for it because the current set up is deeply unfair.

[big fat yorkshire pudding]

I suspect the first thing any Govt (and certainly a Labour Govt) on the issue of pensions, is to limit everyone's tax relief on pension contributions to the lower rate of income tax.

Frankly it is shocking that we subsidise the private pensions of the higher paid by 40%, while having one of the lowest state pensions in the developed world.

I'm a higher rate tax payer so I'd get hit by that. But I'd still vote for it because the current set up is deeply unfair.

Yes let's hope not, it underpins my entire tax strategy

[BillyStubbsTears]

But it is morally outrageous.

[big fat yorkshire pudding]

But it is morally outrageous.

In some ways I do agree, but if you reform that you have to reform other things.

It's equally outrageous that for every £1 of taxable income above £50k someone could keep as little (but potentially more or less) as 37p.  Not much incentive to earn more at that rate.

Let's be clear, that's a very middle class conversation absolutely.  But it has a knock on effect throughout the economy.

[Superspy]

Is that factoring in the high income tax charge on child benefit BYFP or are you thinking about something else?

That particular issue is kicking my ass at the minute... mainly because the HMRC online stuff is useless and no matter how many times I tell them to stop paying me child benefit they only stop it for 1 of the kids... guess I'll just be paying it back in tax next year...

[BillyStubbsTears]

But it is morally outrageous.

In some ways I do agree, but if you reform that you have to reform other things.

It's equally outrageous that for every £1 of taxable income above £50k someone could keep as little (but potentially more or less) as 37p.  Not much incentive to earn more at that rate.

Let's be clear, that's a very middle class conversation absolutely.  But it has a knock on effect throughout the economy.

You do know that by the Govt's own figures, the lowest paid 20% of the population pay a bigger %age of their income on tax than the highest paid?