Weakness of that strategy is that it results in leaving a large capital sum over a protracted period of time earning a very undramatic rate of interest which barely keeps pace with inflation - this is the downside of a low interest rate era.angie said:Hi would you not put the saving into one of the current account mortgages. As the balance on the account is offset against the mortgage balance when calculating interest. Therefore you are in effect earning the mortgage rate on your savings and the money is there should you need it or change your mind. Your mortgage payment is then paying off the capital at a much faster rate. Or would that work ?
CapitalCCC said:Not too sure that there is much evidence to back-up the previous statement, particularly when one factors in mortgage interest relief on the mortgage repayments.
The after tax return on savings is unlikely to be higher than the interest payable on your mortgage.
oysterman said:If being mortgage free gives JP the confidence to invest (as opposed to save) the future mortgage payments that will not now have to be made, this gives a chance of creating some real wealth in the medium to long term. It's a strategy not without risk but negative or neutral real interest rates make risk an essential element of any scheme to generate a meaningful return for oneself.
If the person has an appetite for risk (as intimated in your quote from oysterman) then they would definitely look to earn > 5% return on savings and they would then be inclined to shy away from the mortgage reduction proposition.
kibby said:Or should I stick that money away in a notice account?