Pay your mortgage off early or invest?

[Mysterae_]

There was a thread recently where a poster said that it was better to invest your money monthly rather than put the same amount in to your mortgage with the intention of paying it off early. I can't find that particular post or poster and I didn't believe him anyway, so sorry!

However it appears he may have been right .

There's something about paying your mortgage off early that just feels right, not paying interest to a faceless bank, an old school mentality that debt is bad. Then I stumbled across this bloke on youtube who explains the comparison quite well.

This has actually changed my mind and confirmed what the poster in that lost post said, so thanks to him!

 

[dlockers]

Anyone putting mortgage money into stocks needs to seriously consider their position given current headwinds.

 

[arknor]

your house probably gets better returns than the stockmarket.

don't most people invest in the stock market so they can save towards a house deposit and then retirement

 

[dlockers]

your house probably gets better returns than the stockmarket.

don't most people invest in the stock market so they can save towards a house deposit and then retirement

Yeah but then they get sentimental and never downsize

 

[CapitalOne]

As with any investment, it’s all about timing your “out” right. See endowment mortgages.

 

[jaybee]

Anyone putting mortgage money into stocks needs to seriously consider their position given current headwinds.

Go on...?

your house probably gets better returns than the stockmarket.

Returns? The majority of home owners own just the one house though. You never see these "returns" unless you own multiple properties or significantly downsize in later life.

 

[CapitalOne]

In theory, if you went fixed interest only and invested the full mortgage capital in bonds that are paying a higher coupon you could get a safer win. In fact it’s such a good idea the Investment Banks should be doing it maybe you could call it something simple like a swap?

Problem is for that to work you need the full capital amount for the mortgage value invested up front in the bonds, which again is more risky over 25 years say than just paying cash for the house.

 

[Firestar_3x]

In theory, if you went fixed interest only and invested the full mortgage capital in bonds that are paying a higher coupon you could get a safer win. In fact it’s such a good idea the Investment Banks should be doing it maybe you could call it something simple like a swap?

Problem is for that to work you need the full capital amount for the mortgage value invested up front in the bonds, which again is more risky over 25 years say than just paying cash for the house.

Isn't that basically an endowment mortgage in all but the wrapper, those worked out fantastically well for so many people.

 

[CapitalOne]

Go on...?

You maybe too young, take a look at the historic problems (in the 90s?) with endowment mortgages that assumed investment returns to pay off the principle. As I said, when mortgage term comes to an end what if your investments are down and below the principle amount?

I think the truer statement would be, it may be better to invest rather than pay off the mortgage if you are a well informed investor and you exit at the right time.

That is the wording the FCA might allow. Don’t know why youtube/ocuk experts aren’t as stringent?

 

[CapitalOne]

Isn't that basically an endowment mortgage in all but the wrapper, those worked out fantastically well for so many people.

Yeah sorry was being sarcy

 

[AndyT]

I would overpay the mortgage, purely for the psychological aspect of clearing it quicker and giving opportunities to reduce work hours etc. I’d invest more heavily after the mortgage was paid, at least then knowing that was sorted whilst I had a low interest rate. That’s what I’m doing now anyway.

Haven’t got the time or energy to worry too much about investing, so for us overpaying is just easier and more comfortable.

of course you could spend the spare cash. You might be dead tomorrow.

 

[Mysterae_]

The youtube bloke does state in part one of the video that a big difference with paying in to your mortgage is that it's a dead certainty to achieve the goal you set out. Assuming mortgage rates are fixed and you calculate how much you need to achieve your end date. Putting the same amount in to an investment can work out better, but it's not without it's risks.

 

[Macky]

I've just began overpaying the mortgage by 10% per month in an attempt to bring our LTV down. Our mortgage interest rate is 2.83% which is more than my returns on the stock market currently.

Although our house appears to have increased in value over the last eight months which in itself has brought the LTV down significantly!

 

[Pawnless Endgame]

My mortgage started in August 2006, 25-year term, due to end in August 2031.

I was locking it into a fix every 2 years, 2006, 2008, 2010, 2012 etc and the repayment varied between £270 and £370 depending on the interest rate.

Then in 2016, I locked it into a 10-year fix at £270. That will end in August 2026, then after that, I'll have 5 years left on the 25-year term.

My finances have significantly improved in recent months, so I can afford to over-pay. The Nationwide terms is that I can over-pay by 10% per year, but I'm not sure if I understand rightly as being £270+10% per month per year, or +10% of my original £55,000 mortgage term per year. Would I be better off paying a lump sum manually every year or set up a new direct debit? 10% of £270 is £27 (£324 per year), and 10% of £55,000 would be £5,500 per year. Big difference!

 

[Surveyor]

My mortgage started in August 2006, 25-year term, due to end in August 2031.

I was locking it into a fix every 2 years, 2006, 2008, 2010, 2012 etc and the repayment varied between £270 and £370 depending on the interest rate.

Then in 2016, I locked it into a 10-year fix at £270. That will end in August 2026, then after that, I'll have 5 years left on the 25-year term.

My finances have significantly improved in recent months, so I can afford to over-pay. The Nationwide terms is that I can over-pay by 10% per year, but I'm not sure if I understand rightly as being £270+10% per month per year, or +10% of my original £55,000 mortgage term per year. Would I be better off paying a lump sum manually every year or set up a new direct debit? 10% of £270 is £27 (£324 per year), and 10% of £55,000 would be £5,500 per year. Big difference!

https://www.nationwide.co.uk/mortgages/existing-mortgage-members/overpayments/

As it's the only one that fits I assume you're in the category of "All mortgage products reserved on or after 29 May 2013 - 10% per annum of the original loan amount". The original loan amount I assume would be the amount you borrowed in 2016.

 

[Sankari]

Mortgage.

 

[Freefaller]

I stopped overpaying my mortgage when I got a low fixed rates and a low LTV as I get more return through investments / pension contributions. I'm not bothered about paying my mortgage off in a rush, I'm more interested in retirement planning. I'll be able to downsize once the kids are out, but have some time for that. If I could afford to both invest and overpay then clearly that would be ideal.

It's a personal choice, there's no right or wrong really it depends entirely on your circumstances. If I were single and a lot younger I'd be probably focussing more on over paying a little to lower my LTV and make future affordability easier.

 

[Slam62]

If you over pay you are guaranteed a compounded return, if you invest you leave yourself open to risk.

 

[dlockers]

Go on...?

The market has been booming for a decade; there are lots of institutional investors who have only ever made money. Imagine a surgeon that has only ever done mole removals now in a warzone where he has fighting several different issues on several fronts. That's the headwind we're approaching. Most professionals will be struggling let alone lay folk.

 

[BUDFORCE]

If the **** hits the fan I'd rather be living in an unencumbered house.