We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Is this too good to be true?
Options
jules9
Posts: 84 Forumite
Hi,
Regretfuly I am going through a divorce. I am likely to have around £200k at the end.
My intention was to go out and buy a flat/small house for about £150k and then get a small mortgage for about £50k. I am looking for a short term 5 year mortgage as this is when i plan to stop working.
I had all this thought out and then went to see a financial advisor......
He told me that I should get a large mortgage for around £150k and place that money with a financial plan that he would suggest. He said this could earn around 12% interest and would be far more sensible than doing it the way I thought of.
Does this make sense, I'm a bit suspicious that he is after 2 lots of commision, one on the mortgage and the other on the savings investment.
Your views much appreciated. Is it better to go for a mortage as i had planned or to do what he is suggesting?
Regretfuly I am going through a divorce. I am likely to have around £200k at the end.
My intention was to go out and buy a flat/small house for about £150k and then get a small mortgage for about £50k. I am looking for a short term 5 year mortgage as this is when i plan to stop working.
I had all this thought out and then went to see a financial advisor......
He told me that I should get a large mortgage for around £150k and place that money with a financial plan that he would suggest. He said this could earn around 12% interest and would be far more sensible than doing it the way I thought of.
Does this make sense, I'm a bit suspicious that he is after 2 lots of commision, one on the mortgage and the other on the savings investment.
Your views much appreciated. Is it better to go for a mortage as i had planned or to do what he is suggesting?
0
Comments
-
In principle you can get a larger mortgage and invest more capital. And you will be better of if the return on your investment is higher that the interest rate you will pay on the mortgage. But there can not be any guarantees of this: you might lose out.
Over the longer term (10+ years) returns of 8-10% per year can probably be achieved from stock-market based funds provided the better investments are picked and the charges are not too great. But I think you would need to do it yourself, not use an adviser to keep costs down: you would need to know what you are doing and make your own investment decisions. (I think his/her 12% is a bit optimistic). Its not worth considering the investment route unless you plan to have the mortgage for 10+ years (or take out life insurance and hope to die in that time!).
Most people won't want the hassle: they are more comfortable with the steady savings they make by not having a mortgage.0 -
Investment linked mortgages are generally for the more experienced investors. Even then you would normally only link it to a regular contribution to build up over time. Not a lump sum.
From a compliance point of view, recommending that sort of transaction to an experienced investor used to gearing wouldnt be an issue but recommending it to an inexperienced investor would be daft.
I am going to make the assumption that you are an inexperienced investor as you have used a few terms incorrectly in your post which you wouldnt have if you were an experienced investor. In which case, I wouldnt do it.
Yes, it could work and if done correctly it "probably" would work. I myself have an investment linked mortgage and average 15% (if you include the period of the last crash) but I know what I am doing and the risks, rewards etc but wouldnt dream of putting an inexperienced investor into the same sort of thing. That is just asking for trouble.
I would say stick with a conventional repayment mortgage. I would also check the creditials of this adviser. It isnt the sort of recommendation you expect from a quality independent adviser.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
jules9, it's not unreasonable in theory except that it's clearly not appropriate for you as an individual.
The UK stock market tracker funds and global tracker funds have long term returns of around 12% a year so that's fine. Better managed funds can do 15% ro more routinely, so no problem achieving the returns over the long term.
The problem lies with "long term" and your five year timespan. Five years is what you should really be allowing for recovery after a stock market crash, so any crash between now and the end of the term wouldn't leave you sure to have enough time to recover the original value and pay off the mortgage.
If you have a large pension lump sum due and don't mind taking the risk of having to use it for this then it's not a bad option and may well leave you better off.0 -
£200K minus £150K for the flat. Unless you need more than the £50K balance in reserve, why do you want to take out a 5 year mortgage?"A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0 -
I can't give advice like dunstonh but as far as I'm concerned the less debt you have the better your life can be. A mortgage is a debt so I personally would ignore the IFA's advice and go with as little borrowing as possible. BTW, if you are going to have £200000 and plan to buy a property for £150000, why do you need to borrow anything?0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 351.2K Banking & Borrowing
- 253.2K Reduce Debt & Boost Income
- 453.7K Spending & Discounts
- 244.2K Work, Benefits & Business
- 599.3K Mortgages, Homes & Bills
- 177K Life & Family
- 257.6K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.2K Discuss & Feedback
- 37.6K Read-Only Boards