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  • FIRST POST
    • Type 45
    • By Type 45 16th May 17, 10:09 PM
    • 27Posts
    • 3Thanks
    Type 45
    Pay off mortgage or invest...
    • #1
    • 16th May 17, 10:09 PM
    Pay off mortgage or invest... 16th May 17 at 10:09 PM
    Hello...

    I have a great mortgage. 0.75% above BoE base rate: (1% at present). My mortgage is about £145K and my house is valued at £375K (so £230K equity). I am in the process of house hunting, however. And I am moving to a cheaper city.

    I therefore have a couple of options:

    1) Use my £230 equity to buy my new property and have no mortgage at all.

    2) Keep all, or part of my mortgage and free up cheap (1% interest) funds. I have confirmed with my mortgage provider that I can do this.



    What say the good people of MSE?
Page 1
    • jimjames
    • By jimjames 16th May 17, 10:59 PM
    • 11,940 Posts
    • 10,342 Thanks
    jimjames
    • #2
    • 16th May 17, 10:59 PM
    • #2
    • 16th May 17, 10:59 PM
    I thought it was a no brainer for me and kept the mortgage so I could invest
    Last edited by jimjames; 17-05-2017 at 2:03 PM.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • ricky_v
    • By ricky_v 16th May 17, 11:04 PM
    • 241 Posts
    • 119 Thanks
    ricky_v
    • #3
    • 16th May 17, 11:04 PM
    • #3
    • 16th May 17, 11:04 PM
    I would certainly use the borrowed money to put in FSCS backed accounts paying an interest rate higher than 1%, and there's plenty knocking about.

    As for using it to invest, that depends on your risk appetite.
    • username12345678
    • By username12345678 16th May 17, 11:11 PM
    • 91 Posts
    • 41 Thanks
    username12345678
    • #4
    • 16th May 17, 11:11 PM
    • #4
    • 16th May 17, 11:11 PM
    My final mortgage payment is at the end of this month.

    I overpaid as hard as i reasonably even though I knew it wasn't the optimal choice - having no debt was more important than the potential investment returns forgone.

    If we get a sustained downturn in equities then i'd certainly look at a re-mortgage to invest but I suspect the interest rates would be nothing like today's.
    • enthusiasticsaver
    • By enthusiasticsaver 16th May 17, 11:13 PM
    • 4,000 Posts
    • 7,180 Thanks
    enthusiasticsaver
    • #5
    • 16th May 17, 11:13 PM
    • #5
    • 16th May 17, 11:13 PM
    At that rate then yes it would make sense to keep some equity back and invest it so long as you realise the risks of losing capital.
    Countdown to early retirement on 31.12.17 4.5 months to go.
    • atush
    • By atush 17th May 17, 10:21 AM
    • 16,160 Posts
    • 9,852 Thanks
    atush
    • #6
    • 17th May 17, 10:21 AM
    • #6
    • 17th May 17, 10:21 AM
    Invest the money in your pension.

    That way it is boosted by TR, giving you a higher/easier upside
    • Type 45
    • By Type 45 17th May 17, 10:54 AM
    • 27 Posts
    • 3 Thanks
    Type 45
    • #7
    • 17th May 17, 10:54 AM
    • #7
    • 17th May 17, 10:54 AM
    @username123: That's where I'm coming from too, at the moment... that not having a mortgage has a huge worth in itself. Not everything has a £ sign attached to it. Things can have value without a £ sign.


    That being said, I will never ever be able to borrow 10s of 1000s of pounds at 1% ever again. My bank must be rubbing its hands for me to pay this mortgage off.

    What would I do with the money?....

    Invest? I don't think I have the risk appetite for it... when stock markets next tank it will worry me. I already have about £20K invested in VLS60 in my ISA and I have not used this year's ISA allowance yet, so that's where I'd invest probably.

    Buy stock for my business? I buy and sell things online, but not on a huge scale. I already have a few grand for doing this.
    Last edited by Type 45; 17-05-2017 at 11:04 AM.
    • chockydavid1983
    • By chockydavid1983 17th May 17, 11:41 AM
    • 398 Posts
    • 227 Thanks
    chockydavid1983
    • #8
    • 17th May 17, 11:41 AM
    • #8
    • 17th May 17, 11:41 AM
    Financially, it makes much more sense to use the money to invest in S&S ISA and/ or pension.
    If psychologically though, you'd feel better paying off the mortgage then do that.
    I have been investing for a few years now instead of overpaying and see no reason to stop.
    • Eco Miser
    • By Eco Miser 17th May 17, 11:46 AM
    • 2,941 Posts
    • 2,725 Thanks
    Eco Miser
    • #9
    • 17th May 17, 11:46 AM
    • #9
    • 17th May 17, 11:46 AM
    Financially, it makes much more sense to use the money to invest in S&S ISA and/ or pension.
    Originally posted by chockydavid1983
    However, borrowing to invest - which this becomes - is generally considered risky.
    Eco Miser
    Saving money for well over half a century
    • chockydavid1983
    • By chockydavid1983 17th May 17, 11:56 AM
    • 398 Posts
    • 227 Thanks
    chockydavid1983
    This is true but my current mortgage rate is 1.99% and over the long term stock markets should return more than this. Also, there are risks both ways of course, in the end you have to go with the probabilities.
    • Type 45
    • By Type 45 17th May 17, 12:11 PM
    • 27 Posts
    • 3 Thanks
    Type 45
    However, borrowing to invest - which this becomes - is generally considered risky.
    Originally posted by Eco Miser
    True. But we are talking 1% interest rates here, and it's interest-only.

    For example: £20K, to top up my ISA for the year, is £17 per month.
    • Type 45
    • By Type 45 17th May 17, 12:14 PM
    • 27 Posts
    • 3 Thanks
    Type 45
    1% until BoE raises rates, that is. It's 0.75% above BoE base rate.


    Sod's Law would be: stock market crashes, and BoE raises rates. That would leave me a out of pocket.
    • jimjames
    • By jimjames 17th May 17, 1:12 PM
    • 11,940 Posts
    • 10,342 Thanks
    jimjames
    However, borrowing to invest - which this becomes - is generally considered risky.
    Originally posted by Eco Miser
    I'm not sure I really agree, you're not taking out new borrowing to invest, you're using spare money each month to pay into a S&S ISA rather than paying the mortgage faster than is required
    Remember the saying: if it looks too good to be true it almost certainly is.
    • Eco Miser
    • By Eco Miser 17th May 17, 1:30 PM
    • 2,941 Posts
    • 2,725 Thanks
    Eco Miser
    I'm not sure I really agree, you're not taking out new borrowing to invest, you're using spare money each month to pay into a S&S ISA rather than paying the mortgage faster than is required
    Originally posted by jimjames
    Post #4 mentions taking out a new mortgage to invest.

    The other case: you have spare money, do you increase your equity in your home, or invest it where it could fall in value?

    I did both. The purpose of my post was to point out that it's not a no-brainer as the investment option increases risk.
    Eco Miser
    Saving money for well over half a century
    • principa
    • By principa 17th May 17, 2:06 PM
    • 63 Posts
    • 18 Thanks
    principa
    For my own similar circumstance I've given up trying to answer this question as a straightforward opportunity cost i.e. pay off mortgage vs invest - which one will make me richer?

    As soon as I had the mortgage covered, I had the "mortgage free" feeling i.e. less stress. This was actually more important for me than investment motivations.
    • Fatbritabroad
    • By Fatbritabroad 17th May 17, 2:59 PM
    • 160 Posts
    • 67 Thanks
    Fatbritabroad
    1% until BoE raises rates, that is. It's 0.75% above BoE base rate.


    Sod's Law would be: stock market crashes, and BoE raises rates. That would leave me a out of pocket.
    Originally posted by Type 45
    This is why it only really makes sense if you can fix for a long period. I've just fixed my mortgage for 10 years which should be enough time to iron out any crashes. I'm paying money into an isa 200 a month regular payment plus top ups every time I have spare cash of a few thousand) and th e intention is in the years time I'll pay a big lump off as I remortgage. Plus worst case I'll have paid another 80k off my mortgage and will only owe around twice my salary) if interest rates are still low I'll just reinvest
    • Type 45
    • By Type 45 17th May 17, 5:27 PM
    • 27 Posts
    • 3 Thanks
    Type 45
    For my own similar circumstance I've given up trying to answer this question as a straightforward opportunity cost i.e. pay off mortgage vs invest - which one will make me richer?

    As soon as I had the mortgage covered, I had the "mortgage free" feeling i.e. less stress. This was actually more important for me than investment motivations.
    Originally posted by principa
    This is how I've decided I feel. Having no mortgage is worth more to me than just money. It's about less stress, and you can't put a price on that. It's health-related.


    If I want more money to invest/save, then I can buy a cheaper house and have money left over. I will not be borrowing any money at all unless i have to. Money for investing will be from future earnings.

    Problem solved!


    Thanks to everyone for your input
    • Ray Singh-Blue
    • By Ray Singh-Blue 17th May 17, 5:58 PM
    • 322 Posts
    • 419 Thanks
    Ray Singh-Blue
    We are repaying (but never overpaying) our mortgage while also building S&S ISAs. Mortgage currently about £320K, ISAs currently about £160K.

    I have a little graph and the day the lines meet, will crack open a bottle of something fizzy. But I won't repay the mortgage. There is so much more flexibility in having both.
    • phillw
    • By phillw 17th May 17, 6:28 PM
    • 674 Posts
    • 340 Thanks
    phillw
    There is so much more flexibility in having both.
    Originally posted by Ray Singh-Blue
    It depends on your view of risk and it depends on the person. If you think you might ever need to claim some form of benefits then having a huge investment porfolio will cause you problems. They take a dim view on you cashing in your investments and paying off the mortgage to qualify.

    I have missed out on making money, but right now I'd rather just have no mortgage.
    • phillw
    • By phillw 17th May 17, 6:29 PM
    • 674 Posts
    • 340 Thanks
    phillw
    There is so much more flexibility in having both.
    Originally posted by Ray Singh-Blue
    It depends on your view of risk and it depends on the person. If you think you might ever need to claim some form of benefits then having a huge investment porfolio will cause you problems. They take a dim view on you cashing in your investments and paying off the mortgage to qualify.

    I have missed out on making money, but right now I'd rather just have no mortgage. Although I cashed in my S&S ISA just before the market collapsed and that went towards the mortgage.
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