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"why i plan NEVER to pay off my mortgage" discussion!

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  • savedup
    savedup Posts: 49 Forumite
    Part of the Furniture Combo Breaker
    dinkydee wrote:
    Here is a couple of other points worth considering if you get a lump sum your way:
    Let's say you have a mortgage of £60,000 and a salary of £30,000 a year. Would you be comfortable extending your mortgage to £100,000 to invest in the stockmarket? This is the exact same question turned around. If you have a mortgage of £100,000 and you get a lump-sum of £40,000 investing it in the stockmarket is the same as extending a £60,000 mortgage to £100,000. If you don't have experience of the lows of the stockmarket, then you should use most of the money to pay off your mortgage and get experience with a small part of the balance. They say you should try to get your mortgage down to 2times your annual salary, your pension sorted and an emergency fund of 3 months for singles and 6 months for marrieds and for you to be quite comfortable before you start investing in the stock exchange.

    Wise Words !!
    An economic forecaster is like a cross-eyed javelin thrower : they don't win many accuracy contests, but they certainly keep the crowd's attention !:rotfl:

    Money may not buy happiness - but misery comes free with debt.:o
  • Tim_L
    Tim_L Posts: 3,816 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    I made much the same point as the article on these boards some time ago.

    Paying off a mortgage is absolutely an emotional decision, and often not very sensible. Even if you are not investing the proceeds, you are sinking a lot of capital into your house where you can't get at it easily, except by remortgaging which puts you back in precisely the same situation as you would have been before paying the mortgage off, bearing in mind the chances are you will need it after redundancy or during retirement where remortgaging may well be more difficult. There's a significant opportunity cost involved here.

    However it is fairly easy to beat mortgage rates with lowish to medium risk investments. Mortgage rates are extremely low and not difficult to beat. You don't need to go the whole hog into stock market investments or trying to pick shares. And if you can get just a small percentage over the mortgage rate (which is still possible with instant access savings accounts for non-tax payers) then there is no rational reason to pay the mortgage off. Even a small negative differential is a price worth paying in my opinion, for the very risk averse.

    People do seem to view mortgages as a burden that takes their freedom away. In fact they're an extremely useful and beneficial form of debt. What really provides freedom is having accessible savings.
  • savedup
    savedup Posts: 49 Forumite
    Part of the Furniture Combo Breaker
    It is an inescapable fact that a mortgage, as with any debt, is a burden - especially these days with the very large mortgages that people are taking on to pay these overvalued house prices.

    I agree with the purely financial analysis of the original article, that over a very long period (40 - 50 Yrs) the stock market has delivered better gains than savings or property. (about 11% p.a compounded). However, many people's mortgages run for 20-25 Yrs and over this time period, the performance of the stock market isn't anything like as consistent. The impact of the market crash in 2001 on Endowments and Pension funds is still being felt today - and will be for many years to come - in spite of the recent market bull run.

    I have nothing against investing in the stock market - I have my own portfolio of shares that have made me a lot of money this last three years - but I wouldn't like to rely on them paying off my house.

    I paid my mortgage off as soon as I could - took me 6Yrs altogether (was not a big mortgage - so easier to do) - and with the money I have invested ( Some of which would have been interest payments to the b.s) - I have nearly made back the money I used to buy the house - 14 Months later !

    I have been very fortunate the way things have worked out - but there is no hard and fast rules to this.
    By paying off my mortgage I was able to take a few more risks with more of my money - knowing that I wasn't gambling with the roof over my head.

    What I can say though in summary is this - I know that if the stock market crashes, If I get made redundant, If I fall ill and have to take a lower paid job - I have the peace of mind knowing that the house is paid for, I have cash savings to fall back on, and I have enough to have a few nice holidays, new car etc. So I have absolutely no plans to borrow any money off anyone again if I can help it!

    Now that, my friend, is real freedom !!!!

    Excellent debate on this thread. - Very Interesting.
    An economic forecaster is like a cross-eyed javelin thrower : they don't win many accuracy contests, but they certainly keep the crowd's attention !:rotfl:

    Money may not buy happiness - but misery comes free with debt.:o
  • Xbigman
    Xbigman Posts: 3,906 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    I've been considering just the options on this thread, although a fair way in advance.

    I'm currently in a 7 year fix and I'm paying off 10% per year to avoid penalties. When the fix ends I will (should) have enough in a cash ISA to clear the mortgage. But at that point will I want to? The current difference between ISA and mort interest is negligable and the fact I have that money built up in tax free savings is valuable in its own right. Third point to consider is that I will want to start chucking money into an AVC or similar when that fix ends as I'll be just short of 50. So from the number crunching point of view it is a case of working out which option makes the best use of the money. Tax free savings, an AVC that is very tax efficient or clear the mortgage. The mortgage could easily come a close third in that calculation, but there is just 'something' about not having a mortgage that is appealing. I suspect I will go with my heart and clear the mortgage but I acknowledge that other options could be slightly better, but for me, not better enough.
    Regards



    X
    Xbigman's guide to a happy life.

    Eat properly
    Sleep properly
    Save some money
  • Conrad
    Conrad Posts: 33,137 Forumite
    10,000 Posts Combo Breaker
    Invest invest invest!

    I wont start paying my mortgage down until Im 40.

    The trick is to choose your investments wisely. Relying on packaged products from Banks and Insurance companies is not the way.

    I seek out the actual investment houses themselves so there are less people in the food chain. I invest in various Unit Trusts.

    I also invest in a contrarian manner, that is to say doing the opposite of the crowd and always seeking the next big thing.
    Ive recently sold my UK buy To Lets and invested in Berlin and Morocco. Very easy to do, but always use your own Lawyer to eliminate pitfalls.

    If you dont want to invest in property directly, use investment funds or shares (Speymill and Dawnay Day Treveria invest in German real estate).

    The biggest mistake people make in investing is choosing themes / arenas that have already shown good returns, its too late. Buy on the Rumour. sell on the news.

    My latest investment in Morocco will double in value in the next 3 years, yet because Im buying off - plan I only have to pay 40% now (60% in 2009), yet I can sell the contract on prior to completion and benefit from all the profit.
    See https://www.lejardindefleur.com for the Moroccon investment.

    The point is, people who get in early (but still act cautiously and with dilligence) make the biggest profit. Others wait and see. Morocco will become very popular in 3 - 5 years when the masses wake up to it, but for now most stay away as they cant see beyond the obvious.

    Anyway, happy investing all.
  • mrcow
    mrcow Posts: 15,170 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    Conrad, you're still gambling with your money.

    Hey, it's your money and you absolutely do whatever you want with it, and as with all betting, as long as you only bet what you can afford to lose then that's fine. I'm sure that you try to minimise your risks as you go.

    Glad it's all working out for you, and I hope that you have enough to pay off your mortgage when your 40 (I'll be 40 by the time that all mine is paid off too....but that's guaranteed).
    "One day I realised that when you are lying in your grave, it's no good saying, "I was too shy, too frightened."
    Because by then you've blown your chances. That's it."
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