Be Mortgage free or invest the money?

ringers

Hi DWS.......

I wish I could spot the flaws in your plan as this is exactly what I'm planning on doing very soon.
Very similar circs to Neo.
60k mortgage.60k inheritance.No interest. £1k a month payments. 5years then mortgage free :T

I still retain the lump sum and have full equity in the house.
Plus lump sum is accessible at any point if I need it.
How can you lose! I wish some one would tell me because it looks to good to be true.

nrsql

>> If I had known when I started investing in stocks (5 years ago) what I know now, then I would definitely have minimised my mortgage payments and maximised my investments. In the past 3 years alone, I have made returns of 26%, 47% and 28% and believe me when I say that 5 years ago, I knew absolutely nothing about shares.

Hindsight is a wonderful thing - unfortunately it is arguments like this that cause bubbles and banruptcy.
"Past performance is not a guide to future returns and the value of investments, and any income from them can go down as well as up. You may not get back as much as you put in."

That applies to property, stock market, bank accounts, .....


You might consider it a good idea to get a fixed rate mortgage with an offset account and hold the money in high interest accounts when rates are high and move the money into the offset account when they are low.

jamesd

dwsjarcmcd, ringers, it works fine as far as it goes. There are a few catches to consider though:

1. Cash ISAs may pay a higher after-tax interest rate than you are paying on the mortgage, so you my be better off paying 3000 into a cash ISA instead. Depends on the comparative interest rates. Also on how long it is to end of morgage - the cash ISA tax benefit potentially lasts longer than a mortgage, until you take the money out.

2. Regular saver accounts described in the article here may pay a higher interest rate than the mortgage, so you should consider using them before the offset account if this applies (will for basic rate, probably won't for higher rate tax).

3. The interest on a mortgage is lower than the expected return from stocks and shares investments, so if you do have funds that you are able to dedicate for the duration of the mortgage, you can expect to accumulate enough to pay it off completely more quickly this way.

For funds you want to keep available, or funds from family members or a business, offsetting is an excellent approach.

nrsql

>> The interest on a mortgage is lower than the expected return from stocks and shares investments, so if you do have funds that you are able to dedicate for the duration of the mortgage, you can expect to accumulate enough to pay it off completely more quickly this way.

You might expect that - it is up to the op to make his own decision.

Note that the type of mortgage you get will be decided by how you want to run it. Offset mortgages usually have a higher rate.

Tim_L

Fitzy29 wrote:

Buy a couple of investment properties, the capiatal gain in these over the next ten years will make your current mortgage seem like small change!

Completely mad advice. It's a very restricted portfolio and you are a complete hostage to circumstances.

The idea of using an offset mortgage is a bit short sighted too. You do get a tax efficient savings account, but you miss out on the range of investment opportunities available. You need a balanced investment portfolio, with a spread of risk.

md_14uk

Here's my view...

Some Facts: There are savings out there that offer better rates than the cost of the mortgage...You can invest in shares, property, bonds etc which as many posters have pointed out may go up as well as down...

For me the decision is entirely personnal and there are three options;

1. You pay off the mortgage then you have £7000 of savings and a huge amount of disposable income each and every month. The risk here is what if you suddenly need more than £7000?? where does it come from? think to yourself how likely is it that £7000 won't cover any emergency costs...

2. Offset. You're circumstances on a monthly basis don't change but you won't be paying interest on the mortgage and will pay it off earlier.

3. You invest / use the savings accounts out there to maximise you're income. This is potentially the most lucrative option but the risks are greater.

For what it's worth I would pay off the mortgage. The returns available from investment are attractive but with no mortgage to pay and a regular salary you'll be comfortable financially and you'll have a roof over your head.

Good Luck to you're 'family member' what ever the decision is!:rotfl:

Martinslovechild

Franko43 wrote:

Martinslovechild
what approach did you take to the share market. Did you deal yourself?

I now have 14 stocks spread across lots of different sectors (i.e. leisure, construction, household, software etc). I currently invest as part of an Investment Club, investing regular (i.e. monthly) amounts. The club is a great social activity and allows people to learn about investing in the stock market first-hand.

I would wholeheartedly recommend anybody starting their own Investment Club (or joining an existing one), but if I have any advice, then it is this - some people will jump at the chance of joining your club but then treating it almost like a 'Christmas Club'. In our club, everybody effectively takes ownership of a number of stocks and produces reports for each meeting with company developments (i.e. mergers, business wins, sell-offs), activities which directly affect the share price (director share purchases, takeovers) and market rumours (newspaper stories, website comments e.g. ADVFN). Some people will produce only excuses - it's better to be firm up front and ensure that members know that they must produce reports - they are absolutely fundamental to the club - otherwise, it's impossible to explain a stock gaining (or losing) value between meetings.

How do we pick stocks?
Research. Not only do you learn a lot about individual companies, you quickly learn that companies within a particular sector also tend to follow each other up or down. There are simply loads of good websites with news (investegate.co.uk, ft.com, hemscott.com), rumours (advfn.com, fool.co.uk) and loads more - you'll establish your own favourites. It's not necessary (unless you really want) to purchase expensive financial magazines - these tend to be £3 to £4 per week.

Finally
Don't put all your eggs in one basket. The FTSE-100 has achieved just shy of 10% in the past 12 months, the FTSE-250 over 20%. On this basis, if you pick your shares across a diverse range, you should do well. If you aim to beat the return on a bank savings account, then that's a good way of starting out - anything greater than 5%. You should achieve much more if you do your homework. Start off by muting the idea with a few mates - it spreads the risk, multiplies the amount to invest and gives you a whole new social scene.