My mortgage free wannabeness starts here!! :-)

ixwood

Thanks Ali. I will bear it in mind. I'll setup minimum payment dd's to make sure I don't miss one and get whacked for all the interest and set reminders in my calender in time for expiry/move times.

I haven't started with the "fast stoozing" yet. I need to get on the case.

ixwood

Thanks James. Some good stuff there.

I'm not exactly sure about the ISAs. I think they've been doing OKish, but hadn't really compared them to anything else.

I'll have a look when I get a chance. I did have a look at the funds you linked to, but there's just too many numbers for me at the minute!! Most of it goes straight over my head. I wasn't going anywhere near the "more charts" button!

Considering I have an interest only mortgage, I should be a lot more clued up about the investments. Initially I knew i had to do something and also that the earlier the better for investing, so I just found some low cost funds with a "big" (i.e. I'd heard of them) company and picked the ones I fancied (based on... er... well not a lot really.). It seems obvious now, but getting the best out of my investments is critical and could make a massive difference to my MF date.

I'll start reading...

ixwood

Why do you suggest splitting funds to 1 per £1k? To spread any risk?

I know the mortgages not the best (I am on a discount, but it's still not great), but as you say considering the multiples, it was about the best I could do.

At the time, I found all the great rates on moneyfacts, checked their websites and usually came a cropper with their lending rules. It all seemed a bit silly to me as there's more than enough equity in the house (meaning they'll always get their money back no matter how cheap they'd flog it quick for if I didn't keep paying) and I'd already been paying a lot more previously anyway (meaning i could afford it).

Any excuse to make people pay more no doubt.

ixwood

jamesd wrote:

You can expect to make more from investments than you can save from repaying the mortgage to save mortgage interest, so I'd go with filling the stocks and shares ISA limit before overpaying or offsetting anything more than an emergency fund.

So long as it doesn't stop you from using the ISA limits, it's worth considering regular saver accounts, since they also pay more than mortgage overpayments or offsetting. How much gross interest you need to beat the mortgage rate depends on the rates and your tax bracket, it may take more than 8% for high mortgage rates or higher rate tax.

Thanks. Again. I was meaning to ask about the best investment/capital reduction strategy. Preemptive advice, i like it! Although, I do want to try and reduce my capital if I can to try and get one of the most competitive morgtages in a years time when the discount/lock-in period is up.

ixwood

I suspect my current mortgage rate, even discounted, will make it hard to find a saving account paying enough minus tax. If not, mental note taken anyway. Could be useful when I get a better mortgage.

jamesd

I suggested splitting to spread risk and let you get invested in more parts of the world and parts of the market. Then you can take more risk with some parts of it because it's only a small portion of the money. For example, a BRIC (Brazil, Russia, India and China) fund would be inappropriate for the whole thing but holding 1000 in one wouldn't be a bad idea if you like fairly high risk, since the worst that can happen is losing1000 of your total holding. And something else probably went up to compensate for that fall. At least, that's the idea of asset allocation with rebalancing, which roughly annually takes profit from investments that have grown a lot and moves it to others.

BRIC funds would also start to be a bad idea as the date at which you plan to pay off your mortgage approaches, since a market fall then could make it impossible. You can protect against this by starting to shift into more conservative investments during the years preceding the payoff.

Or you can plan to continue investing past the possible payoff date and nearer to the end of the term, picking a date that seems good and isn't during a market low time. With good funds and ample investing (say the difference between repayment and interest-only, or using the full 7000 allowance and only using part of it for the mortgage) you should have at least a five or ten year window in which you have the money to pay it off but don't have to because the mortgage term hasn't ended. The closer you get to the end of the mortgage, the higher the risk becomes, so again you'd want to start shifting some money to lower volatility investments like bonds well before the end. Countering that, the longer you keep the money earning more than the mortgage interest rate, the greater the likely surplus at the end of the mortgage. With reasonable return it's quite likely that at the 25 year mark someone could have at least half of their mortgage value in excess funds after paying off the mortgage if they invest the whole difference between repayment and interest only mortgage. Those excess funds can be a nice part of the ongoing investments for retirement income.

The same impending cliff high risk situation happens with pensions if you must buy a pension on a certain day or in a certain year. It's handy to have flexibility not to do that, so you can use non-pension (ISA!) investments or short-term annuities to dodge having to buy an annuity when the market is at a low point.

Lets take a 100000 mortgage at 5.5%. This has 614 repayment mortgage payments, 458 interest only. Invest the difference of 156.

9% return after fees would give 104971 after 20 years, 176206 after 25 years.

Add 50 overpayment and make it 206 a month. That would give 138616 after 20 years, 232683 after 25, 99397 after 17 years.

Split that 138616 after 20 years and put 69300 each in 9% and 6% investments and add the monthly contribution to the 9% part for the remaining 5 years and you end up with 93475 in the 6% portion, close to the 100000 target. Meanwhile the 9% portion has grown to 124155. It's extremely unlikely that that will fall in value to below the 6500 needed to repay the mortgage completely, far more likely that you'll repay the mortgage and have something like 110000 left over in the investment pot.

So, I'm not keen on repaying as soon as possible. You can be better off if you don't, particularly if you overpay a bit and try to end up with such a large pot that it's really unlikely that the market can fall enough in the final years to upset your plans.

If you're really determined to overpay and invest the full stocks and shares ISA limit of 583 a month and get 9% after fees, you end up with 97200 after 9 years. At [STRIKE]20[/STRIKE] 25 years you end up with 658517. If you took 100000 to repay the whole mortgage out at year 20, leaving 292298 invested, you'd still end up with 501947 at year 25 - enough for a 65 year old man to buy a level annuity paying 15000 a year in today's money (depreciated the fund value by 3.5% inflation rate for 25 years). That sort of possible result beats making the minimum possible payments!

You won't get 9% after fees with very cautious investments but each of the funds I mentioned earlier did over the last 5 years and they aren't high risk.

ixwood

Where do I start? lol

Thanks once again. You'll own half my house at this rate!!

ixwood

jamesd wrote:

I suggested splitting to spread risk and let you get invested in more parts of the world and parts of the market. Then you can take more risk with some parts of it because it's only a small portion of the money. For example, a BRIC (Brazil, Russia, India and China) fund would be inappropriate for the whole thing but holding 1000 in one wouldn't be a bad idea if you like fairly high risk

BRIC's sound very interesting. Didn't know they existed! I don't know anything about Brazil (but I assume it's got something big going for it to be included?), china and india are no brainers, even for me, and I think I can handle russia. Not sure about the all the dodgy gangsters turned business men though! lol. Is russia inclusion based on it's natural resources and "Energy superpower" aims?

I'm generally not too adverse to risk. As long as the risk/gain ratio makes it a worthwhile gamble. Nothing ventured Rodney.... ;-)

I need to dig out and review my existing funds info. How does switching funds work anyway? Would I have to cash in and reinvest it, or can you just do some sort of balance transfer cc style?

ixwood

jamesd wrote:

since the worst that can happen is losing1000 of your total holding. And something else probably went up to compensate for that fall. At least, that's the idea of asset allocation with rebalancing, which roughly annually takes profit from investments that have grown a lot and moves it to others.

BRIC funds would also start to be a bad idea as the date at which you plan to pay off your mortgage approaches, since a market fall then could make it impossible. You can protect against this by starting to shift into more conservative investments during the years preceding the payoff.

Depending what the other options are, I may be tempted to go for more than a grand. It all seems a bit too good to be true though. Surely there must be a catch? Why isn't everyone doing it? Especially with returns like that!! Is it just a risk thing?

Sounds sensible to go for something bullet proof towards the payment date. Is that just general advice applying to any market/fund, or is there something that makes a BRIC more volatile?

ixwood

"With reasonable return it's quite likely that at the 25 year mark someone could have at least half of their mortgage value in excess funds after paying off the mortgage if they invest the whole difference between repayment and interest only mortgage."

I think I could just about handle that.

I like the extra bonus gamble at the end. Do you play poker by any chance? lol

PS You didn't previously sell endownments did you? ;-)