Should I pay off my mortgage discussion

PIPSTER

I saw a financial advisor at Abbey today, who has advised me the best way to pay my mortgage off early is to save £500 in a high interest account and invest £500 in investment funds.

Does anyone think this is a good idea?

As the market is very weak, I was advised to invest £500 a month with a chance this could double, I am aware that the prices can rise as well as fall.

It's so difficult to make a decison and I want to act fast before the savings rate reduce again!

StuartGMC

PIPSTER wrote: »

As the market is very weak, I was advised to invest £500 a month with a chance this could double, I am aware that the prices can rise as well as fall.

It's so difficult to make a decison and I want to act fast before the savings rate reduce again!

Pipster, the key question here is "the time your are basing this upon"?
Our Stocks & Shares ISAs are down on average 49% because they have been purchased during the last couple of years when markets were high but still rising. So despite pound averaging they still are worth much less than they were. That said, as per my thread discussion in October we have reduced but not stopped our investments, so still hope to get some benefit while markets are low and are putting more into the mortgage OP.

We don't need the S&S ISA money for at least 7-9 years from now, so we can afford to wait for return, and once MF (hopefully Feb 2010 :j) then we'll boost Cash ISAs to max, increase S&S ISA contributions and be saving into a range of products from then.

If you can afford to lose the £500 per month, or, you can wait for the return (remember it took until 1954 for the markets to recover to the 1929 value) then you may want to go ahead.

I assume you have your emergency funds already? (3-6-9months income depending upon your job & security)

You don't mention if you have already maxed out the Cash ISA? If not, do so first with £3600, look then at savings rates which are appropriate for the time line and regular saving plus the amount you are then happy to risk in the markets.

Presently, most pundits are anticipating flat markets through 2009, with potential for some lift in 2010. I've not seen anyone predict when they will double....

tali

jamesd wrote: »

tali, no, it's probably not the right time to do it. Rates for mortgages are dropping so the current comparison picture is probably misleading. The course that is probably best today is a fixed rate savings account, regular saver account or guaranteed rate current account like the one from A&L.

Putting savings into two or even three year fixed rate deals paying at least 5% is probably going to be a good deal for you today, based on current predictions for interest rates. But I wouldn't put all of it into one deal, better a mixture of terms.

Once the savings deals end it'll be worth considering whether to put some savings into the mortgage.

This is where i found info from
"Borrowers who have tracker mortgages should take advantage of falling rates and overpay on their loan to cut years, and interest, off their mortgage."
http://www.thisismoney.co.uk/mortgages/article.html?in_article_id=458290&in_page_id=8&in_a_source=

jamesd

tali, the key part is just before that "brokers are urging".

The brokers concerned are not looking at the whole picture of your available options, concentrating on just the mortgage part because mortgages are what they do.

If you can get more by saving, you should save and use the accumulated savings to clear the loan later. You can wait for the Bank of England to cut the bank rate if you like, but move very fast to get a good rate when it happens because savings rates will drop quickly.

jamesd

PIPSTER wrote: »

I saw a financial advisor at Abbey today, who has advised me the best way to pay my mortgage off early is to save £500 in a high interest account and invest £500 in investment funds.

Abbey has a poor pair of products where they combine a savings account with an investment product. Don't buy that product pair.

The Abbey sales people are only allowed to mention their own products and are not allowed to advise you which products are best for your needs, just to say which of their products best fits the needs you express.

PIPSTER wrote: »

Does anyone think this is a good idea?

As the market is very weak, I was advised to invest £500 a month with a chance this could double, I am aware that the prices can rise as well as fall.

It's a good idea, just not a good idea to use the Abbey product. For the investments you're better off using something like the stocks and shares ISA provided by Hargreaves Lansdown and for the cash part, any cash ISA. If you're not familiar with investments in S&S ISAs you might consider investigating Invesco Perpetual Income, Invesco Perpetual Monthly Income Plus and Neptune Global Equity while you learn more about this. Note that the values of these, like all investments, will go up and down at times.

I'm assuming that you're looking at least five years ahead and don't mind the ups and downs of stock markets along the way.

The weak market means that prices are low so it's a good time to buy. There may still be a better time to buy (price drops) but overall now is a good time to be doing regular purchasing.

I'm already investing to pay off my mortgage, even though I don't have the mortgage yet.

PIPSTER

Thank you StuartGMC! :T

That is very helpful, it's such a difficult time at the moment so I'm unsure of the best option.

I have looked into cash ISAs but as you can only save a max of £3600, can I take out a few ISAs?? I could put one in my partner's name.

The saving rates are very poor so maybe taking out a few cash ISAs would be my best bet.

Would it worth maybe investing just £100 a month and forgetting about it until the markets pick up?

With regards to time, I want to be mortgage free in 7 years time, this would mean saving a total of £17k a year

StuartGMC wrote: »

Pipster, the key question here is "the time your are basing this upon"?
Our Stocks & Shares ISAs are down on average 49% because they have been purchased during the last couple of years when markets were high but still rising. So despite pound averaging they still are worth much less than they were. That said, as per my thread discussion in October we have reduced but not stopped our investments, so still hope to get some benefit while markets are low and are putting more into the mortgage OP.

We don't need the S&S ISA money for at least 7-9 years from now, so we can afford to wait for return, and once MF (hopefully Feb 2010 :j) then we'll boost Cash ISAs to max, increase S&S ISA contributions and be saving into a range of products from then.

If you can afford to lose the £500 per month, or, you can wait for the return (remember it took until 1954 for the markets to recover to the 1920 value) then you may want to go ahead.

I assume you have your emergency funds already? (3-6-9months income depending upon your job & security)

You don't mention if you have already maxed out the Cash ISA? If not, do so first with £3600, look then at savings rates which are appropriate for the time line and regular saving plus the amount you are then happy to risk in the markets.

Presently, most pundits are anticipating flat markets through 2009, with potential for some lift in 2010. I've not seen anyone predict when they will double....

PIPSTER

After reading StewartGMC's advice, I'm only going to invest £100 a month in stocks and the rest in cash ISAs.

It's so difficult to judge at the moment!

Thank for the advice - you never know, we could win the lottery :j

jamesd wrote: »

Abbey has a poor pair of products where they combine a savings account with an investment product. Don't buy that product pair.

The Abbey sales people are only allowed to mention their own products and are not allowed to advise you which products are best for your needs, just to say which of their products best fits the needs you express.



It's a good idea, just not a good idea to use the Abbey product. For the investments you're better off using something like the stocks and shares ISA provided by Hargreaves Lansdown and for the cash part, any cash ISA. If you're not familiar with investments in S&S ISAs you might consider investigating Invesco Perpetual Income, Invesco Perpetual Monthly Income Plus and Neptune Global Equity while you learn more about this. Note that the values of these, like all investments, will go up and down at times.

I'm assuming that you're looking at least five years ahead and don't mind the ups and downs of stock markets along the way.

The weak market means that prices are low so it's a good time to buy. There may still be a better time to buy (price drops) but overall now is a good time to be doing regular purchasing.

I'm already investing to pay off my mortgage, even though I don't have the mortgage yet.

jamesd

You can only contribute to a single cash ISA in your name each tax year, with a limit of up to 3600. If you want to pay into a second within the same tax year you must first transfer the balance from the first one to the new one. Then you can put anything unused of the 3600 allowance into the second one, still not exceeding 3600 total per year.

You can give someone up to 3600 and they can put that into a cash ISA in their own name. You can then hope that they return it to you sometimes, since it's their money at that point.

You can in addition pay 3600 into a stocks and shares ISA. You can hold UK government bond funds (gilt funds) or corporate bond funds and get interest from those. The capital value will vary but less than for shares. It's likely to increase from where we are today over the time span you're talking about, since prices are currently quite low. The Invesco Perpetual Monthly Income fund I mentioned is about 85% corporate bonds and about 15% UK shares.

PIPSTER

Thanks for the advice, I am even more confused and unsure as to the best way to pay off my mortgage.

Another option I am considering is just paying an extra £1200 a month on top of my mortgage. I am on a base rate tracker which is now at 3.50%, does anyone have any thoughs on this? Is it better to save and pay a lump sum off?

Most savings account I've looked at will only allow you to save big amounts for up to six months OR small amounts (£500 max) for a year *sigh*.

jamesd wrote: »

You can only contribute to a single cash ISA in your name each tax year, with a limit of up to 3600. If you want to pay into a second within the same tax year you must first transfer the balance from the first one to the new one. Then you can put anything unused of the 3600 allowance into the second one, still not exceeding 3600 total per year.

You can give someone up to 3600 and they can put that into a cash ISA in their own name. You can then hope that they return it to you sometimes, since it's their money at that point.

You can in addition pay 3600 into a stocks and shares ISA. You can hold UK government bond funds (gilt funds) or corporate bond funds and get interest from those. The capital value will vary but less than for shares. It's likely to increase from where we are today over the time span you're talking about, since prices are currently quite low. The Invesco Perpetual Monthly Income fund I mentioned is about 85% corporate bonds and about 15% UK shares.

Welshlassie

PIPSTER wrote: »

Thanks for the advice, I am even more confused and unsure as to the best way to pay off my mortgage.

Another option I am considering is just paying an extra £1200 a month on top of my mortgage. I am on a base rate tracker which is now at 3.50%, does anyone have any thoughs on this? Is it better to save and pay a lump sum off?

Most savings account I've looked at will only allow you to save big amounts for up to six months OR small amounts (£500 max) for a year *sigh*.

But if the rate you can save these amounts at are higher than your mortgage (after tax) they are still worthwhile doing. even if you decide to pay some of the extra into the savings account and then the rest off the mortgage.