Overpaying mortgage Vs investing?

VoucherMan

Thrugelmir wrote: »

Do you view your employment as stable? Clearing ones mortgage is a primary plank of financial security. Once cleared makes life far less stressful.

I hope (expect) to be where I am now until I retire.

sabretoothtigger wrote: »

People see it as cheap debt but this is a political favouritism backing continual low rates.

The limited logic in my thinking is the more I can get paid off while rates remain low will mean much less impact when the rates do eventually rise.

racing_blue wrote: »

But what is the [STRIKE]logical [/STRIKE]basis for this? Why don't you love your mortgage?

It's the easiest option for me. Lack of understanding of the markets, fear of the unknown. As I've said before it's one of those things I'd prefer to pay someone else to sort out. Unfortunately at my level of investment that no longer seems an option.

Yorkie1

VoucherMan wrote: »

I have looked at both Hargreaves Lansdown and Charles Stanley as possible avenues for investing but the fees had looked prohibitive for my likely level of investment. Hopefully once the dust has settled from the RDR I can have another look & work out the costs a little easier.

What fees do you think will be charged?

I've got about £1500 in a S&S ISA (Vantage 80:20) with CSD, and they charged me 55p last month for the charges to cover the last 6 months.

I'm combining overpaying with longer term investing. What I don't think anyone's raised on here, is that the sooner you get into investing, the longer the assets have to increase in value, with compound increases if you reinvest the income rather than draw it down.

jimjames

VoucherMan wrote: »

I have looked at both Hargreaves Lansdown and Charles Stanley as possible avenues for investing but the fees had looked prohibitive for my likely level of investment. Hopefully once the dust has settled from the RDR I can have another look & work out the costs a little easier.

I'm puzzled by this too.

Invest in a managed fund with HL and you only pay the fund charges which are pretty much the same wherever you invest and are a % of value so would not make any difference how much you have if starting small.

VoucherMan

Yorkie1 wrote: »

What fees do you think will be charged?

Possibly I misread or misunderstood. It was about a year ago I last looked at charges and a figure of £10 or £12 a transaction comes to mind. On a regular £250 a month deposit it was a bit off-putting.

Yorkie1 wrote: »

What I don't think anyone's raised on here, is that the sooner you get into investing, the longer the assets have to increase in value

It's long been in the back of my mind. Partly why I start the thread.

Up until now I've had other reasons for not investing. Now I've only got the reasons / excuses mentioned earlier.

I think I should maybe spend a few hours over Christmas having a good read of Monevator. See if I can make a bit more sense of it.
Charles Stanley look to have a few downloads that may make useful reading too.

mumf

racing_blue wrote: »

But what is the logical basis for this? Why don't you love your mortgage?

Your mortgage is basically a bond which you have sold to your bank. You could buy back that bond bit by bit. Or you could buy equities instead. History suggests that equities outperform bonds over time.

Mortgage is not a bond, it is a debt. When that debt is paid, you own your home. When you are a year into that outright ownership and get made redundant (like I was) it is a relief. After the mortgage(in French I believe that Mortgage means 'Death Grip') is paid, then save/invest.
Just my take.

racing_blue

mumf wrote: »

Mortgage is not a bond, it is a debt. When that debt is paid, you own your home. When you are a year into that outright ownership and get made redundant (like I was) it is a relief. After the mortgage(in French I believe that Mortgage means 'Death Grip') is paid, then save/invest.
Just my take.

That's the emotional argument, sure.

But why do you object to reframing a mortgage as a bond?

If Tesco want to raise finance to buy new stores, they might sell £100m of bonds at 4%. The guy who wants to buy a house can get an even better deal: he can raise the finance by selling £100k of "bonds" at 3% to a bank or a building society.

Not so different?

If like me, you take the view that over many years, equities will outperform bonds, then you can make a stronger case for buying a basket of global equities than for repaying the mortgage ("buying back your bonds")

The redundancy argument is a red herring. I'm not advocating blowing the repayments on hoke and cookers, but on building an investment vehicle which might be used to repay mortgage as and when the need arises - which might include on redundancy or retirement.

Or alternatively, at some point in the future one might downsize to pay back mortgage debt- being left with a tax free income stream from the S&S ISA pot, ad infinitum.

I appreciate not everyone will see it like this, but I really do.

atush

sabretoothtigger wrote: »

He needs to fix the rate for that kind of thinking. People see it as cheap debt but this is a political favouritism backing continual low rates. Or put simply make hay while sun shines and its shining now.

If bond rates rise it brings equity value down at least at first, so thats a double blow. His bills rise and his savings diminish

he needs to fix or switch at 4%. but he doesn't say the term and outstanding amt and LTV so we can't say for sure.

atush

The limited logic in my thinking is the more I can get paid off while rates remain low will mean much less impact when the rates do eventually rise.

Very true.

Conversely you have money at the cheapest interest rate ever (well you would if like me you are only paying 1% or so). But are losing the investing opportunity of getting far better on your investments with that money.


Which isn't guaranteed of course. but I think my worst fund is 10% this year, Bet is getting up for 40%. When there is a big downturn I usually suffer 10-30% down. Swings and roundabouts only hurt you if you pull out in a panic.

Thrugelmir

racing_blue wrote: »

With respect, that sounds like the downside argument again.

There's no downside in securing ones own future. Before taking affordable risks. Everybody wants jam today. Whereas better returns are more often made by those who play a more prudent game.

Yorkie1

VoucherMan wrote: »

Possibly I misread or misunderstood. It was about a year ago I last looked at charges and a figure of £10 or £12 a transaction comes to mind. On a regular £250 a month deposit it was a bit off-putting.

The charges do vary according to what you're investing in. Mine is a passive investment so no direct buying / selling of individual stocks and shares by me.