Invest or Overpay Remortgage

mark55man

Long preamble - short question !!


At a bit of a loss as to which board to post this, could have been DFW, MFW, or this one. I figured the investment board would be best.

I was on a 10 year fixed rate 4.99% from 2009 (on a 15 year mortgage) - I needed a fix as money was tight, and I forecast long term raised inflation/interest rates, which would have hurt. I was wrong and that has cost me a fair bit (unnecessary insurance/ poor structuring), but water under the bridge.

Today I remortgaged for 5 years at 2.99% until 13/12/2018 and although I had to eat further pain through a redemption I am still nearly 8K better off over 5 years.


Now my OH will be going part time in the next 2-3 years. So l extended the remaining term from 10 to 14 years to give us a bit of flexibility (reduced payment by about 40%). Until the point she stops working full time is my plan to devote exactly the same amount of money as now to the mortgage, either through


* direct monthly overpayments, or
* saving and investment and then repaying using a lump sum at some point (prob at end of 5 years)


Now I have been managing my SIPP and some funds for my kids for their university, and have done OK, certainly beating 2.99%. So my initial reaction was to put the money in a S&S ISA and carry on. My worry is that its not that simple, and so my question is


* what are the main risks or differences between saving in this fashion (eg repurposing money that had been destined for my property to other assets)
* should I be looking for growth (early repayment if successful), caution/cash (guaranteed repayment), Blue Chips (compounding dividends) or what?


I think I am a reasonably well read investor, and can stick to a plan - I'm just not sure what plan is most suitable for this combination of time frame and purpose - over to you !!

sabretoothtigger

Today I remortgaged for 5 years at 2.99% until 13/12/2019 and although I had to eat further pain through a redemption I am still nearly 8K better off over 5 years.

Sounds a good deal, whose that with ?
You were cautious and that doesnt always pay the most. I'd continue that way, not regret it

* direct monthly overpayments, or

The higher rates seem to be going the less you should overpay. Or the more profitable it could be to invest outside the mortgage because assets rise with weaker currency (rates will lag inflation I think).

At first shares may fall as money is more costly to them, thats why I say overpay at first until that upset is apparent

mark55man

Currently Yorkshire are 5 years at 2.69, but are £2K fees


I am with Coventry and stayed with them for this 2.99% 5 year deal (fees £499), and by the time I added all the solicitor and other fees in it was nip and tuck over 5 years


Coventry have been very efficient and I phoned today and will sign and email papers tomorrow


Just for clarity you have quoted 31/12/2019 it is in fact 31/12/2018 - I chopped and changed between 1/1 and 31/12 and got the year wrong - you must have been very quick and caught the original post


If you want to explore more offers google.co.uk/mortgages was very quick

Thrugelmir

Personally if a fall in income is on the horizon. Overpaying the mortgage would seem the sensible option.

Follow the old adage. Only gamble what you can afford to lose.

Extending the mortgage term without doubt will incur you with far higher interest costs in the years to come.

mark55man

Thrugelmir


Thank you. If I let it run to 14 years I will almost lose the benefit of the switch in extra interest even at lower rates - however my plan is to try and honour the original 10 year plan (and very flexible repayment policy from Coventry will be good)


You raise a great point about "afford to lose" - if I stuck the pot on a penny stock it would risk total loss, but even then the consequence wouldn't be destitution rather that I would have to keep paying to the end of the term (and as a lifestyle hit would have to work to do that).


I am already at 60% equity (ie I own more than the Coventry). This is why I'm finding it hard to pick the right investment style for this stream of money. It feels most like a shorter time frame version of growing my pension pot ie could afford to be a bit risky as I have some time to recover. Maybe I need to think about the bad scenarios that could happen .

kidmugsy

Have you got an emergency fund of six months' outgoings? If not, wouldn't it be wise to accumulate it?

Other than that, an attractive conservative policy might be to overpay until Cash ISAs paying more than 3% p.a. become available. Or, here's a thought, aren't there regular savers paying more than 3%p.a. net, e.g. at FirstDirect. How about that?

mark55man

kidmugsy wrote: »

Have you got an emergency fund of six months' outgoings? If not, wouldn't it be wise to accumulate it?

Not really, so I think that would be an initial priority - but not sure about 6 months - I have an aversion to too much cash. I will certainly get to 2 or 3 though

kidmugsy wrote: »

Other than that, an attractive conservative policy might be to overpay until Cash ISAs paying more than 3% p.a. become available. Or, here's a thought, aren't there regular savers paying more than 3%p.a. net, e.g. at FirstDirect. How about that?

That is a fine idea :beer:.
Possibly look into some fixed income which I have used in the past and are yielding 6-7% but with some risk to capital (cf co-op)

sabretoothtigger

Im against cash but even I'd say 12 months is a normal sensible amount. Inflation exceeds interest and this is deliberate gov policy but I dont think you will suffer grand loss holding cash.
Where as being illiquid in some unforeseen situation can be costly

gadgetmind

sabretoothtigger wrote: »

Im against cash but even I'd say 12 months is a normal sensible amount.

I'm at about 24 months and would actually prefer more.

Wilkins

gadgetmind wrote: »

I'm at about 24 months and would actually prefer more.

It's around 30 months for me, but my views on cash are rather Buffetesque

Thrugelmir

mark88man wrote: »

Maybe I need to think about the bad scenarios that could happen .

BP (Deepwater Horizon), RBS, Enron, Worldcom, Polly Peck, Maxwell Publishing to name a few. History is littered with them. The one thing that they have in common is that no one saw what was coming.