Why pay off mortgage?

jamesd

It's easy to beat all of the mortgage rates that have been mentioned here. If you don't mind taking investment risk you can get 11% via Ablrate peer to peer. Be sure to follow the diversification guidance if you use that. At lower risk and around 5-6% are places like Zopa and RateSetter. Each of those is not linked greatly to stock markets, though there is an effective link to bond markets that's moot if you plan to hold until the end of the loan term.

If you think that overpaying on a mortgage is going to let you withdraw the money when you are unemployed you need to think again Your lender will refuse and withdraw any flexible features because they are all discretionary and there is no need for them to take the risk. If you want to do this the correct tool is an offset mortgage, where money in the offset account is yours by right and the lender can't stop you from withdrawing it.

What investments do is give you an eventually large pot of money that can generate income to use to live on if you need it. From there you can continue on to planning for early retirement if you like. This sort of thing lets you last far longer than overpaying to reduce mortgage interest does, you have the capital available to use, not just the reduced interest.

Where mortgage overpaying has its place is an investment option for those with no risk tolerance at all and for things like getting to lower LTV to reduce interest rates on the whole debt. Both mortgage overpaying and pensions can be useful for those who will rely on means tested benefits because neither is vulnerable to means tests.

If you want satisfaction you might consider how satisfying it would be to have a pension and a home thrown in free courtesy of the pension tax relief being used to pay off the mortgage. If I was 55 that's something I could do today. It's really hard to beat pensions for sheer efficiency if the timing you you becoming 55 works out.

Thrugelmir

jamesd wrote: »

If you don't mind taking investment risk you can get 11% via Ablrate peer to peer.

Are you being paid commission. As you endlessly peddle this investment. Not least on this thread

https://forums.moneysavingexpert.com/discussion/5179953


The rate of endorsement suggests that people have far more sense.

jamesd

You'll see many more mentions of Ablrate and assorted other P2P platforms from me. It's unlikely that I'll mention them less often than daily given the interest in rates above those of banks these days. Too many people just don't know that you can get 5-12% interest without stock market risk, though also without FSCS deposit protection. I'm looking to have 25-40% of my own money in P2P within a year to reduce my own stock market exposure. Of the portion outside pensions and ISAs I anticipate £25,000+ of that being at Ablrate.

So far as I know Ablrate doesn't offer commission or referral options to consumers, though if they did I'd post a link over in the referrers board. If you look at the Zopa one over there you'll find that I withdrew my referral fee split offer when I stopped considering them to offer a good deal.

TheTracker

jamesd wrote: »

I'm looking to have 25-40% of my own money in P2P within a year to reduce my own stock market exposure. Of the portion outside pensions and ISAs I anticipate £25,000+ of that being at Ablrate.

I'm working my allocation to p2p(b) up from 7% to maybe double that. But I am under no illusions it isn't strongly correlated with the stock market. I expect default rates to increase significantly should the stock market tank. Ablrate seems ok, I suppose, but there are plenty of other platforms on which to invest. It's akin to always mentioning III or HL or Fidelity in relation to stocks and shares. It's just a platform. Yes they specialise, but it does seem curious you keep mentioning them particularly.

jamesd

Ablrate because I think that they offer the best blend of risk and reward at the moment in the UK P2P space and that they have a market that could sustain their current rates for a while. Someone who wanted lower risk and lower returns might try RateSetter. If I wanted to position them compared to other investments I might compare Ablrate to equities but with lower volatility and RateSetter to bonds, also lower volatility and systemic downside risk.

I don't like to mention just generic P2P because there are too many choices and a lot of them don't offer what I think are good deals, while some of the newer ones offer propositions that are sufficiently bad in comparison with the alternatives that I doubt that they will survive. So I prefer to give specific examples.

So far as correlation with equities goes it really depends on the specific P2P and whether the equity drop affects the rest of the economy much. 2008 did have lots of effects but that was a credit crash as well as equity. Zopa saw a rough doubling of defaults over their estimated default rate for some borrower groups for loans originated in 2008 but it dropped back later, so good time diversification would have dealt with it well enough.

The Ablrate leasing loans seem to be about saving money and that's an incentive that I think will survive a downturn, though some leases might end.

I agree about other platforms and if you follow the link in my post to a discussion of Ablrate and the same link that Thrugelmir posted you'll find that I emphasise diversification, not only on a platform but between platforms. I'm currently using three, though only one is getting new money at the moment, Ablrate.