Overpay mortgage or....

NorthernMonkey1

If I have a mortgage of circa £102,000 payable over 18 years @ 3.79% (£652 per month), but had a variable income with which the mortgage was paid giving me between £800 and £1200, what would my best choice for servicing this debt be?

(I get overtime most months, £800 is assuming no OT, £1200 is a good month.)

I could either pay the whole lot off the mortgage, meaning that I'd pay everything off in about 10 years, however, I guess there are other options available.


I've got a reasonable appetite for risk, as long as the odds firmly stack up in my favour. (worst case, the mortgage is paid off over 18 years)


What investment options are available which could have a monthly input of between £150 and £550, which have a strong likelihood of payback > 3.79% over a 10 year period.


I'm guessing that S&S isas are probably where I need to look?

noggin1980

Are you able to refinance your mortgage? because 3.79% isn't a good interest rate, personally I invest in a stocks and shares isa over paying extra on my mortgage but my rate is about half of yours, at your rate it's a more difficult decision

KGriff

There's nothing stopping you doing both, overpay your mortgage and invest in stocks & shares inside an ISA. Take the best of both worlds.

Monitor and manage both.. Remember your wages will more than likely increase overtime (maybe a promotion etc.) and the more you can then choose to put aside.

As the overtime is not guaranteed, I would certainly use that ad hoc extra 'occasional' cash towards reducing my mortgage, everytime. I used to get tax back each April (about £1500) on a works allowance and I always used it to reduce the mortgage... It made a big difference over the years.

If the rate creeps up on your mortgage then you will wish you had paid off more mortgage, but if the rate stays low (lower if you refinance perhaps) then you may be glad you invested in shares.

I would go for both.

edinburgher

Another one for both. If your mortgage rate was lower, it might appear to be a no brainer to invest, but in my opinion you're in the uncomfortable zone between ok and too dear at 3.79%.

bowlhead99

I agree with "both".

Clearing mortgage is a fixed known guaranteed return of 3.89 after tax, which is pretty good compared to S&S ISA investments which carry risk and may do much better or much worse than that over the next decade. However, if you pay down your mortgage and then you need money for some unexpected life event, you can only access the cash by re-mortgaging which you may not be in a position to do.

Even if you have good planning and do already have a separate large stash of cash savings as a large "rainy day fund", an emergency or an opportunity can come along and surprise you. So if the mortgage rate is not so high that paying it off is a "no brainer", a portion set aside in liquid investments which should do OK over the long term, is a good idea.

From time to time it is worth checking how far you are away from lower loan-to-value ratios on your mortgage which could be accessed without penalty.

For example if you are paying 3.8% because your mortgage is 86% of your house value, but you could be paying only 3.3% on an 84% mortgage, it is worth quickly paying off 2% of your house value and remortgaging it where possible. Then you would be saving not only the annual interest on the few thousand of debt you just paid off, but also reducing the annual cost of the entire remaining £100k... and half a percent on £100k per year is likely to be a bigger return than the returns on the few thousand taken from your S&S pot.

So, do both but sense check it from time to time.

NorthernMonkey1

Thank you for your help everyone.


With some chunky overpayments, I think I can get under the 80% ltv barrier in 6 months time, (depending on overtime). Once I've got under this, I'll head back to the bank and negotiate a better rate.

mvarrier

NorthernMonkey1 wrote: »

Thank you for your help everyone.


With some chunky overpayments, I think I can get under the 80% ltv barrier in 6 months time, (depending on overtime). Once I've got under this, I'll head back to the bank and negotiate a better rate.

That should definitely be plan A. Good luck

noggin1980

NorthernMonkey1 wrote: »

Thank you for your help everyone.


With some chunky overpayments, I think I can get under the 80% ltv barrier in 6 months time, (depending on overtime). Once I've got under this, I'll head back to the bank and negotiate a better rate.

That's what I'd do, overpay for 3 months, then apply for a new mortgage at 80% should be able to get one for about 2% or so for a 2 year tracker with a low fee, will take a few months for the new mortgage to get sorted buy then you've saved the rest of the money you needed. be sure you can definitely save enough before doing this though, I personally wouldn't wait until you are under 80% though, applying for mortgages is slow.

Depending on where you live it's very possible your house has gone up in value and you would already be under 80% if you re-mortgaged. when were you last valued?

kingmonkey

Lol @NorthenMonkey1 your sig is funny

I would do a bit of both too. Make sure you have cash savings too. Look to diversify your risk basically.