Mortgage overpayment vs investing

chockydavid1983

Hi everyone

I have a mortgage that has just over 24 years to run.
I have a fixed rate that has just over a year to run.
I have an emergency fund of roughly 6 months expenses.

I've just done a free online investment course and am sure I want to invest at least some of my spare cash and maybe overpay my mortgage also (this is permitted up to 10% per year).

What I'm trying to compare investment returns and the savings I would make from overpaying. Is it simply are my investments likely to return more (after any tax) than what my average mortgage rate over the time of investing is likely to be (currently 2.69%) or is there more to it than that?
If so, it seems like a no brainer to invest more that overpay as investing in a tracker fund should comfortably return more than that.
Obviously there are other things to consider such that investment returns are not guaranteed and my mortgage rate will change when my fix ends and I likely get a new fix but is the basic equation correct?

Thanks,
Chris.

AndyT678

chockydavid1983 wrote: »

is the basic equation correct?

Yes

+ some characters

webnibbler

You possibly need to consider inflation which will impact investments and mortgages in different ways. This will give you a view in 'real' terms. For example an investment return of 5% (after fees) with an inflation rate of 2% means your real return is 3%. For your mortgage the opposite is true - inflation is reducing the debt in real terms by 2%.

Can't offer you an exact calculation to take this into account, but it's worth bearing in mind.

chockydavid1983

Thanks webnibbler, I had thought about inflation affects investment returns but not how inflation affects debt.

I understand the concept from here:
https://uk.answers.yahoo.com/question/index?qid=20110505064826AATcO7u

But I'm not sure on how to incorporate that in comparing investment with paying off debt. Obviously it would involve another unknown, i.e. future inflation rates but it would be helpful to work it out with certain assumptions on that. Does anyone know how you would go about that please? I'm fairly new to all this :-)

Thanks,
Chris.

atush

Where are you investing? Unwrapped? S&Sisas? Sipp pension?

Thrugelmir

Being mortgage free removes one of life's greatest insecurities. That you cannot put a price on.

tigerspill

There are two sides to this - one the mathematical where you decide which is financially best.
But there is a HUGE psychological relief when you see your mortgage debt reducing and finally clear.

chockydavid1983

Thanks for your replies guys.
Very true Thrugelmir, very true.
Atush, I'm not exactly sure where I will be investing yet but at the moment I'm thinking some kind of tracker fund. I'm not sure what index, maybe the FTSE all shares or maybe something that includes international markets.
It looks like it's best even as a basic tax payer to invest to do it all within a stocks & shares ISA but I'm a bit confused on the process. Say for example I decided I wanted to invest in the Legal & General UK index trust. Could I then just open a stocks and shares ISA with anyone and tell them that's what I want to invest in? I've only used cash ISAs previously.

Chris.

Eco_Miser

Have a look at http://monevator.com/compare-uk-cheapest-online-brokers/ to pick a platform. Make sure they carry the fund(s) you want (most do, some are more specialised). Open an ISA account. Transfer money into it, and buy what you want.

jimjames

tigerspill wrote: »

There are two sides to this - one the mathematical where you decide which is financially best.
But there is a HUGE psychological relief when you see your mortgage debt reducing and finally clear.

Personally I find it much more satisfying to know and see that I have sufficient investments to pay off my mortgage should I so wish. I still have 10 years to go on mortgage but I prefer knowing I have the investments than no mortgage.

chockydavid1983

Thanks for your replies guys.
OK, so say I pick Hargreaves Lansdown as my platform:
http://monevator.com/compare-uk-cheapest-online-brokers/
It says it charges 0.45% so is that a percentage of what I invest or is it also a percentage of the growth I achieve? Also, what is my decision as to which platform to use based on? Do they provide any different services?

Then through H&L, I invest in the Legal & General UK Index:
http://www.hl.co.uk/funds/index-tracker-funds
What do the charge columns mean and which is most important to me?

Thanks,
Chris.