invest or pay off mortgage

dwtmahdc

Hi,
Unsure what do do with future savings. From end of August when i remortgage, I will stand as follows:

Savings: £14,000 ish in Santander 123 (c.2.4% interest after tax)
Mortgage: £67,000ish at 3.24% (fixed for 10 yrs with Nationwide)

I'll have around £200 a month spare, but should I:

a) Save in Santander until I get to £20,000
b) Pay extra into mortgage (allowed 10% overpayments p.a.)
c) Invest in a stocks and shares ISA

Leaning towards b, but wanted a 2nd, 3rd, 4th... 60th opinion!

Thoughts welcome

badger09

How old are you?

Any dependants?

Any other debts?

Any investments?

Pension arrangements?

Tax position?

etc

Get the picture?

AndyT678

dwtmahdc wrote: »

Hi,
Unsure what do do with future savings. From end of August when i remortgage, I will stand as follows:

Savings: £14,000 ish in Santander 123 (c.2.4% interest after tax)
Mortgage: £67,000ish at 3.24% (fixed for 10 yrs with Nationwide)

I'll have around £200 a month spare, but should I:

a) Save in Santander until I get to £20,000
b) Pay extra into mortgage (allowed 10% overpayments p.a.)
c) Invest in a stocks and shares ISA

Leaning towards b, but wanted a 2nd, 3rd, 4th... 60th opinion!

Thoughts welcome

Unfortunately there isn't a single, simple right answer. Each approach has pros and cons and which is best will depend on your own particular circumstances.

Option A: Good to have a cash buffer but how much is often up for debate. Personally, with 2 incomes, saleable skills and confidence in my own ability to generate income I don't feel that I need huge amounts of cash available at a moments notice. So £14k would be enough for me but it may not be for you to feel comfortable with.

Option B: Assuming that £14k is sufficient in cash then option B becomes viable. Certainly interest saved at 3.24% > interest gained at 2.4%. The only risk is that once you overpay the mortgage you can't access the money again for anything. But that's why you have the £14k right!

Option C. Should you borrow to invest? Very much a personal decision. I, and many other people with mortgages, do because I believe that over a longer term the investments will generate a better return than reducing my mortgage and I am confident in my ability to service the mortgage debt without having to cash in investments. I am also aware that the value of investments can fall dramatically and I accept that risk.

jimjames

AndyT678 wrote: »

Option C. Should you borrow to invest? Very much a personal decision. I and many other people with mortgages do because I believe that over a longer term the investments will generate a better return than reducing my mortgage and I am confident in my ability to service the mortgage debt without having to cash in investments. I am also aware that the value of investments can fall dramatically and I accept that risk.

Same here.


My mortgage rate has been 2.29% for the last 6 years. Over that time I've massively outperformed with investments. As a result the investments were almost 4x the amount remaining on the mortgage. I've now remortgaged but the investments are still comfortably well above the mortgage value.


I'm aware of the risk but there seems very little point paying off the mortgage when the rate is 2% and I expect to obtain a much better investment return than that.

dwtmahdc

badger09 wrote: »

How old are you?

Any dependants? Nope

Any other debts? Nope

Any investments? Work-based share scheme (Centrica) £325/mth

Pension arrangements? 5% me, 10% employer

Tax position? Basic rate

etc

Get the picture?

Thanks for the reply

dwtmahdc

AndyT678 wrote: »

Unfortunately there isn't a single, simple right answer. Each approach has pros and cons and which is best will depend on your own particular circumstances.

Option A: Good to have a cash buffer but how much is often up for debate. Personally, with 2 incomes, saleable skills and confidence in my own ability to generate income I don't feel that I need huge amounts of cash available at a moments notice. So £14k would be enough for me but it may not be for you to feel comfortable with.

Option B: Assuming that £14k is sufficient in cash then option B becomes viable. Certainly interest saved at 3.24% > interest gained at 2.4%. The only risk is that once you overpay the mortgage you can't access the money again for anything. But that's why you have the £14k right!

Option C. Should you borrow to invest? Very much a personal decision. I and many other people with mortgages do because I believe that over a longer term the investments will generate a better return than reducing my mortgage and I am confident in my ability to service the mortgage debt without having to cash in investments. I am also aware that the value of investments can fall dramatically and I accept that risk.

Thanks for your input! Seems to make sense. From an investment pov, I guess it depends on dividend rates and how stable the investment is.
Wouldn't it be amazing if there was a definite answer in the world of money for once haha

dwtmahdc

jimjames wrote: »

Same here.


My mortgage rate has been 2.29% for the last 6 years. Over that time I've massively outperformed with investments. As a result the investments were almost 4x the amount remaining on the mortgage. I've now remortgaged but the investments are still comfortably well above the mortgage value.


I'm aware of the risk but there seems very little point paying off the mortgage when the rate is 2% and I expect to obtain a much better investment return than that.

Guess it's all about whether you find the right sort of investment!
Tips welcome

jimjames

dwtmahdc wrote: »

Guess it's all about whether you find the right sort of investment!
Tips welcome

Just a balanced portfolio. No hot tips needed!


Have a read up on www.monevator.com

badger09

dwtmahdc wrote: »

Thanks for the reply

You're welcome:)

It was designed to help you realise that there is no simple single answer. Different approaches suit different stages in life.

Consensus is that first priorities are to pay off high interest debts and build up a decent emergency cash fund - but even the amount of that emergency fund depends on several factors.

After that, additional pension contributions and a balanced portfolio in S&S ISAs

For higher rate taxpayers, additional pension contributions are usually recommended for the tax benefits.

zolablue25

Depends on your attitude to risk really. Some of the forumites that have held mortgages for many years will well remember the days of 15% mortgages, and certainly 8% was regarded as usual for quite a while. I'm not saying we are going there again, but if we did, would you consider borrowing to invest was a wise idea? It still maybe to you, but it may not be for everyone. Having said that, I currently do borrow at 1.25% to get a return of 2.4%, but if the rates were to rise I know I could get the cash to pay my mortgage off immediately.

jimjames

If the Op has a fixed rate of 3.24% for 10 years then they have decent rate guaranteed for a long period which gives more security.

So investment is less risky than on a variable rate that could jump - but in my view is very unlikely to do so.