Pay off mortgage or invest ?

Playing_with_Fire_2

I would invest it (actually invest it in shares); but if I didn't know enough about investing I'd shuffle it between high interest savings accounts (which is an odd definition of invest, but each to their own).

swindiff

Invest: to put ​money, ​effort, ​time, etc. into something to make a ​profit or get an ​advantage

I am pretty risk averse when it comes to my hard earned cash, so not looking to invest in anything with the risk of losing money.

ratechaser

zolablue25 wrote: »

I currently have an offset mortgage at 1.25%. I have enough funds to fully offset the balance of my mortgage but I can use the money better in the variety of current accounts out there offering decent rates (3%+) and so my money is there instead. If I were you (which, of course, I am not) I would open up those current accounts and stash the cash there if, as expected, you could beat the 2%. If rates change, take the cashout of the current accounts and pay off your mortgage.

Like Crux, I would be loathe to invest my mortgage money. Apparently investments can go down as well as up. I do, however, make regular contributions to a S&S ISA with money not eararked for my mortgage.

+1 from me. My own offset is sitting at 1% with 140k 'spare' sitting in it. However, I would never never withdraw those funds to invest with - by which I specifically mean put capital at risk or even not be able to guarantee a return relative to the offset rate.

Therefore the only thing I've historically been happy with using is base rate tracking savings bonds - a bit niche, but you do know that you will get a guaranteed return over any given period, and that as long as you stay within FSCS limits, there is no capital risk. Pity there's nothing really worthwhile available at the moment...

Dan83

First direct are doing a 10 year fix for 2.99% (I think) with a LTV of 70% max. Fix your mortgage for 10 years then invest all you want

swindiff

By fixing for that long though the benefit between paying off the mortgage and investing is reduced. Mortgage rates may well rise, but would savings rates follow suit?

_CC_

You could get a marginally better risk free return than the 2% you pay for the mortgage, but personally in your situation (if limited to risk-free savings) I would just pay a chunk of the mortgage off.

BananaRepublic

I agree with the above, if the alternative is marginally better returns, I'd pay off the mortgage.

Pretty much the only way to get much higher returns is to take risk, such as stocks and shares, but then you have to be prepared to lose some of the money. Many people do have a mortgage, and invest in stocks and shares. It can make sense in the long run, in that a mortgage is a cheap loan, but you have to think about interest rate rises, unemployment and so on.

racing_blue

Someone suggested a 50:50 approach to me & it seemed to make sense. So that's what I'm doing. 1 pound repaid, 1 pound invested.

I hope I'll get to a point where investments exceed mortgage remaining in about 5 years- but it could take 6, 7 or 10 depending on all sorts of factors.

If every single one of my investments drop to zero (which is basically impossible because half are index funds) then it would take 17 years to pay off the mortgage.

Eco_Miser

swindiff wrote: »

When I say invest, I am talking about 0 risk investment. So splitting it over as many current and savings accounts as I need to, to maximuse the return. Is the return I am likely to get above say a 2% mortgage rate worth it?

A couple can save a lump sum of £13,500 @5%, £15,000 @4%, and more than enough @3%. They can then dripfeed over £4000 per month from the 3% accounts into 6% and 5% and 4% regular saver accounts.
list is here.

If you stagger the Regular Savers, you don't have to find a home for a massive amount when they all mature at at once.

As always, check the T&Cs yourself, do your own calculations, and note the Nationwide Flexdirect only pays 5% for a year.

jimjames

pledgeX wrote: »

Out of interest, are you investing in something that is guaranteeing a return of 2%

No, I'm not. Very few good investments will offer a guaranteed return and one of the risks you are taking is that the value of investments will rise and fall at different times but over the long term should beat cash as mine has done.

pledgeX wrote: »

are you picking funds that could potentially lose money?

I'm investing every month so if the investments drops in price then that's a good thing as I get more for my money.

Overall it's not a risk to me as my mortgage will be paid off anyway as it's repayment. It just means I now have a pot in S&S ISAs that could pay off my mortgage 3x over if I so wished. Obviously others are different but I couldn't see the point overpaying a mortgage every month when I could invest for a potentially better return.