Overpay mortgage or other investment?

aj23_2

I'd do anything possible to reduce the mortgage, you'd only have money by reducing your interest liability. I'd rather be debt free first before making investments.

adonis10

aj23 wrote: »

I'd do anything possible to reduce the mortgage, you'd only have money by reducing your interest liability. I'd rather be debt free first before making investments.

I'm also on board with this, however if I could repay £5000 over a year on a 2.14% mortgage as opposed to getting an investment return of circa 5% on that cash, I would have made a mistake. I do realise, however, that that is a contradiction of my views on paying my student loan early. That said, in 3 years time my new mortgage could be at 5% so it is a tough call. Balance is key, I feel, but I'm just unsure how to best split the pot of surplus cash.

atush

aj23 wrote: »

I'd do anything possible to reduce the mortgage, you'd only have money by reducing your interest liability. I'd rather be debt free first before making investments.

My mtg rate is 1%. So i do far better investing rather than overpaying. I was big on overpaying when rates were higher.

jimjames

aj23 wrote: »

I'd do anything possible to reduce the mortgage, you'd only have money by reducing your interest liability. I'd rather be debt free first before making investments.

I'd rather have money available than zero savings/investments and zero mortgage. Even more so when you can get much better returns than the interest rates on mortgages at present

Anonymous101

Its interesting how different people prioritize. For me overpaying the mortgage simply isn't efficient, especially at the moment.

It wouldn't sit right with me to be overpaying a 2% loan when I can make a normalised 4-5 times that on investments. It just doesn't make good financial sense.

I understand that there's physiological benefits to not having a mortgage but I'd bet i'd get those same feelings when I log into my investment account and see I've more than enough money to pay my mortgage off but instead of doing that I'm making their money work for me.

aj23_2

jimjames wrote: »

I'd rather have money available than zero savings/investments and zero mortgage. Even more so when you can get much better returns than the interest rates on mortgages at present

Not really. Not when they are all capped for 12 months. None of them offer compounding or accrual on a year by year basis.

I didn't say 0 savings and 0 mortgage. You've misinterpreted.

I said I'd rather reduce my mortgage liability instead of making investments. I didn't say use all my savings to pay off my mortgage and be left with no savings.

My point was that if I had spare savings, I'd use it to pay off the roof over my head instead of putting it into investments, as it's likely to be a small sum anyway.

Overpaying your mortgage reduces your interest liability. You've saving all that money in the longer term.

aj23_2

Anonymous101 wrote: »

Its interesting how different people prioritize. For me overpaying the mortgage simply isn't efficient, especially at the moment.

It wouldn't sit right with me to be overpaying a 2% loan when I can make a normalised 4-5 times that on investments. It just doesn't make good financial sense.

I understand that there's physiological benefits to not having a mortgage but I'd bet i'd get those same feelings when I log into my investment account and see I've more than enough money to pay my mortgage off but instead of doing that I'm making their money work for me.

Some people put security of a dry roof to sleep over investments and work towards being debt free. As a mortgage is a debt.. Especially if you're a family with young children.

I do not see why you'd have the value of your mortgage in an investment when you still have that mortgage, at all. I would have cleared that mortgage already.

AnotherJoe

adonis10 wrote: »

I'm also on board with this, however if I could repay £5000 over a year on a 2.14% mortgage as opposed to getting an investment return of circa 5% on that cash, I would have made a mistake. I do realise, however, that that is a contradiction of my views on paying my student loan early. That said, in 3 years time my new mortgage could be at 5% so it is a tough call. Balance is key, I feel, but I'm just unsure how to best split the pot of surplus cash.

That simply is not going to happen unless you become such a financial basket case you need to borrow from a lender that deals with extreme cases.


There is almost zero chance that base rates will rise much above where they are now. Carney has already backed away from his statement about rises to the next move being a decrease!


Whilst Brexit is bandied around as an excuse for every ill, if it does imply anything in the financial world, its suppressing iUK nterest rates, and over the next 3 years in the midst of a brexit exit shambles, to raise rates in any significant way would be financial suicide.



I also agree with others, you should not be overpaying your student loan. You are doing a lot of things that are what if this that and the other happens in 5-20 years and ignoring the one absolute certainty, you'll be wanting a decent pension then. A pension is just a reverse debt, from your older self to your younger self. Ignore that in contrast with all the ifs buts and maybe's about mortgages and student loans, to your elder selfs detriment

Anonymous101

aj23 wrote: »

Some people put security of a dry roof to sleep over investments and work towards being debt free. As a mortgage is a debt.. Especially if you're a family with young children.

I do not see why you'd have the value of your mortgage in an investment when you still have that mortgage, at all. I would have cleared that mortgage already.

That's my point, its interesting how differently people see things.

To me a mortgage is just a financial commitment, granted its secured on the place you live, but it still boils down to being one of many financial transactions which makes up my total net worth. I work on improving my total position in the best way I can, I pay attention to the whole and don't place any more emphasis on one form of income or expenditure than another.

To many people, including you by the sounds of it, there's a huge amount of emotion put on a couple of these silo's. The mortgage is usually the main one. The idea that paying a loan off will give you security where as building an income via investments won't doesn't add up to me. What if you became debt free and then lost your job and didn't have any investments to draw an income from? You'd effectively be in the same position and eventually have to sell your house to free up some funds. Its not really any different, there's never a security until your net worth is sufficiently high.

aj23_2

Anonymous101 wrote: »

That's my point, its interesting how differently people see things.

To me a mortgage is just a financial commitment, granted its secured on the place you live, but it still boils down to being one of many financial transactions which makes up my total net worth. I work on improving my total position in the best way I can, I pay attention to the whole and don't place any more emphasis on one form of income or expenditure than another.

To many people, including you by the sounds of it, there's a huge amount of emotion put on a couple of these silo's. The mortgage is usually the main one. The idea that paying a loan off will give you security where as building an income via investments won't doesn't add up to me. What if you became debt free and then lost your job and didn't have any investments to draw an income from? You'd effectively be in the same position and eventually have to sell your house to free up some funds. Its not really any different, there's never a security until your net worth is sufficiently high.

If you're paying the minimum, or interest only, all that counts towards your net worth is what you've paid off already, which would be minimal. If you have a 70% mortgage still, only 30% of that is "your money" if you like. Your net worth wouldn't be very high at all as it's nearly all liability, not asset (only to the bank as they'd clean up after).

If you lost your job and are mortgage free, you wouldn't have the burden of defaulting on your mortgage and potentially being blacklisted. You can cancel Sky etc. But again, you're assuming someone would have no investments or savings, and more people have savings than investments. Presumably if you've become mortgage free, that is then money that you can save in addition to whatever you could save before. Wouldn't necessarily have to sell your house, and you often get a few months grace anyway while you get another job, and you most probably got redundancy.. You're not taking into account that people would have savings, some if any investments, or maybe retired and have taken their pension early.