Own property first and best investment?

jamels2

Is it sensible to put the majority of your money into paying your mortgage, maybe with 6 months emergency fund in savings?

If by doing this you can pay it off early say by age 40 then you still have plenty of time to look at other investments which could provide you an income to retire on? Whether that be a buy to let, pension or shares?

I am looking at this from a single persons point of view with no plans to get married or have any financial dependents.

Thoughts welcomed..

ProDave

2 factors come into play here.

Interest rates. When I bought my first house interest rates were at a normal of 10% and briefly touched 15%. Most people would not cope today if they went that high again. So back then, certainly in the early years of a mortgage, most of what you payed only covered he interest and only a small part was repaying the capital. So then, even a modest over payment reduced the capital much more rapidly. That effect will not be as great now since less of what you pay is interest and more is capital repayment already.

Things like pensions rely on the money being invested over a long period, so starting those early is the key.

I think what I am saying is don't neglect pensions, but do over pay the mortgage as well if you can.

My route to being mortgage free at 40 was to sell up and move to a considerably cheaper part of the UK where I got a much better house, no mortgage, plus some left over to invest.

demonloop

I'd say it depends. If the mortgage on your own house is 2%, and a BTL (for example) would yield 7% it might make more sense to spend the cash on the BTL. This is a simplistic way to look at it and there are other factors, but true none the less

phillw

jamels2 wrote: »

Is it sensible to put the majority of your money into paying your mortgage, maybe with 6 months emergency fund in savings?

It can be. What a lot of people do is buy the house they can just barely afford, because then you are higher up the property ladder. If you spend less money then wait ten years and properties have risen in value then you might not be able to afford a property that you could have ten years earlier.

Normally the advice is to buy as early as you can and the most expensive property you can. Obviously this can backfire if you lose your job or house prices slump. I know someone renting (approximately £2.5k a month) and he says that the property he is living in has gone down in value more than the rent he's paying since the crash. I'm not entirely sure I believe him, but it is a really huge farm conversion. For most normal people buying for as much as you can afford holds true, although I would never recommend putting a lot of money into a flat. Expensive flats turn into cheap flats very easily & service charges/ground rent can become very expensive.

Mutton_Geoff

Mortgages are very cheap money at the moment. Personally I'd get started with a pension sooner rather than later so you get lots of compound interest effect and pay the mortgage for longer. Waiting until it's paid off to start pension saving would be less efficient by a long way.


http://www.telegraph.co.uk/finance/personalfinance/investing/10742396/When-saving-for-10-years-pays-more-than-saving-for-40.html

ThePants999

I personally wouldn't overpay a penny of my mortgage while interest rates are this low. Invest the money in something that'll give returns better than the mortgage interest rate. You can reverse this if and when interest rates rise, having earned the difference in rates in the meantime.

AnotherJoe

Mutton_Geoff wrote: »

Mortgages are very cheap money at the moment. Personally I'd get started with a pension sooner rather than later so you get lots of compound interest effect and tax relief and pay the mortgage for longer. Waiting until it's paid off to start pension saving would be less efficient by a long way.


http://www.telegraph.co.uk/finance/personalfinance/investing/10742396/When-saving-for-10-years-pays-more-than-saving-for-40.html

Especially if you are a 40% tax payer overpaying the mortgage might make you feel good but financially it's not the best option especially consiidering the tax benefits

bob_bank_spanker

You've been asking variants of this question for 5 years. The answers are the same, has anything changed in your circumstances?

Crashy_Time

Don`t bother with BTL (Money/tax pit now) don`t bother paying off your mortgage with rates this low, just get saving/investing and be in a position to make mortgage over-payments if rates rise.

Pixie5740

bob_bank_spanker wrote: »

You've been asking variants of this question for 5 years. The answers are the same, has anything changed in your circumstances?

Hey, that's my line.

MEM62

jamels2 wrote: »

Is it sensible to put the majority of your money into paying your mortgage, maybe with 6 months emergency fund in savings?

If by doing this you can pay it off early say by age 40 then you still have plenty of time to look at other investments which could provide you an income to retire on? Whether that be a buy to let, pension or shares?

I am looking at this from a single persons point of view with no plans to get married or have any financial dependents.

Thoughts welcomed..

Where is your logic for this?

In most cases the interest on a mortgage might be in the 3% region. Investing in the stock market (where it is likely that your pension will be invested) has historically given a return of inflation +5%. So you are sacrificing a 5% compounded return to clear a mortgage that is only costing you 3% in interest. In addition to this you are paying your mortgage with 'post tax' income whereas the money you put into your pension is going in tax-free.

Over the years that you have until retirement you would be significantly disadvantaged by prioritising clearing your mortgage over building your pension. There will be (very) few individuals who's circumstances dictate that a different approach is needed but, for the majority of us, the theory still applies.

I have never understood the thinking that drives people to clear the mortgage before considering any other financial considerations. Why would you consider what is for most of us one of the largest financial commitments we will make completely separately from the rest if your financial planning. It makes no sense.