Interest only mortgage and invest the difference?

Oliver1191

Hello,

I have house with a value of approximately £300, 000.

I have an outstanding mortgage of £154, 000.

I have an outstanding equity loan on the property (which is always 20% of the value of the house).

I'm currently paying capital and interest on the mortgage (equity loan is not yet being paid). The remaining mortgage term is 26 years. I am approaching 35 years of age.

What are people's feelings on switching to an interest only mortgage, then using the difference to invest in my stocks and shares ISA (i'd probably invest it in the Lindsell Train Global Equity Fund).

Is this wise, given interest rates are so low, or would you caution against this because the mortgage debt is so high?

I'm not necessarily against putting it into my LISA or SIPP.

Really, I think the goal is to acquire financial independence in the long run...forever trying to work out how to do it!

Thanks for your thoughts!

Linton

I would caution against moving to an interest only mortgage, not because the the mortage debt is high, but rather because of the risk. How would you feel if your Lindsell Train Fund halved in value in the next crash? The upside to taking an interest only mortgage is an unknown increase in wealth, the downside is you lose your home.

However were the choice to be between overpaying the mortgage or not, I would probably suggest that you invested the money instead.

Oliver1191

Thanks Linton.

That's the flipside of the coin. I am in a position to make overpayments or invest. Why would you advise investing over, say, overpayments on the mortgage?

Linton

Oliver1191 wrote: »

Thanks Linton.

That's the flipside of the coin. I am in a position to make overpayments or invest. Why would you advise investing over, say, overpayments on the mortgage?

Paying down the mortgage steadily reduces the downside risk. Even if you were to lose all your investments you wouldnt be homeless in 26 years time. Whether it really is worthwhile investing rather than overpaying depends on whether investment returns exceed mortgage rates. Assuming sensible investments, in general and over the long term they have done.

PeacefulWaters

A bit like getting an endowment? They always worked well!

LHW99

At one time, you could take out an interest only mortgage and use a PEP as a vehicle to accumulate the money to pay it off.
They were extremely niche as I remember, and as PeacefulWaters says, were replaced by the much more reliable Endowment backed ones (!!)

Alexland

Make arrangements for your home to be fully repaid by your likely retirement date.

Then make adequate provision for your medium and long term life events and retirement by investing using ISAs and pensions as appropriate.

Don't rely on investment performance to repay your home as you could get into a nasty shortfall situation.

Get rich slowly building all your assets concurrently - you have plenty of time ahead.

Alex

nb73

Imagine you owned the house, with no mortgage. Would you consider taking out a loan to invest in the stock market?

If you start investing alongside your mortgage, you are heading towards a common destination with the person who does exactly that.

So I think people can use their answer to work back and decide what is right for them.