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What would you do? Mortgage V investment income
C_Mababejive
Posts: 11,668 Forumite
Consider this scenario...
You have an investment portfolio which generates maybe £10k pa
You have a mortgage which costs £6k pa
If you sell all your investments you can pay off the mortgage
Would you;
a) sell all the investments and pay off the mortgage
b) keep paying the mortgage out of investment income
Im just keeping it simple as a base principle rather than getting into complexities such as tax etc
Obviously with b you would retain the capital (hopefully with some growth) and still be able to pay the mortgage plus have a bit left over.
You have an investment portfolio which generates maybe £10k pa
You have a mortgage which costs £6k pa
If you sell all your investments you can pay off the mortgage
Would you;
a) sell all the investments and pay off the mortgage
b) keep paying the mortgage out of investment income
Im just keeping it simple as a base principle rather than getting into complexities such as tax etc
Obviously with b you would retain the capital (hopefully with some growth) and still be able to pay the mortgage plus have a bit left over.
Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
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Comments
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C_Mababejive wrote: »Obviously with b you would retain the capital (hopefully with some growth) and still be able to pay the mortgage plus have a bit left over.
Why obviously?
What equities is your portfolio holding?0 -
I know it's not the answer you want, but it's not as simple as A or B. You have to consider a whole range of factors (e.g. age, goals, other debt, income, other savings, LTV etc...). Once you consider all these, you could end up with the answer being, A, B or a new C.0
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Thrugelmir wrote: »Why obviously?
What equities is your portfolio holding?
Yes i accept what you are suggesting. I was just making a broad statement rather than a detailed case..Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..0 -
If you're looking for a simplistic rationale:
If the %age yield on the investment portfolio is better than the mortgage interest rate, keep the portfolio0 -
C_Mababejive wrote: »Yes i accept what you are suggesting. I was just making a broad statement rather than a detailed case..
The broad "statement" is meaningless though, as said it depends upon too many factors to have a simplistic answer.0 -
You may struggle to get consensus on this question; it comes up a lot.
Are you saying that your investment dividend income covers the 'cost' of the mortgage (i.e. the interest only) or are you saying it covers your entire monthly mortgage repayments?
Without knowing how big your portfolio is and what interest rate/size of mortgage you have, it is hard to know which course of action is best for you. If they are both of similar size, that might suggest running both simultaneously would be best. It also depends on what you do with your investment return (which may be subject to tax if not from an ISA) - do you risk reinvesting it or do you take it as cash and actually pay the mortgage?
One poster in a thread from some time ago (sorry, can't remember who) turned the question on its head, and that is possibly a way to uncover how you actually feel about the issue rather than trying to enshrine it in purely financial terms.
If you had no mortgage and little or no investment portfolio, would you be happy to take out a mortgage on your property to then invest that sum in enlarging/creating your portfolio on the basis that it should cover your mortgage payments? If the answer is 'No, you wouldn't be happy to do that' then, psychologically, it would suggest you'd be happier paying off the mortgage.
The only course of action that has a fully-predictable, totally guaranteed and measurable outcome is clearing the mortgage because you never know what the market will do.0 -
OP Could you put the post in % terms please.0
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In a really bad equity crash, the investment income could dry up for a while, so if that income was your only means of paying the mortgage payments, it would be safer to sell investments to pay off the mortgage.0
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True for individual shares, but I would think only a bad equity crash would result in good diversified funds not paying dividends?Thrugelmir wrote: »BP suspended it's dividend for 3 quarters then reduced it. Doesn't require a market crash for individual companies to fail to deliver.0
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