Mortgage Free - thinking of remortgaging...

solidpro

Hi All

I've been mortgage free for a few years now, on a property valued at £400k.

Last year, we decided we would like to embark on a plan to remortgage £100k at a very low rate of interest, fixed for 5 years (paying £433 a month - which we can afford) and split the money in a number of ways (£15k electric car to save money on car costs, £10k household improvement, £40k in ISAs, £35k in a rental property). If interest rates have changed hugely in 5 years and we wish to be mortgage free again, we have enough in savings to pay off the mortgage again in 2024.

We have the option to back out of this whole exercise virtually until the day the mortgage starts at the end of February.

Given the particularly uncertain circumstances of this country, what would you do? Is it a great time to have capital to invest, or a bad time to get into 'debt' - 'debt' - 25% mortgage, which many people would consider safe and 'ok' for any household.

enthusiasticsaver

No way would I remortgage to stick £40k in an ISA. You will be paying more in interest than you will be earning unless you are putting them into stocks and shares. Same goes for putting £35k in a rental property, is that to improve an existing one as I cannot imagine being able to buy one at that amount and recent tax changes make BTL quite unattractive?

It is always cheaper to borrow from yourselves so I would use savings rather than put your home at risk. Personally I don't take on debt if at all possible but that is me.

The only exception would be if my savings were tied up or earning high interest so if your money is invested and you don't want to consolidate losses given that the markets are down at the moment that might be worth considering. I doubt your savings are earning a lot at the moment though.

solidpro

No way would I remortgage to stick £40k in an ISA. You will be paying more in interest than you will be earning unless you are putting them into stocks and shares.

It's S&S ISAs in a managed fund from local company who we have first person recommendations for. We have carefully considered the performance of the funds over anything up to 10 years (which I appreciate has been a remarkable 10 years across many stock markets). We have considered that it's a 20 year investment which may incur short term losses. Some years were 0% and others were 10%. I think the average over the 10 years was 4-5%. My concern is that we're entering a different 10 years...

Same goes for putting £35k in a rental property, is that to improve an existing one as I cannot imagine being able to buy one at that amount and recent tax changes make BTL quite unattractive?

£35k is an uplift on existing savings. We own a limited company which invests in owning and renting property, so tax changes on BTL do not apply.

The only exception would be if my savings were tied up or earning high interest so if your money is invested and you don't want to consolidate losses given that the markets are down at the moment that might be worth considering. I doubt your savings are earning a lot at the moment though.

Our original reasoning is that we are whilst I appreciate we are 'saving' the annual interest charges on £100k, borrowing for 5 years on a very low fixed rate would enable us to leverage that cash which could be better invested elsewhere.

The interest on remortgaging for 5 years is £9k.

For instance, I spend £3000 per year on fuel, tax and maintenance on a 15 year old ICE car. If we spent £15k on a very low mileage full electric vehicle, we will be paying a fraction of this annual cost on motor costs. I may reduce my vehicle costs by £2500 a year, £12.5 over the 5 year mortgage., which means I already have a 5 year saving of £3500.

It would also provide us the capacity to invest over 50% value in a property which would be paid off on the repayment mortgage in rent and accrue £1500 a year in profit (we already do this, have experience, own the ltd company etc).

poppy10_2

solidpro wrote: »

It's S&S ISAs in a managed fund from local company who we have first person recommendations for.

Run a mile
Managed stocks and shares portfolios from financial advisers are generally a scam. They generate poor returns and attract high fees. Whoever is giving you the recommendation is likely to be clueless on how much of a return they are missing out on.

solidpro wrote: »

I think the average over the 10 years was 4-5%

Absolutely terrible return considering we've had a ten year bull market. If you'd just sunk the money in a simple index tracker with a 0.1% fee you would have received an average 9.5% annualised return over the last ten years.
Your adviser has done worse than a monkey with average luck who had just thrown darts at a list of stocks and picked a large selection at random.


Stocks and shares are not a short term commitment, and a five year mortgage is short term. After the 2007 crash it took more than 6 years just for US markets to make up their losses, let alone get into any profit. The FTSE is lower now than it was in 1999. The Nikkei is lower now than it was in 1991.

solidpro wrote: »

We have carefully considered the performance of the funds over anything up to 10 years

Past performance is not a guide to future returns. (Especially past performance comparing the returns from the literal bottom of the market to an all-time high.) Of funds that are in the first quartile for performance the in last five years, more of them are in the bottom quartile or closed altogether in the subsequent five year period than remain in the first quartile.
Ignore the flashy charts that the spiv FA is showing to dazzle you. This is a bad idea.

System

£15k electric car to save money on car costs

How does that work then if I have a car which works perfectly well that I own outright and only costs me a grand or two a year in running costs?

It's S&S ISAs in a managed fund from local company who we have first person recommendations for.

And how much a year do they charge you to provide their expert wisdom when it has been proven even top fund managers have not to be able to outperform index funds over any length of time which you can invest in with fees of 0.25% or less? And as poppy10 has said, your fund has performed woefully.

solidpro

What 'index fund' do you all suggest I look into?

poppy10_2

solidpro wrote: »

What 'index fund' do you all suggest I look into?

A global tracker from a low cost provider like Vanguard. The Lifestrategy 60 is a broadly diversified portfolio that contains 60% stocks and 40% bonds - the ratio commonly recommended (by Buffett etc) to provide a good balance between risk and returns. It's up an average of 8% per year since inception, and has very low fees of just 0.2% (compared to the 1-2% cut your financial adviser is probably taking, on top of an average 1% funds fee).
For more advice or info post on the Savings and Investments board - there's some very helpful people there