Overpay my mortgage, invest or both?

nemoes

I have a dilemma. I've been considering overpaying my mortgage and should be able to clear it in the next five years but this will mean throwing most of my spare cash at my mortgage - approx £1000 per month.

As mortgage rates are so low and I could secure a rate of 2.35% over a 10 year fix. I'm considering putting the spare cash instead into a stocks and shares ISA with a view to regular investing over the next 10-12 years.

I know clearing the mortgage in the next 5 years would feel great but the maths seems to indicate that keeping the mortgage longer and putting the money in broad based index funds would be a better idea?

Thanks.

The_Masked_Avenger

We did something similar and had a 10 year fixed rate which worked well early on but then was costing us more towards the end (I think we fixed at 5% and rates dropped to 2.5% by year 7). However we bought out of it as calculated the penalty to do so would pay for itself inside 1 year.

This was an interest only deal and we could overpay by £1000 max a month, so it was great as we could choose to save or pay off a chunk every month ��

MallyGirl

investing more in your pension would give better results but it does depend on your goals and age as to whether you want to lock money up till 55 (or whatever age it is by then)

Mr_EDATD

We do a bit of both. Hoping for better returns on the S&S ISA (no guarantees) but having the security of paying the mortgage off faster (at which point there will be more cash available to invest).

You dont mention whether you already have a cash reserve. People generally say 3 to 6 months of expenditure.

Worth also looking at pension provision as tax relief / employer contributions mean you get more for your money, particularly if you are a higher rate tax payer. Though as mallygirl says you can't touch it (without significant penalties) if you are under 55.

nemoes

Thanks for those thoughts. Just as additional context I do have 20+ years in my pension, paying in 12.5% as salary sacrifice which is matched by my employer. I still have 20 years to work until state retirement age but I'd like to consider going part time in the next 10 years of else a change of direction- so for me its how best to work towards some level of financial independence.

The mortgage's I'm looking at are capital repayment deals and while rates have been low for a long time I would like some the reassurance of locking in just in case they do rise. Could they go much lower? I suppose they could drop below 2% but that seems hard to beat.

I'm definitely leaning towards a balance between the locking into a low rate fix over a slightly longer term and increasing my regular investment into a S&S ISA.

That way I should have the mortgage finished in the 10 years and some capital from my investments (hopefully) to support a change in work life balance! :j

The_Masked_Avenger

Sounds like a great plan. Best of luck :-)