Investing to Pay Off Mortgage - thoughts?

steampowered

tcallaghan93 said:

DireEmblem said:

I think the general rule of thumb, at least for retirement, is to save enough that you can live of withdrawing only 4% a year, so your investment still has a chance to grow with inflation.  This would have a different goal, so maybe you could get away with slightly higher.  Either way you look at it, long term, the stock market should return more than what you should potentially save overpaying and saving on interest.

/
Long term being at least 20-30 years if you're comparing it with a mortgage rate.

I think this is much too long. Statistically it is a pretty safe bet that the stock market will out perform the interest you are paying on a mortgage over a 10 year timescale.

Perhaps not 100%, but certainly more than 90%. 

83705628

steampowered said:

tcallaghan93 said:

DireEmblem said:

I think the general rule of thumb, at least for retirement, is to save enough that you can live of withdrawing only 4% a year, so your investment still has a chance to grow with inflation.  This would have a different goal, so maybe you could get away with slightly higher.  Either way you look at it, long term, the stock market should return more than what you should potentially save overpaying and saving on interest.

/
Long term being at least 20-30 years if you're comparing it with a mortgage rate.

I think this is much too long. Statistically it is a pretty safe bet that the stock market will out perform the interest you are paying on a mortgage over a 10 year timescale.

Perhaps not 100%, but certainly more than 90%. 

I think it's about... 2/3 or years, 3/4 of decades? (I know I found these statistics somewhere) that equity has a positive total return, but they need a positive return on top of a mortgage rate and because of historically high interest rates from the 60s-90s the data doesn't look as good for the equity risk premium over prime mortgage rates.

random321

I've been reading this thread with interest as have had to make the same choices for myself. Just for information, I have decided to increase pension contributions to a level I am happy with, invest spare money into my S&S ISA (Vanguard Global All Cap fund) and leave a small amount to make a token over payment each month on the mortgage - mainly to feel like I am actually doing something to actively decrease the term and interest and slightly reduce risk however small. As my mortgage is currently fixed on a low rate of 1.95% I am hoping that investing will give me better returns in the long term, although obviously there is risk involved with this assumption. Another reason I chose to invest the money rather than overpay is that the funds are available if required (although I have no plans to withdraw in the short term), whereas once the mortgage payment is made that money is then tied up.

csgohan4

random321 said:

I've been reading this thread with interest as have had to make the same choices for myself. Just for information, I have decided to increase pension contributions to a level I am happy with, invest spare money into my S&S ISA (Vanguard Global All Cap fund) and leave a small amount to make a token over payment each month on the mortgage - mainly to feel like I am actually doing something to actively decrease the term and interest and slightly reduce risk however small. As my mortgage is currently fixed on a low rate of 1.95% I am hoping that investing will give me better returns in the long term, although obviously there is risk involved with this assumption. Another reason I chose to invest the money rather than overpay is that the funds are available if required (although I have no plans to withdraw in the short term), whereas once the mortgage payment is made that money is then tied up.

Always have cash as an emergency fund, during slumps, you may find your S+S ISA will go down and selling your shares may be difficult in a timely manner.  Put it somewhere accessible like NS+I/ saving accounts e.t.c.  

Remember Cash is King in a recession

random321

csgohan4 said:

random321 said:

I've been reading this thread with interest as have had to make the same choices for myself. Just for information, I have decided to increase pension contributions to a level I am happy with, invest spare money into my S&S ISA (Vanguard Global All Cap fund) and leave a small amount to make a token over payment each month on the mortgage - mainly to feel like I am actually doing something to actively decrease the term and interest and slightly reduce risk however small. As my mortgage is currently fixed on a low rate of 1.95% I am hoping that investing will give me better returns in the long term, although obviously there is risk involved with this assumption. Another reason I chose to invest the money rather than overpay is that the funds are available if required (although I have no plans to withdraw in the short term), whereas once the mortgage payment is made that money is then tied up.

Always have cash as an emergency fund, during slumps, you may find your S+S ISA will go down and selling your shares may be difficult in a timely manner.  Put it somewhere accessible like NS+I/ saving accounts e.t.c.  

Remember Cash is King in a recession

I already have my EF in place, the actions I've described were for any additional spare money 

Ben11

Hi Ian, 
I am also in a similar position to you. I am 28, 29 shortly and have put pension contributions up to the max my company will match me and my other half is a nurse so has a complicated pension but is also doing the max. We decided on a 35 year mortgage which we are 2 years in to and over pay £100 a month and then invest £100 a month. This is not our forever home and will move in a few years time, with what we hope to be be able to put down 60k and then spread the payments over 25 years, final payment between the ages of 55/60. I have an emergency pot of 5k and I invest in VSL equity 100 with also investing myself any spare money Roughly about 200 extra month. 

I posted a little while ago and was pointed in this kind of direction but to what I am happy with risk wise and I feel I am happy with this and intend to continue like this for the foreseeable future but I do think about what is the best approach so was interested by this thread.

barnstar2077

I decided a year and a half ago to increase my mortgage term dramatically and to pay the difference into my pension / S&S ISA.  I don't regret doing it, because I have faith that it will pay off in the long term, but I definitely don't sleep as well as I used to lol! :  )

ian1246

So, just thought I'd come back and update this.

Since creating this thread, there's been a bit of a change - due to the Government Stamp Duty Holiday we decided to put our house on the market in order to upsize. We accepted an offer on our house last week  & also had an offer accepted on a lovely sizable, recently renovated detached bungalow. We're in the process of sorting everything out via solicitors/mortgage etc.. :-)

But, basically, we're looking at a repayment mortgage of £250,000 over 37 years (When I turn 68). For the House we're buying we'll be going in with a 25.92% deposit from our existing deposit. We're going to fix for the first 10 years (planning to start a family. So knowing our outgoings is important!) at 2.22% - £825.14 per month.

That means, the plan is therefore going to be splitting our "spare cash" pot between mortgage overpayments (25%), general Stocks & Shares ISA (25%) & LISA (50%). The General Stocks & Shares ISA will be to allow us access to cash before 60, if needs be, whilst the LISA will allow us to take advantage of the 25% government bonus and eventually use it to overpay the remaining mortgage when I turn 60 (Wife would be 57 then), the intention being to retire at 60 (normal pension age for my job).

Plus if the move goes ahead in October, given we're going to keep some of the existing equity in our property back as cash, we should have an emergency fund of £16,750 left over - albeit some of this will then eventually be spent to replace wife's old car, so we should hopefully be in a comfortable position.

Exciting times

coachman12

ian1246 said:

So, just thought I'd come back and update this.

Since creating this thread, there's been a bit of a change - due to the Government Stamp Duty Holiday we decided to put our house on the market in order to upsize. We accepted an offer on our house last week  & also had an offer accepted on a lovely sizable, recently renovated detached bungalow. We're in the process of sorting everything out via solicitors/mortgage etc.. :-)

But, basically, we're looking at a repayment mortgage of £250,000 over 37 years (When I turn 68). For the House we're buying we'll be going in with a 25.92% deposit from our existing deposit. We're going to fix for the first 10 years (planning to start a family. So knowing our outgoings is important!) at 2.22% - £825.14 per month.

That means, the plan is therefore going to be splitting our "spare cash" pot between mortgage overpayments (25%), general Stocks & Shares ISA (25%) & LISA (50%). The General Stocks & Shares ISA will be to allow us access to cash before 60, if needs be, whilst the LISA will allow us to take advantage of the 25% government bonus and eventually use it to overpay the remaining mortgage when I turn 60 (Wife would be 57 then), the intention being to retire at 60 (normal pension age for my job).

Plus if the move goes ahead in October, given we're going to keep some of the existing equity in our property back as cash, we should have an emergency fund of £16,750 left over - albeit some of this will then eventually be spent to replace wife's old car, so we should hopefully be in a comfortable position.

Exciting times

Thanks for the update, Ian. It's a real rarity when posters come back to update their position. May I wish you and your family every happiness in your big new bungalow---sounds "exciting", as you say.

DiggerUK

Thanks  ian1246, its always good to hear updates.
37 year mortgage!!! times have changed, we baulked at 25 years. We also went for a fixed rate at the time......thought we did ok with a seven year 8.75%..._