Do I save or do I pay off my mortgage ??

Alexland

chelseablue said:

Sorry to jump on your post but thought it might be worth asking advice on my situation here as its also should we overpay or invest? 
I'm 37, husband is 31 we have a mortgage of £205,000 with 27 years to go and the interest rate is 1.79% until 2023 
Am now in a position to overpay £300-£500 a month or would it be a better idea to put this in my S&S ISA? 

As you are under 40 you might want to consider using S&S Lifetime ISA(s) which gives a 25% government bonus on contributions of up to £4k each per tax year for withdrawal from age 60. Or a pension if you are a higher rate taxpayer or to reduce your earnings for child benefit.

jimjames

thegentleway said:

chelseablue said:

Thank you, I'm on a repayment mortgage. In that case is it still better to invest while mortgage interest rates are low?

when rates are low yes, but what is your plan if interest rise?

I'd expect the plan to be carry on paying the mortgage? You could just divert the £300-500 that was going in to the ISA to the increased interest payments if needed

chelseablue said:

Sorry to jump on your post but thought it might be worth asking advice on my situation here as its also should we overpay or invest? 
I'm 37, husband is 31 we have a mortgage of £205,000 with 27 years to go and the interest rate is 1.79% until 2023 
Am now in a position to overpay £300-£500 a month or would it be a better idea to put this in my S&S ISA? 

It really depends on your attitude to risk but in my view investments should beat 1.79% over the long term. If interest rates rise as they are likely to in the long term - whenever that might be - then I suspect investment returns will also rise over the longer term. Bear in mind that back in 2009 people were saying that low rates were an aberration that would change quickly, 12 years on I'm not sure what the path to significantly higher rates will be. I would definitely want to lock in to the current fixed mortgage rates as soon as I could.

I was in a similar position back in 2008 and ploughed all my spare money into my S&S ISA. The time since then has been pretty good for investments despite some big drops on the way but if you are paying in monthly then big drops are good because you buy more at the lower prices.

As with the question that I've quoted above, if you have the means to pay the mortgage should rates increase even if it means reducing payments into the ISA then that wouldn't really have any impact. If the payments would be a struggle at 3% or 5% then you might want to reduce the mortgage balance.

MX5huggy said:

chelseablue said:

Sorry to jump on your post but thought it might be worth asking advice on my situation here as its also should we overpay or invest? 
I'm 37, husband is 31 we have a mortgage of £205,000 with 27 years to go and the interest rate is 1.79% until 2023 
Am now in a position to overpay £300-£500 a month or would it be a better idea to put this in my S&S ISA? 

Depends on your attitude to risk. ISA should beat mortgage overpayment, but if in 2023 interest rates are 5% and stock markets are 20% down. You might wish you had paid off mortgage. 

What would be the issue if that does happen? You don't need to cash in your investments immediately. You can still carry on paying the mortgage and you have the ISA balance as well as spare cash per month that could be used to cover the increased interest if needed. 

If you have plans to pay a mortgage for 25 years and can afford those repayments then putting spare money into something that historically has beaten interest rates of 1.79% (or mortgage rates generally I believe) would seem to be the most financially beneficial thing to do. I get that some people like the security of knowing they have no mortgage but I prefer the security of knowing that I have an amount that is much bigger than my mortgage balance that could be used to clear it if I so wished but also gives me the benefit of a portfolio that is generating tax free returns long after the mortgage is gone.

Thrugelmir

chelseablue said:

Thank you, I'm on a repayment mortgage. In that case is it still better to invest while mortgage interest rates are low?

As been the case recently in the US. Even the slightest glimmer that interest rates are edging upwards is causing an immediate reaction. Markets can move at the speed of lightening once the stampede starts. The clock is ticking. 

jimjames

It might also be useful to have a play with some numbers. I found this site but there are others. Just ignore the dollar symbol, the numbers are what matter.

https://www.calculator.net/investment-calculator.html

Paying in £500 per month over 27 years, assuming default of 6% investment growth would give a lump sum of £394,000. So at that point your mortgage would be clear and you would have a lump sum to use as you wish. Of course you may decide to use the investment to pay off mortgage earlier

Alexland

jimjames said:

I prefer the security of knowing that I have an amount that is much bigger than my mortgage balance that could be used to clear it if I so wished but also gives me the benefit of a portfolio that is generating tax free returns long after the mortgage is gone.

Yes especially if the invested amount that is bigger than the mortgage is generating a reliable stream of growing dividends enough to pay the mortgage even if rates went up. That's why we hold an investment trust in our S&S ISAs as it helps our financial security in the event that our earnings dried up. Having said that if/when we inherit enough money that it becomes difficult to ISA wrap over a reasonable number of years then we might just payback the mortgage as going into early retirement (before pension TFLS access age) with a mortgage still outstanding (even if it is already less than 10% of our assets) might be an unnecessary risk.

thegentleway

jimjames said:

thegentleway said:

chelseablue said:

Thank you, I'm on a repayment mortgage. In that case is it still better to invest while mortgage interest rates are low?

when rates are low yes, but what is your plan if interest rise?

I'd expect the plan to be carry on paying the mortgage? You could just divert the £300-500 that was going in to the ISA to the increased interest payments if needed

It’s all good when investment returns minus costs are higher than interest rates but not great the other way round as you are losing money. 

jimjames

thegentleway said:

jimjames said:

thegentleway said:

chelseablue said:

Thank you, I'm on a repayment mortgage. In that case is it still better to invest while mortgage interest rates are low?

when rates are low yes, but what is your plan if interest rise?

I'd expect the plan to be carry on paying the mortgage? You could just divert the £300-500 that was going in to the ISA to the increased interest payments if needed

It’s all good when investment returns minus costs are higher than interest rates but not great the other way round as you are losing money. 

That's very true but historically over the long term they have beaten mortgage rates. Even so you are still paying off your mortgage according to the payment schedule agreed at the outset so the mortgage will still get cleared.
One of my investments has returned 11.3% pa on average over the last 30 years. Interest rates have been below 1% for the last 10 years, under 8% for the last 25 years and  admittedly did peak at 15% just before that but the average has been significantly below.

talexuser

I was unattached and paid off my mortgage before I was 40. It was the best thing I ever did. Admittedly finance times have changed since then but still. Moved twice since then mortgage free to detached, and the extra income went into ISAs every year which have done very well over nearly 30 years.
What happens if you need care home fees one day (anything well upwards of 50K a year for a decent one) and no property to sell? Interest rates will go up, could be a good time to fix a repayment on the property. Interest only is like rent, money down the drain with not a lot to show for it after the fact.

kimwp

I just paid off my mortgage, it's a nice feeling. I went hard at it, so paid it off in just over 6 years and saved a decent amount in interest. There is a niggling feeling that I could have paid those overpayments into a stocks and shares ISA and be financially better off now, but on the whole I'm happy with my decision. 
I'm also unlikely to have dependents, I'm not sure why that affects the decision?