Psychological (and economic) benefits of investing/saving vs overpaying mortgage

stuart746

Thrugelmir said:

stuart746 said:

For me, 10 years seems like long-term, 

For equities the minimum outlook. Drill into statistics and a UK investor would have to be invested for 12 years. To guarantee a positive return on a lump sum investment. While century plus average returns are 4%-5% above inflation with income reinvested and before fees. This disguises a multitude of peaks and throughs. 

That's useful to know, my current ISA investments include an HSBC global tracker + some mixed equity funds (legacy funds that I set up years ago and kept).

stuart746

LHW99 said:

We have paid our mortgage down quite a lot over the last 10 years because:

We had a significant cut in income, such that with the revised affordability rules we could not remortgage to a lower rate, despite being able to afford payments.

We could afford payments at the time because it was interest only - we would have had much increase monthly payments if it had been transferred to a repayment, and no one offered interest only mortgages any more.

We wanted it to end around the time of retirement, so there would be no need to carry it on at that time.

However, we didn't put all our available money into it, we also added to pensions and savings to try and "hedge our bets"

I think that is what I am hoping to do, employing a mixed strategy that is hedging one against the other, but supported by a fairly rational decision about what is likely to achieve the best outcome (knowing that there are no guarantees).

MX5huggy

stuart746 said:

MX5huggy said:

I think we’re similar with less money and I little more time. Paying off the mortgage is attractive but when you add the tax relief on pension contributions you really are better to go with pension even if you only invested in cash in the pension. I’ve the option is Salary Sacrifice AVC’s so I can either pay off £100 of mortgage or have £147 put in the pension. 

Having said that the mortgage is a repayment mortgage.  2 years in to a 10 year fix with 7 years after that. So the pension is not earmarked to pay off the mortgage but given a fair wind will enable an early retirement. Where as paying off the mortgage early does not really give this chance.

Thanks, yes this is a similar situation. We also have a repayment mortgage and I recently fixed for 5 years at a very low rate. My wife and I also add money to an AVC and although it is not a great return, it is better than inflation and has tax benefits.  

Why do you say it’s not a great return what investment options do you have in the AVC, I have 7 to choose from with the Pru 50% is in https://markets.ft.com/data/funds/tearsheet/summary?s=GB00BKTPJ319:GBP not doing too badly I think. 

stuart746

MX5huggy said:

stuart746 said:

MX5huggy said:

I think we’re similar with less money and I little more time. Paying off the mortgage is attractive but when you add the tax relief on pension contributions you really are better to go with pension even if you only invested in cash in the pension. I’ve the option is Salary Sacrifice AVC’s so I can either pay off £100 of mortgage or have £147 put in the pension. 

Having said that the mortgage is a repayment mortgage.  2 years in to a 10 year fix with 7 years after that. So the pension is not earmarked to pay off the mortgage but given a fair wind will enable an early retirement. Where as paying off the mortgage early does not really give this chance.

Thanks, yes this is a similar situation. We also have a repayment mortgage and I recently fixed for 5 years at a very low rate. My wife and I also add money to an AVC and although it is not a great return, it is better than inflation and has tax benefits.  

Why do you say it’s not a great return what investment options do you have in the AVC, I have 7 to choose from with the Pru 50% is in https://markets.ft.com/data/funds/tearsheet/summary?s=GB00BKTPJ319:GBP not doing too badly I think. 

The last time I checked there seemed to be fewer than 7. I will check again. With profits was the default, which I think lots of people leave and forget about.

Thrugelmir

@stuart746 What do you regard as not a great return?  

MovingForwards

Even having a sub-prime mortgage I get higher returns on my pension (14.28%) and S&S ISA (15.95%) as at today's figures (8.71% and 10.38% respectively more than I pay on my mortgage). CBA to work it out for my other pensions. However, for now it's better mentally for me to see my savings / pension increasing, but something to think about when I remortgage.

For those with normal mortgage rates, already with a savings buffer, it would make sense to consider using a S&S ISA, maybe pension too, as a repayment vehicle. 

stuart746

Thrugelmir said:

@stuart746 What do you regard as not a great return?  

A cumulative ROI of 9% for the AVC over 5 years. Admittedly it has tax benefits so the total return is a bit higher. My impression is that it did not seem that great.