Now I'm debt free, overpay mortgage or invest?

chelseablue

Hi all, its taken about 5 years but at last I am debt free, apart from the mortgage. 
Emergency fund is in place
Now I am not sure whether to start overpaying the mortgage or put the money into my stocks & shares ISA? 
I am 38, husband is 32
We owe Nationwide £204,000 with 27 years left
Mortgage rate is 1.79% fixed until April 2023 
Say we had £500 a month, is it better to invest as we should be able to beat 1.79% long term? Or overpay the mortgage and take years off it? 
Or cover all bases and overpay half and invest half? 

TheAble

There's not really a "right" answer to this is as it's a matter of preference and depends on your attitude to risk. A good barometer is to ask yourself how you'd feel if the stock market took a 50% drop? If that would make you uncomfortable and prompt you to sell out of your holdings then you may want to think twice before investing. The mortgage is definitely the safer option and you won't go far wrong with it, though one thing to bear in mind is that it's "one way debt", i.e. once you make an overpayment you can't get it back out again. Up to you really - as you've suggested you could always go the half and half route.

enthusiasticsaver

A lot of people say while interest rates are low you should invest either in your stocks and shares isa or your pension.  Your mortgage is due to finish when you are 65 so I would personally opt for investing or 50/50. 

Sncjw

I would pay towards morgate as it will reduce the term. There's a calculator on the nationwide mortgage pages to show how much you can reduce your term if it's regular payments 

DrEskimo

I'm 33 and I am currently paying a good proportion into my pension and a few years ago decided to pay into a S&S ISA, rather than overpay on the mortgage. Returns have been much higher, and any dips would not phase me, since I would not be looking at using any of the money until it had grown to a considerable sum where I could think about paying off the mortgage, so at least 20-years from now.

Other thing is to ensure you are saving enough cash reserves for any short to medium term spending. Me and my partner would probably be considered to be very cash heavy, but we have plans to renovate the house we bought this year probably next year, as well as looking at replacing one of our cars in the near future. So investing this money would not be appropriate. It depends what spending you want to plan for, and the timelines involved.

My general rule is to spend money on debts > emergency fund > pension > cash savings > S&S ISA / mortgage.

badmemory

Another thing to maybe bear in mind is what is your LTV.  Would some overpayments bring you to the next level (cheaper) or are you already in a good place with that?  Are both your pensions healthy?  Are they fairly equal or is one falling behind?  Not good in retirement terms if one is paying 40% tax & the other hardly anything.

chelseablue

Thank you everyone
I think our LTV is quite good, our house is worth around £450,000 with £204,000 mortgage 
My husband went self employed last year so we pay into a SIPP for him, I pay into it at the end of each month and I put in 15% of whatever he's earnt that month. 
My thinking behind wanting to overpay is; 
We moved in 5 years ago on a 32 year mortgage, dont really want to spend 32 years paying a mortgage and until Im 65 too!
Husband will be around 59 but does a physical job on sites so he might be worn out by then
As he's self employed if there are periods when there's no work having no mortgage or much less of one would be great 

Overpaying £500 a month will clear it in 15 years, I'll be 53 and husband will be 47, so I think I should start doing that, most months we have around £1,000 (after paying into the SIPP) so could overpay £500, invest £250 and save £250 for car stuff, holidays, house stuff etc 
Hope that sounds like a plan! 

Nurse2047

Hi my mortgage rate is 2.79% 😬 fixed for 5 years. As it’s quite a high rate would it make more sense to OP mortgage rather than investing? Or split between mortgage and pension? I know it’s not a yes or no answer with lots of variables howeverv

teaandcupcakesplease

i started over paying my mortgage years ago (not by much but as the pay increases grew i started to reduce the term I am now due to pay teh mortgage off 7 years early (Nov 2023) i will be 48. Bought house for 176K now worth 300K apart from my daughter this is one of my best life choices LOL xx

fatbelly

There's no 'right' answer, except with hindsight. Personally I'd be confident I could do better than 1.79% by investing, but I have had some bad spells. The 'safe' answer is to overpay the mortgage

Racky_Roo

It's not been mentioned yet but a lot of mortgages have a cap on what you can overpay so that may limit the choice of what to do with the money. Mine for example is only 10% of the balance every year so on the first working day of the new year I overpay the 10% allowed. I've been saving the rest in a cash ISA and when my fixed rate ends in Oct i'll use the remaining savings to reduce my borrowing then.

I also have a S&S ISA which usually performs at 6% but only put in what i'm prepared to lock away until I retire which is a long way off.