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

TheAble

fatbelly said:

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

Agree with this, it's a more complex question than it appears. You can "expect" to earn more money by deploying the capital elsewhere but that comes with risk. Overpaying the mortgage might not give the best expected return but it does on the other hand give a guaranteed return, and security of your home which is of strong psychological and emotional benefit. 

Another subtle benefit of paying off the mortgage early or indeed getting out of debt in general is that once done it can cause you to take different decisions which may be beneficial. Such as gives you the confidence to take a shot at that better paying job, or retiring early if you want, and so on - things which you may not have wanted to risk while still carrying a mortgage.

On the downside, money you do deploy towards early mortgage repayment is "one-way" - that is, once it's gone into the mortgage account it can't generally be taken out again.

Not an easy question you see

matt_outandabout

We've just made some decisions around the same issue.

We've a £127k mortgage with just under 13 years left at 1.17% fixed for 4.5 years.

We sold another property 6 months after our remortgage, so have put 2x£20k in stocks and shares isa's. There's a further £4k we will put across into the ISA's in the new financial year.

Each month we have £3-400 a month left over after all bills and the other savings pots for everyday costs.

I spent a long afternoon with the MSE mortgage calculators and savings calculators to work out what we could do.

We've decided to overpay mortgage by £150 a month and save into the ISA's at £100 month each.

*If* our investments rise at a similar rate to what they have for the last 5 years, we should be in a position in 5 years to not take a new mortgage, just perhaps a small loan or stay on baserate for a few months to pay off the house.

We're fingers crossed for this working out.

kimwp

matt_outandabout said:

We've just made some decisions around the same issue.

We've a £127k mortgage with just under 13 years left at 1.17% fixed for 4.5 years.

We sold another property 6 months after our remortgage, so have put 2x£20k in stocks and shares isa's. There's a further £4k we will put across into the ISA's in the new financial year.

Each month we have £3-400 a month left over after all bills and the other savings pots for everyday costs.

I spent a long afternoon with the MSE mortgage calculators and savings calculators to work out what we could do.

We've decided to overpay mortgage by £150 a month and save into the ISA's at £100 month each.

*If* our investments rise at a similar rate to what they have for the last 5 years, we should be in a position in 5 years to not take a new mortgage, just perhaps a small loan or stay on baserate for a few months to pay off the house.

We're fingers crossed for this working out.

You've highlighted a good third option, which I wish I'd thought about - invest in order to overpay the mortgage. Being very risk averse and knowing nothing about investing, I'd probably still have opted just to pay off the mortgage, but now I understand investing more, a half and half strategy similar to yours would have been a very sensible approach.

DjangoUnchained

mathematically it might, although some risk, to invest rather than pay off mortgage, but personally i would pay off the mortgage as fast as possible, which i did, as there is a great feeling of security not owing the bank anymore. 

SusieT

I am having the same sort of dilemma, in that I am about to remortgage and will be rolling (secured) loans into the new mortgage, and taking out more to finish the renovations. As this will drastically decrease the interest and repayment, I am going to save/invest everything I can and overpay the maximum allowed a year each January (I can only overpay once a year), and have the remainder as an offset so that if I need to do anything more I have a big safety net saved, but I intend to have enough saved by 2030 to pay off the mortgage and also still have a good amount saved/invested. 
As others have said above, if the numbers also work for you that sort of split may be an option 

DrEskimo

Back around Jan 2018 I started investing instead of overpaying, as my mortgage rate was around 1.4%. Since then I've put an average of about £262 per month (£12,600) into a low cost global multi-asset fund.

After platform fees, it's currently valued at £15,326.40. Around £2,800 gained in interest.

Had I put that same £262 per month into my mortgage over the same time frame, it would have saved me less than £400 assuming an interest rate of ~1.69% over the 4yrs (for me it was much lower, as I went to a discounted variable which dropped to 0.8% for a while).

So I've decided to keep investing any overpayments with the view in the future that, when I'm out of a mortgage product, I could use the fund to pay the balance early.

JJG1984

Racky_Roo said:

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.

I started a S&S ISA with nutmeg this year and my growth is nothing like 6%; may i ask which provider you are using and your risk level selected. Currently adding £250pm. Fell for the google ad

Movie_Star

I am risk averse, so paid down my mortgage with avengence to ensure my home was my own, which I assume, no one can take away from me short of revolution. Once paid for, a small amount is being used for direct share investment in a single admired company through Hargreaves’s Lansdiwn regular share purchases and about a third of my salary is being invested in my Pension pre-tax. You can invest up to 100% of you salary into your pension up to you lifetime limit, and on retirement, 25% can be taken out tax free as a lump sum or pro-rata on drawdown. Best investment returns going in my view for a cautious man.

satchmo1

I'd suggest paying 50/50 into your pension and into a S&S ISA

The pension savings are a win/win saving because you save on tax as the money comes out of your salary before tax. I maximised my pension contribution and always loved seeing that I hadn't paid any tax, hehe. 

As someone else said, you'll get a better return on S&S ISA savings than the mortgage savings, and the funds are accessible if you really need them.  

Also, who knows what the pension age will rise to by the time you are thinking of retiring. I worked for over 40 years believing I'd get my state pension at 60, only for it to rise the year before I reached 60 (and I never got a letter).

Racky_Roo

JJG1984 said:

Racky_Roo said:

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.

I started a S&S ISA with nutmeg this year and my growth is nothing like 6%; may i ask which provider you are using and your risk level selected. Currently adding £250pm. Fell for the google ad

I'm with St James's Place with medium to high risk investments. I'm early 40's so can afford to take the risk now but will drop to a lower risk the nearer I get to my retirement goal (which is aged 60)