Investing vs Early Mortgage Repayment

whatstheplan

As some of you are aware, I hope to retire earlier.  Currently 49, planning to retire between 58-60 assuming I can make the figures work.  I have £40k invested this year into a S&S ISA and plan to invest a further £10k into this come 2022, so £50k in total.  I also have a workplace pension that I'll have paid into for 27 years if I retire at say 59.  This won't be touched until I'm 65-67.  I also have some BTLs (low value properties, low rental income, mortgaged) and the plan there is to consolidate when I retire, keeping one property mortgage free to boost my monthly pension pot.

So, that's the background revisited.

On my residential property, I have a mortgage with 15 years to run.  I obviously planned on a 65 year old retirement when I took the mortgage out.  If I start to overpay by £300 monthly, I can clear the mortgage in 9 years time (fits with my retire earlier objective) and, although this assumes no rate change, I will have saved £5,600 in interest by overpaying.  This approach appeals to me as, if I do manage to make the figures work come 58-60 years of age, I'd be mortgage free.

However, I've been thinking and now wonder if this is a less efficient use of that money?  Here's why:

1. If I overpay the mortgage by £300 monthly, this equates to £32,400 (sum a) over 9 years.
2. If I don't overpay the mortgage, 9 years from now the balance will be £37,300 (sum b.)  Again this assumes no rate change which is obviously an unknown.

This got me thinking.  Might I be better investing the £300 each month into my S&S ISA as oppose to overpaying on the mortgage?  This would be into a less risky product than 100% equity   Then, although appreciation isn't guaranteed over the interim 9 years, this pot might have increased in value beyond sum a and possibly even sum b.  So, come 9 years from now, I simply continue to pay my mortgage down until I'm 65, using money from the S&S ISA.

Like I say, I find some comfort in the idea of being mortgage free come 58-60, however I'm now conflicted as I think the money can work better for me as detailed above.  In short, investing trumps early mortgage repayment, I think?!? ... assuming my investment doesn't decrease in value over the 9 years.

Thoughts please.

MX5huggy

You don’t say what your mortgage interest rate is? (Could probably work it out from what you have said). 

Do your comparison using a SIPP instead of an ISA and you will get even better return and see that you should have the mortgage covered in 9 years time by a good margin. 

Have you considered capital gains tax on your BTL if you plan to sell? 

whatstheplan

MX5huggy said:

You don’t say what your mortgage interest rate is? (Could probably work it out from what you have said). 

Do your comparison using a SIPP instead of an ISA and you will get even better return and see that you should have the mortgage covered in 9 years time by a good margin. 

Have you considered capital gains tax on your BTL if you plan to sell? 

2.04%

Thanks for SIPP tip.  Yes CGT is on my radar.

kidmugsy

whatstheplan said: ... I also have some BTLs (low value properties, low rental income, mortgaged) and the plan there is to consolidate when I retire.

Since you have several properties you'd presumably save CGT by selling one property per tax year until all but one are gone.  Surplus capital can go towards pensions, ISAs, or paying off the mortgages on your own house and the remaining rental property. 

whatstheplan

kidmugsy said:

whatstheplan said: ... I also have some BTLs (low value properties, low rental income, mortgaged) and the plan there is to consolidate when I retire.

Since you have several properties you'd presumably save CGT by selling one property per tax year until all but one are gone.  Surplus capital can go towards pensions, ISAs, or paying off the mortgages on your own house and the remaining rental property. 

To be fair, I only have 3, but thanks for the tip

Thrugelmir

The risk is that interest rates rise and the value of your investments falls. Neither of these factors can you control. Being debt free by your planned retirement date is totally within your control. 

whatstheplan

Thrugelmir said:

The risk is that interest rates rise and the value of your investments falls. Neither of these factors can you control. Being debt free by your planned retirement date is totally within your control. 

Yeah this is the flip side of course.  I'll need to mull it over.  Even if I can theoretically gain more (financially) by investing the cash instead of overpaying, there would be a sense of comfort I suppose in knowing the roof over my head was 100% mine, with no more monthly mortgage payment. If I do need to keep on working beyond 58-60 (my plan b) at least that way I could look at reduced hours due to less monthly outgoings.

SonOfPearl

I don't think there is a "right" answer, because it depends on how much you value paying off your residential mortgage. Personally, paying off my mortgage was something I definitely wanted to do before investments. I valued the certainty of being mortgage free more than the possibility of investment returns which were in no way guaranteed. 

kuratowski

It doesn't have to be either one or the other.  You can also do a bit of each, e.g. if you went 50-50, you would be taking half the risk and half the upside of investing vs overpayment.

kidmugsy

whatstheplan said:

kidmugsy said:

whatstheplan said: ... I also have some BTLs (low value properties, low rental income, mortgaged) and the plan there is to consolidate when I retire.

Since you have several properties you'd presumably save CGT by selling one property per tax year until all but one are gone.  Surplus capital can go towards pensions, ISAs, or paying off the mortgages on your own house and the remaining rental property. 

To be fair, I only have 3, but thanks for the tip

Talking of CGT, are you married? You could get two sets of annual CGT exemption if your spouse owned half the property.  There must be plenty of existing threads on this topic, perhaps on other forums.

whatstheplan

kidmugsy said:

whatstheplan said:

kidmugsy said:

whatstheplan said: ... I also have some BTLs (low value properties, low rental income, mortgaged) and the plan there is to consolidate when I retire.

Since you have several properties you'd presumably save CGT by selling one property per tax year until all but one are gone.  Surplus capital can go towards pensions, ISAs, or paying off the mortgages on your own house and the remaining rental property. 

To be fair, I only have 3, but thanks for the tip

Talking of CGT, are you married? You could get two sets of annual CGT exemption if your spouse owned half the property.  There must be plenty of existing threads on this topic, perhaps on other forums.

Alas I'm single ...

(thinks about being able to do what he wants when he wants ...)

Hooray, I'm single!!!