Overpay all or Invest some?

RachP87

Hi All

Apologies for the long post & if it’s in the wrong place, not sure if it’s best in here or savings & investments board. I have only just moved into my first home so mortgage has only just started, but I am trying to figure out if I am best overpaying or investing?

There are a lot of articles online that champion investing over paying your mortgage off early, but seeing my mortgage balance makes me feel a bit sick! 

I straight away set up a monthly overpayment of £200, and then manually make overpayments of what I have left each month as my wage varies each month and didn’t want to commit to a figure incase I overspend that month.

My mortgage is currently £1240 per month plus £200 regular overpayment (£185K mortgage) As I was older getting on the ladder, thanks to The property prices in the South East! I didn’t want to be paying the mortgage for the rest of my life so got it over 15 years rather than 25.

My take home pay is anything between £3k and £5k a month, depending on what jobs and overtime I do each month, although the last 6 months has never been less than £4K. 

Expenses wise, I’d say around £300-£400 on shopping a month, My petrol/parking is paid for by work and I only use the car for work so no private petrol expenses. Road tax is free, and I pay my insurance in a lump sum which is usually covered in a monthly pay so I don’t tend to save money for this. 

I wear a uniform so don’t have work clothes expense, and work pretty much every weekend so I rarely shop for clothes now!

During covid obviously I haven’t been going out so not really sure what my entertainment expenditure is going to be now, but I tend to have more disposable income than most of my friends as I don’t have kids and earn an ok wage, so I doubt it will be excessive spending (but this is also why I have only added a £200 overpayment monthly just in case)

I put £50 a week into a stocks & shares ISA, and currently have just over 4 months emergency funds saved in a savings account. 

I had initially planned to overpay by £1K a month for as long as I can. Would I be better off overpaying it all, splitting it so half overpayment & half in S&S ISA, or just putting it all into S&S ISA?

Thank you 😊 

Chiglepig

Hi @RachP87 where you post your question will influence the answer you get!

Over on the Savings/Investment board the emphasis will definitely be "Don't overpay, the mortgage is cheap borrowing", here it's more likely "It's great to know it's all yours/more of it is yours". They are places on a spectrum of risk. One emphasises the purely financial, the other acknowledges the psychology/peace of mind as a measure of value (ok, that a bit binary, but makes the point).

From the details you've given, you're already spreading that risk by doing both (which is what I do too), just one thing to consider that you haven't mentioned - what's your LTV and would overpaying improve the rate you can get when your current deal is up? That might swing the balance to OPs for now.

ElmoR

What Chigle said.

Also, if your monthly salary varies, consider thinking of the minimum you get each month as standard, then either save or O/P the rest above that. Train yourself to live on the basic amount and everything else gets squirrelled away. Whichever route you take, savings or O/Ps, you'll get there faster.

Consider setting up a spreadsheet too, with mini targets/goals. It gets addictive and helps keep up stamina for the long haul journey.

ElmoR

RachP87

Thank you both for responding, I was thinking of overpaying as much as possible to get to the next LTV bracket. I’ve worked it out that I will be under the 75% if I just pay standard payments by the 2 years, but I can get it down to under 65% if I overpay which I think I would prefer for now at least! I can focus on investing after I feel more comfortable with the balance - just seeing it makes me want to cry so I think I’m definitely better off overpaying as much as I can!


I didn’t think about treating my wages like that, I like that idea! I mean, I do tend to save more when I get paid more but I don’t have a set spending limit really so I probably do spend more those months.

I’ve worked out my standard pay with no overtime covers everything I need and spending money etc for the month so hopefully I can start to try and use any extra for OP

Thank you both 

Cornish_mum

Hi RachP87,
When we first took out our big (for us) mortgage we aggressively overpaid until I felt comfortable with the amount, then we moved to concentrate on our pensions. I have recently started a small S & S ISA but we only did this once the mortgage felt less huge and scary. CM

edinburgher

Ullo ullo ullo - it's the investment police! 

I think the answer is none of the above. If you're bringing home £3,000-5,000 a month, a pension (and higher rate pension tax relief) would seem to be a no brainer.

You can easily afford your mortgage (even with the overpayment). 

My question for you is have you done a realistic budget? Your figures above account for c. £2,000 a month - what are you spending the rest on? 

You earn about the same as my wife and I combined, we are managing to save/invest approximately £1200+ a month and aren't very thrifty

RachP87

Hi @edinburgher thank you for your reply, I have only just moved in on 30th June so before that I was saving around 2K a month for the deposit, I was also using the extra to add to my ‘emergency fund’ which is where the rest went. Obviously now I don’t need to save this which is really what I was asking to do with the extra.

During covid I saved a hell of a lot more each month and it made me realise how much I did waste at times, so I am a lot stricter now with my money but not ashamed to admit I haven’t been as strict as I should have been previously!


thank you @Cornish_mum I think I am probably going to go down this route for now! Until I can get my head around the figure owing I don’t think I will feel comfortable saving lol 

draiggoch

I would definitely do a quick check on your pension situation as Edinburgher has stated, since you get the 40% tax back on any wages over £50271 that you contribute to your pension as well as possible employer contributions (if employed rather than self employed).
You have stated already that you will be below 75% LTV when you hit the end of your current deal, so this will give you more options automatically.
I make a small mortgage overpayment every month and contribute about 12% to my pension. I think this gives me the benefit of my mortgage coming down a little quicker and the possibility of retiring earlier if the pension performs well.
Better look at the situation holistically rather than either pension or mortgage overpayments.
Good luck