Huge mortgage debt at low interest Vs investing

Morning all,

I've lurked here long enough trying to find my mortgage-free nirvana answers and I'm not sure I have yet. Me, wife and baby are having no issue making our payments, but there is an issue with overpayments. Currently it's £887 a month payment and I throw an extra £100 in on top of my half. That's already knocked two years off our end date taking it down to 2038. Ouch.

We had great luck getting the last of the low interest rates when remortgaging late last year, 1.19% for a five-year fix ending in 2027 with our current provider, so the debt is racking up purely because the total owing is mind-boggling.

I also invest the cash in dividend paying companies in an ISA and am receiving around £7k per year in divis, tax free. I am consistently getting 6-10% dividends from my investing, but with little capital gain. It's a trade-off I'm happy with as, while I currently re-invest the cash, I can point that cash hose at the current account if needed. One day I hope to live off it. This is a major hobby for me, with benefits for the family too.

So while the end date is many moons away, is this mortgage so enormous and cheap as to make overpayment unnecessary? I've got...multiple options.
  1.  status quo, just pay a slight overpayment of £100 a month (11.2%) from salary. Keep the investment cash for reinvesting or withdrawing
  2.  continue to pay and also dump all dividends in to the mortgage, slowing investment compound effect (though not stopping investing)
  3.  Wildcard, Buy a hat shop and attempt to pay the mortgage in jelly
TBH I feel like option 1 for a few years and then using divis when I get to the attacking stage in a couple of years. It's Natwest, so overpayments over £1000 are taking monthly payments down rather than reducing the mortgage term. 

Also my wife can't contribute any more for various reasons.

I hate debt, so this is something I think about daily. 

Thanks for any and all contributions,

TDMM
_____________________________________
Mortgage when started(Feb 2020): £208,000
Current mortgage (May 2022): £169,000 (£20k overpaid immediately from house sale cash)
Mortgage free day: January 2038
Mortgage Start: £208,750 January 2020
Current (Feb 2023) : £162,315 @ 1.19%

Saving up to £500 pcm to overpay when mortgage fix ends in January 2027

Comments

  • draiggoch
    draiggoch Posts: 153 Forumite
    First Anniversary Name Dropper First Post Combo Breaker
    With the interest so low I would probably stick all the cash in the ISA plus dividend reinvestment and take the cash out in 5 years time at the end of your fixed rate and pay a large chunk off. Since inflation is so high the actual value of your debt will be lower in five years time.
  • powerspowers
    powerspowers Posts: 1,115 Forumite
    First Anniversary First Post Name Dropper
    The status quo sounds good to me, you’re chipping at the mortgage and I’m assuming you could decide in the future to pay a big chunk off from the investment pot if circumstances merited it. 

    MFW 2021 #76 £5,145
    MFW 2022 #27 £5,300 
    MFW 2023 #27 £2,000
    MFW 2024 #27 £1,075 /£3,600


  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Name Dropper Photogenic First Anniversary First Post
     I am consistently getting 6-10% dividends from my investing,
    Which companies are you investing to achieve these yields? 
  •  I am consistently getting 6-10% dividends from my investing,
    Which companies are you investing to achieve these yields? 
    At the moment, Persimmon, CMC Markets, Legal and General, Direct Line, Rio Tinto and Polar Capital Holdings. Most of these companies have no debt, but the insurers that do have debt are steady earners with expansion plans. I've also got the standard global tracker growing next to them as well as some lower yielding shares like Natwest. 
    Mortgage Start: £208,750 January 2020
    Current (Feb 2023) : £162,315 @ 1.19%

    Saving up to £500 pcm to overpay when mortgage fix ends in January 2027
  • Thanks @draiggoch for giving this some consideration. The value of the debt being lower is what confuses me, though I know it to be mathematically absolutely true. I have been leaning this way in general I think.
    Mortgage Start: £208,750 January 2020
    Current (Feb 2023) : £162,315 @ 1.19%

    Saving up to £500 pcm to overpay when mortgage fix ends in January 2027
  • @powerspowers Thanks for the comment, I don't think I'm far off right in the current approach it's just very stressful to be the main breadwinner and have such a mountain of debt in front of me. 
    Maybe I'll drop a huge cash bomb on it at remortgage time when rates are...god knows where.
    Mortgage Start: £208,750 January 2020
    Current (Feb 2023) : £162,315 @ 1.19%

    Saving up to £500 pcm to overpay when mortgage fix ends in January 2027
  • powerspowers
    powerspowers Posts: 1,115 Forumite
    First Anniversary First Post Name Dropper
    Would it help to think through worst cause scenarios- severe illness, loss of job, how would you have to deal with that? Would you be able to access the invested money? Do you need a stronger emergency fund? Think it through- it’ll either reassure you that things will be ok so carry on, or show some holes that you can address with your dividend money or revisiting your budget. Good luck 
    MFW 2021 #76 £5,145
    MFW 2022 #27 £5,300 
    MFW 2023 #27 £2,000
    MFW 2024 #27 £1,075 /£3,600


  • I've gone with:
    1. Stop the overpayment of the mortgage for now, as 1.19% is super low interest. 
    2. Use the bulk of that monthly amount to continue regular investing
    3. Use the rest to save and slowly increase the emergency fund and general savings, currently standing at six months' living expenses.
    I am definitely a mortgage-free wannabe, the beast is looming over the family finances, but for the next 56 months it is not out of control and our emergency finances etc are in order.
    Mortgage Start: £208,750 January 2020
    Current (Feb 2023) : £162,315 @ 1.19%

    Saving up to £500 pcm to overpay when mortgage fix ends in January 2027
  • South_coast
    South_coast Posts: 4,916 Forumite
    First Anniversary First Post Name Dropper Photogenic
    Me, wife and baby are having no issue making our payments
    Glad to see you've got baby chipping in, teach 'em early is my motto 🤣

    Seriously though, I'm pleased you've made a decision. It sounds like a sensible one while you've got the return coming in from the investments. 

    Slightly disappointed you turned down the jelly option though....
    Mortgage start: £65,495 (March 2016)
    Cleared 🧚‍♀️🧚‍♀️🧚‍♀️!!! In 5 years, 1 month and 29 days
    Total amount repaid: £72,307.03. £1.10 repaid for every £1.00 borrowed

    Finally earning interest instead of paying it!!!
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