Mortgage overpayment versus Investments

Ramie2021
Ramie2021 Posts: 15
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edited 24 December 2022 at 8:16PM in Mortgage-free wannabe
Hi All,

I took out a large mortgage earlier this year over £500k on a relevant cheap interest rate (in comparison to current rates) which is fixed for a 5 years period I am debating whether I should be overpaying my mortgage with any surplus cash or should I be investing this money for the long term? For context, I am 35 years old so hopefully another 25-30 years of work ahead of me. I appreciate people have various views/opinions. Just to add also I have £25k currently in investments via a S&S ISA. In my mind both options have pros and cons, whilst I have a relevant cheap mortgage rate I think if I invest it could outweigh the savings on interest rate but on the other hand I want to bring my mortgage down to a smaller monthly payment but wondering are investments better? 

Comments

  • If your savings account has a higher interest rate than your mortgage you're better off saving.

    Since the interest rate rises I've been putting some overpayment money into a seperate savings account ready to pay off a lump sum when my 5 year fix expires. Obviously that relies on me not dipping into that fund, fortunately I'm quite disciplined.

    Is that something you could do? Obviously it won't bring your monthly payments down, but to me that defeats the objective of trying to me mortgage free as soon as possible.
    Solo Buyer & MFW
    Start date: January 2016
    At it's highest: -£237,000
    Current Balance:  -£73,754 (March '23)
    2021 OP total: £6,000
    2022 OP total: £10,535

  • Thanks for the feedback. That sounds like a good plan. I want to get into a habit of saving any excess cash and put it towards  my mortgage .

    My other question is he to you determine what amount you set aside in a savings account to pay a lump sum off before the end of your 5 year term against how much you allocate for investments for the long term? 

    Noting that any investments for the long term would be set aside for 10 years plus. Is there a ratio you would use or any thoughts on this?

    Thanks you in advance.

  • Ramouth
    Ramouth Posts: 648
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    Do you have a LISA?  I am currently allocating 25% of spare cash to my S&S LISA and putting the rest into cash savings to pay of lump sum when we remortgage in 3.5 years time.  The disadvantage of the LlSA is that you are penalised for taking money out before you are 60 but the 25% bonus and tax free withdrawals make it difficult to beat for long term savings.  I would be nervous of putting the moneys allocated for paying down the mortgage into S&S as we have no idea where interest rates or the stock market will be when we come to remortgage and I wouldn’t want to have to have to choose between selling shares at a loss or having more borrowing than necessary on a high rate. 
  • Agree with the above and thanks. I don’t have a LISA but have a SIPP where I get a 25% benefit. Is worth separating between a SIPP and LISA?
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