Do higher interest rates change your thinking on investing vs paying down mortgage debt

chockydavid1983

Hey everyone

I've always invested (in global equity and index funds) over paying down my mortgage quicker as it should give you a better return over the longer term. But does the logic change at all if we are entering a period of much higher interest rates than has been the case in recent years (as long as you can afford the repayments of course)? I would guess not but would be interested to hear others' thoughts on this.

Thanks,
Chris.

waveneygnome

Yes.....I'm having this dilema now......

Low 5yr fixed mortgage coming to an end;  face big hike in repayments extra +£500pcm; could cash-in investments and wipe out 50 % of mortgage...get monthly repayments back down to more affordable levels....divert monthly investment into mortgage overpayments.

Didn't really seem to matter in ultra low interest rate environment......my investments had the 'beat 1.79%'...easy....now ..my interest rate is looking like 5%+.........not so confident my investments can (consistently) beat 5% after paying fund fees etc........ feeling pressure to make a decision now though.

chockydavid1983

My current thinking is that investments have returned more than 5/6% on historically on average over the medium to long term (though no guarantees of future returns of course!) so investing still wins. I'm also wondering if average investment returns are more relative to inflation, i.e. inflation + x% rather than a set absolute x% return. My fixed rate isn't due to end until next September so I have a bit of thinking time (I guess the rates may be even higher by then!)

housebuyer143

I value money in the bank, so while I could wipe 2/3rd off my mortgage right now, I choose not to and invest it elsewhere. I am making a little less than my mortgage interest in easy access and about the same in fixed accounts but that small loss is fine with me to have flexibility. 

When I was younger I got sucked into the have to be mortgage free mentality and paid mine off when it really made no sense to do so, just so I could be mortgage free. This is no longer my thought process.

Beddie

housebuyer143 said:

I value money in the bank, so while I could wipe 2/3rd off my mortgage right now, I choose not to and invest it elsewhere. I am making a little less than my mortgage interest in easy access and about the same in fixed accounts but that small loss is fine with me to have flexibility. 

When I was younger I got sucked into the have to be mortgage free mentality and paid mine off when it really made no sense to do so, just so I could be mortgage free. This is no longer my thought process.

Similar to you, I also value the flexibility of having money available instead of paying off the mortgage. However, as rates have risen over the past year on both my tracker mortgage and my savings, I'm feeling more inclined to pay off a chunk of the mortgage.

VNX

I suppose it comes down to each of us and our circumstances 

im fixed at 1.7% for another 18 months but would expect to be paying (who knows) 5/6% by that point I have a pot of savings, I’m not obsessing about clearing the mortgage but I think it only prudent to make an overpayment at the end of the term 

housebuyer143

Beddie said:

housebuyer143 said:

I value money in the bank, so while I could wipe 2/3rd off my mortgage right now, I choose not to and invest it elsewhere. I am making a little less than my mortgage interest in easy access and about the same in fixed accounts but that small loss is fine with me to have flexibility. 

When I was younger I got sucked into the have to be mortgage free mentality and paid mine off when it really made no sense to do so, just so I could be mortgage free. This is no longer my thought process.

Similar to you, I also value the flexibility of having money available instead of paying off the mortgage. However, as rates have risen over the past year on both my tracker mortgage and my savings, I'm feeling more inclined to pay off a chunk of the mortgage.

I also have a tracker mortgage (maybe a mistake but at 0.39% above base we will soon find out 😂). It's a balance, in fairness I did throw the max overpayment in this year, only because I didn't feel like I needed more money in the bank at this stage, however I might not choose to do that again.
I suppose it depends how much you want free..I guess you don't want a huge mortgage with huge amounts in the bank losing money, but also don't want no money in the bank and a low mortgage. Maybe a happy medium.

My goal is to save the mortgage balance and then offset it all so it's the best of both worlds, i'm just not quite there yet.

Zopa_Trooper

I was given the advice when young to pay off my mortgage at the earliest opportunity. This I did, the money on my endowment was all mine when it matured, house already paid off, and I've been comfortable ever since. When you don't owe anybody any money nobody has any power over you.

waveneygnome

Zopa_Trooper said:

When you don't owe anybody any money nobody has any power over you.

Hmmm......have you met my wife?

Novice_investor101

I’m quite lucky that my mortgage is low at £48k remaining & I managed to fix for 5 years a few weeks ago for 4.11%. 

Mortgage going up from £315pm to £357pm. However, the current situation re interest rates has made me feel like I’d like to go back to making a regular overpayment. So I’m cutting other costs, in particular the doggy daycare & expensive wet food cans. The puppy is now an adult & will have to cope spending a day at home alone while I visit the office & he’ll be fine with just his kibble. 

I’ll maintain the investments but divert  the money saved to the mortgage. 

Bigwheels1111

My dad said pay my mortgage off asap.
Took it out in December 2000, First payment January 2001.
Last payment April 2012.
Then rented for 9 year and sold for four times what I paid for it.
The whole house price and mortgage payments were covered by rent.
I now have the cash in 5 and 7 year fixed rates, giving me a nice income, Better than working that’s for sure.