Stay invested or overpay mortgage

FlaatusGoat

In a quandary here. I hold about 20k in a SASI and have done so for a couple of years. It's gone up a little bit. Great. However, I now hold about 95k on a mortgage. It strikes me that the interest rate (6%ish)  exceeding the investment growth and dividends are close enough to nil on VRWL. 

Maybe it's short term thinking and we don't know the future, but at this given time would it be more prudent to potentially sell off the investment and overpay my mortgage. The monthly payment is manageable (about £600 per month) but obviously the more equity/debt I buy the less money I'll pay out each month servicing the subsequent interest - in effect that would be a dividend..sort of

Brie

Check out what your overpayment can be vs investment and then look at what would happen to your mortgage term and monthly payments.  Maybe the monthly payments will go down but the term remain the same (more flexibility with that?) or the payments will stay the same but for a shorter period (max the reduction in interest?)

Beddie

The safe/sensible option is to pay off the mortgage and keep the monthly payments the same, so you reduce the term.

That's assuming you can pay that amount off without penalty, of course.

This is a great way to save paying a load of interest. And once the mortgage is paid you have that extra money to save or invest each month.

Of course, you might make more money on the stock market. I was in a similar position in 2014 when my endowment  (I know...) matured and I stuck it in a s&s ISA and premium bonds, instead of paying a lump off the mortgage. Probably worked out around the same, but was certainly not significantly better. And that was when my mortgage was only around 1.5% interest.

El_Torro

Over the long term you will probably be better off not overpaying your mortgage, assuming you will continue to be able to keep up with the monthly payments. There are good reasons to overpay a mortgage though, not all of them strictly logical. 

If we stick with the financials, how much equity do you have? If overpaying the mortgage gives you 40% or more equity then you'll probably find that the next time you do remortgage you'll get a better rate. Bear in mind that house prices are currently falling, so what your house is worth today might be more than what it'll be worth when you remortgage. 

As you mention Stocks & Shares have not done well over the last two years. We should be due a good year in 2024. Emphasis on "should" though, there are no guarantees.

Andreg

El_Torro said:

As you mention Stocks & Shares have not done well over the last two years. We should be due a good year in 2024. Emphasis on "should" though, there are no guarantees.

I agree we should be due a good year in 2024, but we are due a large correction before then!  Share prices have not yet adjusted to the "higher for longer" inflation and interest rate environment.

Albermarle

Andreg said:

El_Torro said:

As you mention Stocks & Shares have not done well over the last two years. We should be due a good year in 2024. Emphasis on "should" though, there are no guarantees.

I agree we should be due a good year in 2024, but we are due a large correction before then!  Share prices have not yet adjusted to the "higher for longer" inflation and interest rate environment.

So we should sell now before the correction you say is coming, and then buy again afterwards?

Andreg

Albermarle said:

Andreg said:

El_Torro said:

As you mention Stocks & Shares have not done well over the last two years. We should be due a good year in 2024. Emphasis on "should" though, there are no guarantees.

I agree we should be due a good year in 2024, but we are due a large correction before then!  Share prices have not yet adjusted to the "higher for longer" inflation and interest rate environment.

So we should sell now before the correction you say is coming, and then buy again afterwards?

No, I would sell now, pay down the mortgage (assuming that can be done penalty free), then invest the interest savings in shares on a regular basis.

boingy

Definitely reduce the mortgage but pay attention to the weasel words of the mortgage T&Cs to make sure there are no penalties or other gotchas.

Our first mortgage, quite some years go now, allowed us to pay off any amount at any time but didn't apply the reduction until the following calendar year. And they wonder why banks get a bad reputation...