Paying down mortgage versus investing

Ramie2021

Hi All,

I appreciate your thoughts on paying down your mortgage versus building wealth for the future? 

For context, I am 37, have a lump sum in excess of £50k in investments and wondering should I continue to invest money or start to overpay on mortgage. Is there a max you would save in ISAs before reverting to overpaying the mortgage?

Putting my personal circumstances aside, I’d like to understand peoples perspectives on this more generally? 

My initial thoughts are that overpaying mortgage is good and provides you with security faster as once paid off the house is yours but also by doing this constrains your wealth for the future.

Appreciate peoples thoughts/views on this topic. 

BarelySentientAI

The first questions I would consider:

What return do I estimate from investments?

What interest do I pay on the mortgage?

Might I need to get at the money in the future?

I wouldn't overpay a 2% mortgage if I was getting 8% returns, and I wouldn't put money in an illiquid asset if I might need it again.

I would overpay a 5% mortgage if I was getting 4% returns, and if I had alternative emergency sources then the liquidity wouldn't bother me.

Ramie2021

Thank you for this interesting view, I get the point if you expect your investments returns to be in excess of your mortgage interest rate then your financial better off with savings/investing in an ISA.

Suppose more interesting in thoughts instead of paying a lump sum against a mortgage, do people believe if you repurposed this money to fund further investments in an ISA or potentially purchase an apartment, would the growth that you get with this potentially outweigh any benefits apart from security of repaying a mortgage early.

Jemma01

I'm not a financial advisor or have anything remotely to do with finance, so that's with a grain of salt.

If I had 50k that that returns 2.5k (5% return per year)

and

25k mortgage that grows by 1.25k (5% per year)

I'd invest, and use some of the returns to pay towards the mortgage. If the mortgage is more than the savings (often is the case), with same %, I'd pay off the mortgage as the debt will grow faster than the profit.

You've not given any numbers so I guess you're looking for principles and thoughts process 🤔

Ramie2021

Thanks for the above, I suppose generally some people want to be mortgage free as soon as possible to get a sense of  security of owning their home, my question is best reframed and ultimately trying to determine if one is trying to build wealth at young age (I am 37), in my view it would better to invest money rather than pay against the mortgage, given my age and my aim is to build wealth. 

Ramie2021

Sorry for context, I have 499k outstanding on my mortgage, 3 years remaining on a fixed rate at 2.08% and have circa 50k in investments, property value is prob 850k in current markets. But main purpose is to build money for future.

Hoenir

Are you comfortable with the fact that your mortgage repayments are potentially  going to jump significantly in 3 years time? 

Ramie2021

Are they?! I thought in the short term i.e upcoming 1-3 years they would be between 2-3.75%.

BarelySentientAI

Ramie2021 said:

Are they?! I thought in the short term i.e upcoming 1-3 years they would be between 2-3.75%.

You foresee fixed rate mortgage deals dropping from the present 4%+ down to somewhere nearer 2% in the next 3 years?

I think you'd be in a minority with that prediction.

Ramie2021

I do but that is my view and subjective. I take your point re interest rates but I have monthly income to cover potentially rises in rates. So not really worried about rates.

Hoenir

Ramie2021 said:

I do but that is my view and subjective. I take your point re interest rates but I have monthly income to cover potentially rises in rates. So not really worried about rates.

This is the mortgages and endowment board not an economic forum. You won't find any answer to your question here.