Overypay mortgage or invest

SamB16

Hello

Me and my wife have a shared ownership mortgage with around 87k left, total is 96k. We want to move in the next 2-3 years but need to build more equity for a deposit so from January the plan is to overpay by £300 each month. Our current interest rate is 5.99 but we are due for renewal in May.

The other option is to put that money into my s+s isa which i currently put £50 a month into. I invest in the Fidelity global index and the S & P 500. 

What option should we go for please?

Hoenir

At that interest rate overpay the mortgage at the current time. 

MX5huggy

I normally say invest (particularly in a pension) over mortgage payments. But as you want to build up a deposit and your mortgage rate is quite high making extra mortgage payments within the allowed limits of your mortgage would be preferable. 

Mark_d

5.99% interest on your mortgage.  Ouch!  I'm normally against overpayments but here my advice is to pump as much money as possible in to the mortgage.  I would even go as far as to suggest you stop the ISA contributions and pay that extra £50 per month into the mortgage too - assuming your mortgage allows you to overpay by this much.

Albermarle

Also 2 or 3 years is a short time scale for investing, especially in the potentially volatile funds you suggest.
How would you feel if in three years time if you had added £10K to the ISA and it was only worth £7K ?

SamB16

Albermarle said:

Also 2 or 3 years is a short time scale for investing, especially in the potentially volatile funds you suggest.
How would you feel if in three years time if you had added £10K to the ISA and it was only worth £7K ?

Good point yeah, i think we will overpay the mortgage.
The plan with my isa as it is now is to have around 20k in there by the time i am 50, obviously ill be upping the amount i invest when i have a bigger salary.

SamB16

Forgot to ask in my OP, i put down a 5k deposit when we got the mortgage, do we get to put that towards the deposit on the next place?

Hoenir

When you sell your property they'll be a deposit paid which can be passed up the chain. Though you might need to add some money yourselves. 

Altior

Shared ownership rates have a premium over regular rates. So it's not necessarily a poor rate. 

I'm sure you'll have read this before, but your equity investment horizon should be at least 5 years. And whilst nobody knows when the next correction will occur, the prevalent conditions are quite ripe for one. If you are intending to use the S&S ISA capital for the property purchase, it's worth considering holding it in a lower risk option. 

Albermarle

SamB16 said:

Albermarle said:

Also 2 or 3 years is a short time scale for investing, especially in the potentially volatile funds you suggest.
How would you feel if in three years time if you had added £10K to the ISA and it was only worth £7K ?

Good point yeah, i think we will overpay the mortgage.
The plan with my isa as it is now is to have around 20k in there by the time i am 50, obviously ill be upping the amount i invest when i have a bigger salary.

If you are saving for retirement, then pension beats ISA normally, due to the tax benefit. Works out even better if you earn enough to pay 40% tax ( unless this changes in the budget) . However pension will only be accessible from age 57/58. 

Hoenir

Altior said:

Shared ownership rates have a premium over regular rates. So it's not necessarily a poor rate. 

Interest rates are priced. They are what they are. 

Recent stock market returns have created a high level of complacency. Leveraging has become fashionable. History tells us that ultimately this trade ends abruptly and painfully.