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    • albert101
    • By albert101 13th May 18, 6:01 PM
    • 20Posts
    • 3Thanks
    albert101
    Pay off mortgage & invest instead?
    • #1
    • 13th May 18, 6:01 PM
    Pay off mortgage & invest instead? 13th May 18 at 6:01 PM
    Dear everyone,

    I'm after a bit of advice please.

    I am 46. We own 94% of our house. It is potentially a 'forever house' big enough for what we need, nice area etc. We still owe about 50k on the mortgage, which costs us c3% pa, and c 600 per month.

    I have a reasonable pension pot. I have around 200k in various ISAs etc. I came into some money recently, and wary of toppy markets, stuck 50k into Premium Bonds.

    Would it be better do you think to use the Premium Bonds to pay off the mortgage, and give myself roughly 600 per month to drip feed into the stock market, using pound cost averaging to weather storms etc.

    I have to say I sleep better at night having money around and it could be that the 50k might come in useful down the road should misfortune strike - I can't after all eat my house, and should misfortune strike (job loss) I might not easily be able to raise cash against it.

    I appreciate this is not an easy question to answer, but I guess if you were me, what would you do?

    Many thanks,

    Albert

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    Last edited by MSE Andrea; 17-05-2018 at 10:08 AM.
Page 2
    • Mortgaged_Mike
    • By Mortgaged_Mike 16th May 18, 9:44 AM
    • 5 Posts
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    Mortgaged_Mike
    Have you thought of re-mortgaging? There are several attractive options that MSE's mortgage calculator shows up (but do your own research!).

    You could move to a 5 year fix with First Direct at 1.84% . Your monthly payments come down to 560 (there's a 490 setup fee).

    Or move to that deal but reduce the mortgage term to 5 years, and you'd be paying 872 a month, but would pay the mortgage off in 5 years not 8. And have the certainty of fixed payments for the rest of the mortgage.

    Or, as someone else has suggested, move to an offset mortgage. Coventry are offering 1.84% variable.

    If you decide to keep the mortgage in some form or other, it definitely looks worth finding a new deal, unless you've got onerous penalties in your existing one.
    • LifeIsGood8
    • By LifeIsGood8 16th May 18, 10:57 PM
    • 2 Posts
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    LifeIsGood8
    I reckon you should pay off the mortgage and then begin investing the 600 left each month.
    Paying off the house will ensure you won't be worrying if you did lose your job later.
    Even if you left the 600 in a bank account (I'm sure you won't) that earned nothing for the next 10 years you'd have 70k+ and no interest paid on the mortgage.
    • bowlhead99
    • By bowlhead99 17th May 18, 12:32 AM
    • 8,278 Posts
    • 15,126 Thanks
    bowlhead99
    I reckon you should pay off the mortgage and then begin investing the 600 left each month.
    Paying off the house will ensure you won't be worrying if you did lose your job later.
    Originally posted by LifeIsGood8
    Well, he wouldn't be worrying about the mortgage payments, but he'd still be worrying about the running costs of his 0.8-0.9 million house and the various bits of lifestyle that go with that and whatever other financial commitments or expectations he has.

    With already having a year's net salary in the bank (or in PBs) - enough to cover mortgage payments for nearly all the years he has left on it - he's not really buying himself much extra "safety" if he burns up his 50k cash or premium bonds to clear the rest of his mortgage (which is only 6% loan-to-value) and then leaves himself with no cash for emergencies. Entirely depleting the 50k of PBs or cash to kill the mortgage and then starting again to build the savings up from nothing, puts him much much closer to needing to liquidate a chunk of his investment ISAs in a case where he's beset by hard times -which could be at a bad time in the markets, leading to unnecessary investment losses.

    So I wouldn't entertain the idea of clearing the entire mortgage if it was my money. Not when it would leave me with no cash and everything locked in pensions or investment ISAs. It does of course make sense to try to improve the mortgage rate from 3% to under 2%, which could be done on something like a five year fix pretty easily if his credit rating isn't terrible; and in some circumstances it might even be worth paying an early redemption penalty to get out of a fixed deal if he's on one at the moment

    Even if you left the 600 in a bank account (I'm sure you won't) that earned nothing for the next 10 years you'd have 70k+ and no interest paid on the mortgage.
    Yes, but starting again and building up at 600pm, it would take him the first three and a half of those ten years to get his cash float / emergency buffer back up to six months of net pay which is something he has already got if he holds back something like 25k of the 50k and doesn't plough the whole 50k into clearing the mortgage unnecessarily.

    Without that spare cash as a safety net, the investment ISAs become the safety net, which can't be too clever given that every man and his dog can tell you that investments can go down as well as up, and that being forced into selling Investments at relative low points can have a really bad impact on your total wealth compared to a scenario in which you're not forced to sell out and can just wait for them to go back up with the general market.

    So although it sounds nice and cautious and a happy achievement to clear your mortgage earlier, using the last of your cash to do it is not really a very cautious thing to do. Because being stuck without a big cash float can mean you are caught between a rock and a hard place when you need serious cash - your only options might be selling investments in a poor market, or trying to obtain borrowings when unemployed.
    • Audaxer
    • By Audaxer 17th May 18, 8:18 AM
    • 1,330 Posts
    • 798 Thanks
    Audaxer
    You can either
    A. Pay your mortgage off i.e. save 600/months as a result
    B. Don't pay off mortgage but invest somewhere else where you can get a better return.

    If A > B, then pay off mortgage
    If B > A, then invest where you get better return and carry on mortgage
    Originally posted by movilogo
    If these are the choices I'd pay off the 50k mortgage and save 600 per month, as you are not going to get anything near a 600 per month return on a 50k investment.
    • movilogo
    • By movilogo 17th May 18, 2:06 PM
    • 2,356 Posts
    • 1,584 Thanks
    movilogo
    If these are the choices I'd pay off the 50k mortgage and save 600 per month, as you are not going to get anything near a 600 per month return on a 50k investment.
    Originally posted by Audaxer
    Exactly! For most people, if they can ,paying mortgage off it is good choice.

    More than 600 pm month return on 50k investment is possible but those can be very risky investments e.g. angel investors in unsecured business etc. Very few people would opt that route - unless they can afford to lose the 50k in worst case.
    Happiness is buying an item and then not checking its price after a month to discover it was reduced further.
    • LifeIsGood8
    • By LifeIsGood8 17th May 18, 5:54 PM
    • 2 Posts
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    LifeIsGood8
    Yes, but starting again and building up at 600pm, it would take him the first three and a half of those ten years to get his cash float / emergency buffer back up to six months of net pay which is something he has already got if he holds back something like 25k of the 50k and doesn't plough the whole 50k into clearing the mortgage unnecessarily.
    Originally posted by bowlhead99
    I agree here, I too would have the emergency cash in place, but I would take that out first, 6 months of expenses, then the rest I'd put towards the mortgage.
    Anything remaining will just get paid off as time goes.
    • jimjames
    • By jimjames 17th May 18, 8:31 PM
    • 12,770 Posts
    • 11,473 Thanks
    jimjames
    If these are the choices I'd pay off the 50k mortgage and save 600 per month, as you are not going to get anything near a 600 per month return on a 50k investment.
    Originally posted by Audaxer
    I'm not sure you need a 600 per month return on 50k as that's not comparing like with like. Surely what you need to compare is the return on investment compared to the cost of the mortgage. In which case it's better to not pay off the mortgage unless you want the absolute certainty that your mortgage is clear now.

    When interest rates are 2% or so then it's easy to beat that with investments and over time the differential between amounts will be substantial in favour of the investment.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • Audaxer
    • By Audaxer 17th May 18, 11:15 PM
    • 1,330 Posts
    • 798 Thanks
    Audaxer
    I'm not sure you need a 600 per month return on 50k as that's not comparing like with like. Surely what you need to compare is the return on investment compared to the cost of the mortgage. In which case it's better to not pay off the mortgage unless you want the absolute certainty that your mortgage is clear now.

    When interest rates are 2% or so then it's easy to beat that with investments and over time the differential between amounts will be substantial in favour of the investment.
    Originally posted by jimjames
    He has 8 years left on his mortgage at 600 per month, so he would be paying 57,600 over 8 years. If he invests the 50k and draws down 600 per month (over 14% per year) to pay the mortgage, he may have some left at the end of the 8 years if there is not a bad equity crash during that time. With already 200k in S&S ISA investments, I think it would be give me more peace of mind and feel good factor just to clear the mortgage now, and drip feed the 600 per month into the stock market. That's what I would do, but it depends on the risk tolerance of the OP.
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