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  • FIRST POST
    • cs90
    • By cs90 9th Apr 18, 6:30 PM
    • 35Posts
    • 6Thanks
    cs90
    Better utilization of money?
    • #1
    • 9th Apr 18, 6:30 PM
    Better utilization of money? 9th Apr 18 at 6:30 PM
    Just looking for some advice. It may be blaringly obvious but I can't seem to figure out what my best option is,

    I'm 27

    Take home pay per month after tax and NI between 1600-2000 (varies)

    I have a shared 10 year fixed mortgage with wife at 3.5% paying 993 per month - we pay 500 each a month (8 years to go at 3.5%) (At that rate I would still have 12 years of mortage to pay after that 10 years) - 22 years total mortgage

    CSD S&S ISA with 6k (VLS80)

    Workplace Pension 10k (Paying about 280 a month in including employer contributions)

    High interest current account 9.5k

    Lower rate tax payer

    I've seen people say it could be better to invest rather than overpay mortgage. Would this still apply if I'm paying 3.5% interest but VLS80 from tax year 2017-2018 was only about 1.7%? I'd assume it would have been better this past year to overpay rather than pump little savings into my ISA?

    Not really sure where to go from here. I think it's a case of too much information out there at the moment and I'm getting a bit lost as to where is best for me to put my monthly savings for the optimal return over the long term / what makes the most sense?

    Thanks all
Page 1
    • Zorillo
    • By Zorillo 9th Apr 18, 6:40 PM
    • 162 Posts
    • 86 Thanks
    Zorillo
    • #2
    • 9th Apr 18, 6:40 PM
    • #2
    • 9th Apr 18, 6:40 PM
    Are you maximising the amount your employer will contribute to your pension?
    • cs90
    • By cs90 9th Apr 18, 7:34 PM
    • 35 Posts
    • 6 Thanks
    cs90
    • #3
    • 9th Apr 18, 7:34 PM
    • #3
    • 9th Apr 18, 7:34 PM
    Yes unfortunately they only offer max 6% so I'm matched plus more
    • dawyldthing
    • By dawyldthing 9th Apr 18, 9:07 PM
    • 2,896 Posts
    • 2,891 Thanks
    dawyldthing
    • #4
    • 9th Apr 18, 9:07 PM
    • #4
    • 9th Apr 18, 9:07 PM
    Tell you what there's no better feeling than when the mortgage is paid off. Yeah you might save a bit more if you invested the money but the relief when it's paid off is unreal.
    My targets to end 2018:
    1) To get down to 11 st 7lbs then treat to a safari. At start 17 stone 7 lbs *61lbs lost* *30lbs to go*
    1st started SW16st13lbs tues11/7/17 - 38 weeks -53lbs
    2nd -> target 11 st 7lbs
    2) to find new challenges
    • msallen
    • By msallen 10th Apr 18, 8:35 AM
    • 810 Posts
    • 892 Thanks
    msallen
    • #5
    • 10th Apr 18, 8:35 AM
    • #5
    • 10th Apr 18, 8:35 AM
    Tell you what there's no better feeling than when the mortgage is paid off. Yeah you might save a bit more if you invested the money but the relief when it's paid off is unreal.
    Originally posted by dawyldthing
    Each to their own, but I'd rather have (for example) 120K but owe 100K on the mortgage, than 10K and no mortgage.
    • surreysaver
    • By surreysaver 10th Apr 18, 8:43 AM
    • 2,463 Posts
    • 1,371 Thanks
    surreysaver
    • #6
    • 10th Apr 18, 8:43 AM
    • #6
    • 10th Apr 18, 8:43 AM
    Each to their own, but I'd rather have (for example) 120K but owe 100K on the mortgage, than 10K and no mortgage.
    Originally posted by msallen
    Me too. You'd get a better return by owing 100k on a mortgage and investing it, than you would by paying off the mortgage. A mortgage will be the cheapest long-term loan you will ever have
    I consider myself to be a male feminist. Is that allowed?
    • Bravepants
    • By Bravepants 10th Apr 18, 10:48 AM
    • 402 Posts
    • 436 Thanks
    Bravepants
    • #7
    • 10th Apr 18, 10:48 AM
    • #7
    • 10th Apr 18, 10:48 AM
    There is a general rule of thumb that one should not borrow money to invest.


    Does this rule not apply if one has borrowed money to buy a house?
    • surreysaver
    • By surreysaver 13th Apr 18, 8:11 PM
    • 2,463 Posts
    • 1,371 Thanks
    surreysaver
    • #8
    • 13th Apr 18, 8:11 PM
    • #8
    • 13th Apr 18, 8:11 PM
    There is a general rule of thumb that one should not borrow money to invest.


    Does this rule not apply if one has borrowed money to buy a house?
    Originally posted by Bravepants
    Buying a house to live in isn't generally regarded primarily as an investment. Although borrowing money at a lower rate than a savings account you are going to put the money into is a sensible thing to do. Particularly sensible with 0% credit cards
    I consider myself to be a male feminist. Is that allowed?
    • steampowered
    • By steampowered 13th Apr 18, 8:46 PM
    • 2,504 Posts
    • 2,423 Thanks
    steampowered
    • #9
    • 13th Apr 18, 8:46 PM
    • #9
    • 13th Apr 18, 8:46 PM
    There is a general rule of thumb that one should not borrow money to invest.
    Originally posted by Bravepants
    That sounds like a pretty bad rule of thumb to me. Most businesses would go bust if they followed that rule.
    • DairyQueen
    • By DairyQueen 14th Apr 18, 12:37 AM
    • 244 Posts
    • 400 Thanks
    DairyQueen
    The logic of favouring investing, especially (say) pension payments, rather than mortgage over-payments, when interest rates are low, is sound. However there are potential risks to this strategy:

    1) Interest rates will rise.
    2) Job instability has a nasty way of increasing in times of recession, and at any time for those over 50.
    3) Property crash = negative equity for those who are too highly geared.

    The OP is young. During his working life he will no doubt experience several recessions, economic shocks and periods of high inflation/interest rates.

    25 years ago my mortgage shot-up from 8% to 11%, and then topped-out at 14%. This coincided with the 1990s recession. My then husband was made redundant five times in as many years. I was earning a good salary but the net amount still equalled the mortgage repayment. By redundancy no.3 we had exhausted our emergency fund and were selling stuff to survive.

    It only takes one such experience to appreciate the benefits of a mortgage-free existence

    I worked like a trojan, and 8 years later paid-off my mortgage. I was 44. One of the happiest days of my life and I have never regretted doing so. My now husband was lucky to be in a position to clear his mortgage when redundancy struck a few years ago (he was in his 50s).

    Examples of how economic conditions range over a working life.

    That experience taught me that long-term, financial security is best achieved by being debt-free asap, and by holding an emergency cash fund of at least one year's expenses.

    Being mortgage-free has also provided lifestyle and retirement options that would otherwise have been off the table.

    OP: had you considered (in order of priority)?:
    1) Fill the cash coffers up to a year of expenses.
    Then split your surplus between:
    2) Increase in pension contributions (why pay tax if you don't have to?) - employer's scheme? SIPP? Your 50-year-old self will thank you
    .... and ...
    3) Mortgage overpayments.

    Make sure your wife also piles as much as comfortably possible into her pension. Inequality of pension income in retirement has disadvantages - especially for the survivor of you two. I know, I know.....difficult for you to imagine ever being THAT old.

    Good luck. You've made a great start.
    • ValiantSon
    • By ValiantSon 14th Apr 18, 3:55 AM
    • 1,889 Posts
    • 1,750 Thanks
    ValiantSon
    The logic of favouring investing, especially (say) pension payments, rather than mortgage over-payments, when interest rates are low, is sound. However there are potential risks to this strategy:

    1) Interest rates will rise.
    2) Job instability has a nasty way of increasing in times of recession, and at any time for those over 50.
    3) Property crash = negative equity for those who are too highly geared.

    The OP is young. During his working life he will no doubt experience several recessions, economic shocks and periods of high inflation/interest rates.

    25 years ago my mortgage shot-up from 8% to 11%, and then topped-out at 14%. This coincided with the 1990s recession. My then husband was made redundant five times in as many years. I was earning a good salary but the net amount still equalled the mortgage repayment. By redundancy no.3 we had exhausted our emergency fund and were selling stuff to survive.

    It only takes one such experience to appreciate the benefits of a mortgage-free existence

    I worked like a trojan, and 8 years later paid-off my mortgage. I was 44. One of the happiest days of my life and I have never regretted doing so. My now husband was lucky to be in a position to clear his mortgage when redundancy struck a few years ago (he was in his 50s).

    Examples of how economic conditions range over a working life.

    That experience taught me that long-term, financial security is best achieved by being debt-free asap, and by holding an emergency cash fund of at least one year's expenses.

    Being mortgage-free has also provided lifestyle and retirement options that would otherwise have been off the table.

    OP: had you considered (in order of priority)?:
    1) Fill the cash coffers up to a year of expenses.
    Then split your surplus between:
    2) Increase in pension contributions (why pay tax if you don't have to?) - employer's scheme? SIPP? Your 50-year-old self will thank you
    .... and ...
    3) Mortgage overpayments.

    Make sure your wife also piles as much as comfortably possible into her pension. Inequality of pension income in retirement has disadvantages - especially for the survivor of you two. I know, I know.....difficult for you to imagine ever being THAT old.

    Good luck. You've made a great start.
    Originally posted by DairyQueen
    Very wise words!
    • Sea Shell
    • By Sea Shell 14th Apr 18, 7:15 AM
    • 730 Posts
    • 1,016 Thanks
    Sea Shell
    In hindsight (which is a wonderful thing), we would have probably been better off NOT to have paid off our mortgage, which was about 12 years ago now, seeing how rates have now dropped. However, we were able to then save that spare money and now have a lovely next egg too.

    The feeling that having no mortgage gives, to us, is worth its weight in gold, and gives you freedoms that you wouldn't otherwise have, with regards the type and amount of work you NEED to do going forwards.

    I can also see how being "Mortgage Neutral" would also give a similar feeling, knowing that you COULD pay it off tomorrow if you needed to, similar to Stoozing CC's (which we do do)
    Last edited by Sea Shell; 14-04-2018 at 7:18 AM.
    " That pound I saved yesterday, is a pound I don't have to earn tomorrow "
    • Audaxer
    • By Audaxer 14th Apr 18, 7:26 AM
    • 1,051 Posts
    • 607 Thanks
    Audaxer
    Each to their own, but I'd rather have (for example) 120K but owe 100K on the mortgage, than 10K and no mortgage.
    Originally posted by msallen
    Yes, but if the 120k was invested and after an equity crash the value had dropped to 80k or less, you may be wishing you had paid off the mortgage. While you might be better invested in the long run, for a lot of people it's a better feeling and less stress to have paid off the mortgage when they can.
    • AnotherJoe
    • By AnotherJoe 14th Apr 18, 7:27 AM
    • 9,436 Posts
    • 10,441 Thanks
    AnotherJoe
    I think DQ's suggestions are excellent, take a sensible middle way between the all or nothing approach you get for example in the mortgagefree wannabe forum or advice to put every last penny into a pension.
    • Nudge3
    • By Nudge3 20th Apr 18, 8:19 PM
    • 7 Posts
    • 0 Thanks
    Nudge3
    I personally have decided not to pay my mortgage off and I invest for the long term and also hold a percentage of my net worth in cash/liquid assets in case of an emergency.

    I highly doubt we are ever going to see 12-14% interest rates again but if you feel like it's a possibility you may be better off paying down your mortgage.

    I would say you need to think about your individual circumstances, risk appetite and make a decision accordingly.

    Best of luck
    • Peelerfart
    • By Peelerfart 20th Apr 18, 8:34 PM
    • 1,913 Posts
    • 1,671 Thanks
    Peelerfart
    Excellent post diary queen! There are difficult choices to be made when trying to do what's best.

    I personally agree with you.

    Having come from the MFW board, the feeling of accomplishment is unmatched.

    I/we nearly lost the family home several years ago due to a redundancy situation. It never happened, but the shock was sufficient to concentrate our efforts on finishing the mortgage.
    With hindsight, could we have made more investing? I'll never know, nor frankly, do I care.
    Space available for rent
    • DairyQueen
    • By DairyQueen 20th Apr 18, 10:56 PM
    • 244 Posts
    • 400 Thanks
    DairyQueen
    Peeler: I don't care either.
    • Thrugelmir
    • By Thrugelmir 20th Apr 18, 11:21 PM
    • 58,524 Posts
    • 51,884 Thanks
    Thrugelmir
    I personally have decided not to pay my mortgage off and I invest for the long term and also hold a percentage of my net worth in cash/liquid assets in case of an emergency.

    I highly doubt we are ever going to see 12-14% interest rates again but if you feel like it's a possibility you may be better off paying down your mortgage.

    I would say you need to think about your individual circumstances, risk appetite and make a decision accordingly.

    Best of luck
    Originally posted by Nudge3
    While you might not see interest rates at those levels. You might not experience the same levels of investment return in the years ahead as well.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • justme111
    • By justme111 21st Apr 18, 9:16 AM
    • 2,988 Posts
    • 2,880 Thanks
    justme111
    Just m

    I've seen people say it could be better to invest rather than overpay mortgage. Would this still apply if I'm paying 3.5% interest but VLS80 from tax year 2017-2018 was only about 1.7%? I'd assume it would have been better this past year to overpay rather than pump little savings into my ISA?
    Originally posted by cs90
    You are right. I think the general statement is used because the average increase in value of the investments was about 4 or 5% after inflation throughout the last century. While your mortgage rate is 3.5 Including inflation. Was increase in VLS you quoted before or after inflation (in real terms (? If it was in real terms then with inflation about 2.7% it was 1.7%+2.7% =4.4% against your mortgage rate being 3.5%, ie still better.
    Having said that I still overpay mortgage the rate on which is half of yours. There is only so much risk of investments halving their value that I can take.
    • Tom99
    • By Tom99 22nd Apr 18, 3:20 AM
    • 2,070 Posts
    • 1,393 Thanks
    Tom99
    VLS80 went up 5.29% in the past year not 1.7%, that might have been the dividend. It went up 19.55% the year before.
    Remember VLS80 is 20% bonds which many investors think will decline in value over the next few years
    VLS100 which is all equities went up 6.83% in the past year.
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