No hurry to pay off the mortgage
Discussion
I have a pretty hefty mortgage which I currently overpay into (I have an offset but am still paying the same as though the mortgage was fully drawn so effectively I’m making quite large overpayments) however my house is in London and the payments in the 000s with a large mortgage.
I’m originally from the North so have always been of the mindset that I would like to clear and get it down as soon as possible.
However a lot of people who I would regard as more savvy than me think I’m absolutely bonkers but for overpaying and for not getting the longest term I could.
Indeed, they are stepping up to buying bigger houses on an interest only basis which I am told is pretty normal for the bigger multi-million pound houses. I am told this is the only really feasible way unless your an oligarch as the mortgage payments stay in the 000s and not in the 0000s/month. The idea I think is that one treats it as a rent almost and relies on the capital growth and eventual downsizing to pay off the borrowed sum. However it sounds all very alien to me and a bit counter-intuitive. But maybe I’m the one whose financially immature and this is the more sensible thing to do as it frees up cash to invest in other places or just live, whilst being able to step up the properly ladder in a way a repayment mortgage wouldn’t allow you to do even on a very good wage.
Thoughts?
I’m originally from the North so have always been of the mindset that I would like to clear and get it down as soon as possible.
However a lot of people who I would regard as more savvy than me think I’m absolutely bonkers but for overpaying and for not getting the longest term I could.
Indeed, they are stepping up to buying bigger houses on an interest only basis which I am told is pretty normal for the bigger multi-million pound houses. I am told this is the only really feasible way unless your an oligarch as the mortgage payments stay in the 000s and not in the 0000s/month. The idea I think is that one treats it as a rent almost and relies on the capital growth and eventual downsizing to pay off the borrowed sum. However it sounds all very alien to me and a bit counter-intuitive. But maybe I’m the one whose financially immature and this is the more sensible thing to do as it frees up cash to invest in other places or just live, whilst being able to step up the properly ladder in a way a repayment mortgage wouldn’t allow you to do even on a very good wage.
Thoughts?
YouWhat said:
rossub said:
Well my first ever S&S payment went in this month and so far, I’d have been marginally better putting it into the mortgage.
It’s about time there was a crash to make people realise things can go down as well as up.
From my experience when there has been a crash in the Stock market, its lasted less time than a crash in the housing market. I know where I feel my money is safer. Also S&S are far more liquid so its easier to make money from the recovery It’s about time there was a crash to make people realise things can go down as well as up.
1 month isn’t really an amount of time to be considering whether or not your investments,are working. Come back in a year or 5 or 10.
Notsureaboutthat said:
I have a pretty hefty mortgage which I currently overpay into (I have an offset but am still paying the same as though the mortgage was fully drawn so effectively I’m making quite large overpayments) however my house is in London and the payments in the 000s with a large mortgage.
I’m originally from the North so have always been of the mindset that I would like to clear and get it down as soon as possible.
However a lot of people who I would regard as more savvy than me think I’m absolutely bonkers but for overpaying and for not getting the longest term I could.
Indeed, they are stepping up to buying bigger houses on an interest only basis which I am told is pretty normal for the bigger multi-million pound houses. I am told this is the only really feasible way unless your an oligarch as the mortgage payments stay in the 000s and not in the 0000s/month. The idea I think is that one treats it as a rent almost and relies on the capital growth and eventual downsizing to pay off the borrowed sum. However it sounds all very alien to me and a bit counter-intuitive. But maybe I’m the one whose financially immature and this is the more sensible thing to do as it frees up cash to invest in other places or just live, whilst being able to step up the properly ladder in a way a repayment mortgage wouldn’t allow you to do even on a very good wage.
Thoughts?
Yes this is how it should be done and is my strategy when playing Monopoly, where I always win. Doing this in real life is a different matter though.I’m originally from the North so have always been of the mindset that I would like to clear and get it down as soon as possible.
However a lot of people who I would regard as more savvy than me think I’m absolutely bonkers but for overpaying and for not getting the longest term I could.
Indeed, they are stepping up to buying bigger houses on an interest only basis which I am told is pretty normal for the bigger multi-million pound houses. I am told this is the only really feasible way unless your an oligarch as the mortgage payments stay in the 000s and not in the 0000s/month. The idea I think is that one treats it as a rent almost and relies on the capital growth and eventual downsizing to pay off the borrowed sum. However it sounds all very alien to me and a bit counter-intuitive. But maybe I’m the one whose financially immature and this is the more sensible thing to do as it frees up cash to invest in other places or just live, whilst being able to step up the properly ladder in a way a repayment mortgage wouldn’t allow you to do even on a very good wage.
Thoughts?
I paid mine off a few years ago and have spent the subsequent time paying as much into the pension as I can, I was doing three grand a month for a couple of years via salary sacrifice but job changes and plan to buy a second home (marital separation) put that on ice, currently I'm filling the s&s isa and depending on earnings this year I'll make a lump sum dump into my sipp in March....or I might get a 996 turbo.
Notsureaboutthat said:
I have a pretty hefty mortgage which I currently overpay into (I have an offset but am still paying the same as though the mortgage was fully drawn so effectively I’m making quite large overpayments) however my house is in London and the payments in the 000s with a large mortgage.
I’m originally from the North so have always been of the mindset that I would like to clear and get it down as soon as possible.
However a lot of people who I would regard as more savvy than me think I’m absolutely bonkers but for overpaying and for not getting the longest term I could.
Indeed, they are stepping up to buying bigger houses on an interest only basis which I am told is pretty normal for the bigger multi-million pound houses. I am told this is the only really feasible way unless your an oligarch as the mortgage payments stay in the 000s and not in the 0000s/month. The idea I think is that one treats it as a rent almost and relies on the capital growth and eventual downsizing to pay off the borrowed sum. However it sounds all very alien to me and a bit counter-intuitive. But maybe I’m the one whose financially immature and this is the more sensible thing to do as it frees up cash to invest in other places or just live, whilst being able to step up the properly ladder in a way a repayment mortgage wouldn’t allow you to do even on a very good wage.
Thoughts?
This is what people did in the late 80’s before the crash. And then they found themselves with negative equity in their property. It was financially disastrous for some. I’m originally from the North so have always been of the mindset that I would like to clear and get it down as soon as possible.
However a lot of people who I would regard as more savvy than me think I’m absolutely bonkers but for overpaying and for not getting the longest term I could.
Indeed, they are stepping up to buying bigger houses on an interest only basis which I am told is pretty normal for the bigger multi-million pound houses. I am told this is the only really feasible way unless your an oligarch as the mortgage payments stay in the 000s and not in the 0000s/month. The idea I think is that one treats it as a rent almost and relies on the capital growth and eventual downsizing to pay off the borrowed sum. However it sounds all very alien to me and a bit counter-intuitive. But maybe I’m the one whose financially immature and this is the more sensible thing to do as it frees up cash to invest in other places or just live, whilst being able to step up the properly ladder in a way a repayment mortgage wouldn’t allow you to do even on a very good wage.
Thoughts?
Your friends are taking a gamble on house prices rising forever. Given the amount spent on Covid this year and the likelihood of increased inflation, it would be too much of a risk for me at this time because of many unknowns and potentially big changes in the world’s economy over the next few years.
As always it’s a balance of risk that you are personally comfortable with.
Phil. said:
This is what people did in the late 80’s before the crash. And then they found themselves with negative equity in their property. It was financially disastrous for some.
Your friends are taking a gamble on house prices rising forever. Given the amount spent on Covid this year and the likelihood of increased inflation, it would be too much of a risk for me at this time because of many unknowns and potentially big changes in the world’s economy over the next few years.
As always it’s a balance of risk that you are personally comfortable with.
But the smart move given negative equity is to simply ride it out and pay down the debt. You have to pay the debt regardless so why fire sale lose deposit lose buying costs the works and then have to rent and struggle to build up savings for deposit. Your friends are taking a gamble on house prices rising forever. Given the amount spent on Covid this year and the likelihood of increased inflation, it would be too much of a risk for me at this time because of many unknowns and potentially big changes in the world’s economy over the next few years.
As always it’s a balance of risk that you are personally comfortable with.
Welshbeef said:
Phil. said:
This is what people did in the late 80’s before the crash. And then they found themselves with negative equity in their property. It was financially disastrous for some.
Your friends are taking a gamble on house prices rising forever. Given the amount spent on Covid this year and the likelihood of increased inflation, it would be too much of a risk for me at this time because of many unknowns and potentially big changes in the world’s economy over the next few years.
As always it’s a balance of risk that you are personally comfortable with.
But the smart move given negative equity is to simply ride it out and pay down the debt. You have to pay the debt regardless so why fire sale lose deposit lose buying costs the works and then have to rent and struggle to build up savings for deposit. Your friends are taking a gamble on house prices rising forever. Given the amount spent on Covid this year and the likelihood of increased inflation, it would be too much of a risk for me at this time because of many unknowns and potentially big changes in the world’s economy over the next few years.
As always it’s a balance of risk that you are personally comfortable with.
Also, life gets in the way, babies, job moves etc. requiring people to move, again fire sales.
As I said, it’s a personal risk decision. I paid off my mortgage early about 10 years ago. I am secure in the thought that whatever happens I have a roof over my family’s head. I would not be comfortable borrowing against that asset to invest. My investments are completely separate to my home.
Phil. said:
You’re ignoring the risk of potentially big increases inflation in the relatively near future which are likely to drive up interest rates, making those mortgages unaffordable, resulting in fire sales.
I just signed up to a 7 year fixed at 1.49% for additional borrowing. I was expecting the bank to ask for 'proof' on what I needed the additional borrowing for, but nope they just took my word for it.The paper work was sent in on a Saturday by the mortgage advisor had confirmation of the offer by following Friday, and promise of cash in the bank within 7 days as soon as I sign on the dotted line.
Over 7 years that works out as £20,000 interest on a £200k loan. Plenty of people on here claim to be turning 30%+ growth on investments, if interest rates go up I would have thought it would be 'easy' to turn a profit of more than £3000/year on a £200k investment??
Am surprised given how confident some people are on making £££ on investment people aren't maxing out their existing mortgages for investment gains?
Am borrowing the money for build works, so quite borrowing and traditional. But for those people less worried about risk, it seems like a no brainer to borrow like mad on mortgages at present given how cheap fixed rates are at present?
If you really have the skills to grow an investment pot by say 30% a year, £200k will become £900k by the end of 7 years, that's £680k gain. It took me a 2hr conversation to get the mortgage application completed, for those with real investment kills thats not a lot of time to spend to access a pretty substantial pot of money depending on the equity in the house.
......We will be overpaying on the additional borrowing at the first opportunity, am risk adverse and boring when it comes to mortgages.
Edited by gangzoom on Sunday 30th May 05:50
chinnyman said:
30% returns...... That's a tad optimistic.
I thought thats what quite a few people on here claim they achieve easily year on year, even on this thread am sure I've seen people post similar figures.Its not for me, nor do I have any investment skills/interest, but if you can really hit even 10% growth year on year, maxing out your mortgage with fixed rate at sub 1.5% for 5 years+ inorder to give you a nice pot of money to play with surely is a 'no brainer'?
gangzoom said:
Its not for me, nor do I have any investment skills/interest, but if you can really hit even 10% growth year on year, maxing out your mortgage with fixed rate at sub 1.5% for 5 years+ inorder to give you a nice pot of money to play with surely is a 'no brainer'?
Certainly vs risk is the short answer. I paid my mortgage off early in about 2003 or so.Since then that "spare" money has been invested, and I've certainly done rather better than mortgage rates with it, and I claim no special expertise beyond the ability to look at St James' Place fee structure and conclude I don't want anything to do with it.
I regret paying the mortgage off early - I'd be far better off now if I'd put that money into the market. However, I"d have also done rather better if I'd aggressively moved up the housing chain, and I didn't want/need the hassle.
However, there's a difference between investing with spare money and money that you need. If you choose to borrow against your house to invest, and then meet the trifecta of stock market crash, housing market crash and employment market crash (e.g. 2008) then you can end up very stuck. That's a risk I don't want to take.
rossub said:
You know there’s trouble ahead if huge numbers of people are using ‘equity’ to invest.
Isn’t the saying ‘see what the herd are doing and do the opposite’.... or at least something different to them.
It would be the first time ever that the herd had it right and all won big.Isn’t the saying ‘see what the herd are doing and do the opposite’.... or at least something different to them.
You need to ask who is selling sticks at ATH prices to people who have borrowed money to do so.
And what is that seller doing with their cash?
Bought a bigger house last Jan with a 35 year mortgage as it was at the top of our budget and a stretch based on what we earned and wanted to buy a house before we both went self-employed later in the year.
Currently have 33.5 years left on it, took a 3 month payment holiday last year and overpay it by 50% each month now. I turn 40 in a couple of months.
Upside is were now earning what seems like a small fortune compared to what we did when we were employed. At some point before the 5 year fixed is up I'll need to consult a FA to see how we go about balancing it.
Currently have 33.5 years left on it, took a 3 month payment holiday last year and overpay it by 50% each month now. I turn 40 in a couple of months.
Upside is were now earning what seems like a small fortune compared to what we did when we were employed. At some point before the 5 year fixed is up I'll need to consult a FA to see how we go about balancing it.
Clearly some folk far more open to risk than I would be. I’m all for stretching but then canning my job and then overpaying to a place where (save for a few of these mortgages) the money isn’t accessible - brave - surely if self employed that buffer is what you want in readies vs having it in a mortgage that presumably cost peanuts interest wise..!
Threads like this remind me of car leasing threads, people cannot get their head around compound interest or depreciation.
I am not sure anyone on the thread stated they could easily make 30% returns on the stock market, I just stated that the last three years I have averaged roughly 35% and most of that was because of the perfect storm of Covid, we may be due a market correction but History tells us that you can average more in the stock market than in almost any other kind of investment in the last 40 years, it is not a guarantee though.
If you overpay your mortgage and cannot access that overpayment, interest rates go up and all of a sudden you are struggling to pay the mortgage and have no easy access cash, you may even borrow at a higher rate to pay your mortgage in the short term.
The comment a few posts back about borrowing money on your mortgage to invest is interesting as that is what you are often doing by renovating, most people rationalise it by saying “ My house will be worth x” ....maybe it won’t.
I am not sure anyone on the thread stated they could easily make 30% returns on the stock market, I just stated that the last three years I have averaged roughly 35% and most of that was because of the perfect storm of Covid, we may be due a market correction but History tells us that you can average more in the stock market than in almost any other kind of investment in the last 40 years, it is not a guarantee though.
If you overpay your mortgage and cannot access that overpayment, interest rates go up and all of a sudden you are struggling to pay the mortgage and have no easy access cash, you may even borrow at a higher rate to pay your mortgage in the short term.
The comment a few posts back about borrowing money on your mortgage to invest is interesting as that is what you are often doing by renovating, most people rationalise it by saying “ My house will be worth x” ....maybe it won’t.
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