Mortgage Interest Rates

[john_smith]

I'd have been a lot better off if I didn't buy my house when I did.
If I had put all that deposit on stock market/btc I'd have a 60k deposit rather than 40k. But this was an unprecedented time. And that's being cautious!

But it isn't always better to pay off mortgage.

For example my stocks have 2x in last 12 months.
My btc has 3-4x
I piled everything into stocks and crypto. Unfortunately starting from 2k after the house purchase has limited my gains.

If I had put that into paying off mortgage I'd be well down. In these ultra low rate times its better to pay back no extra. If you were really brave you'd be on a repayment only and have even more to invest.

Paying off extra off the mortgage is crazy right now.

To put numbers on this.
I owe 217k on a 262k house. At no point have I overpaid on the 30 year term.
It doesn't really matter your ltv. It's sti better in every case (at the moment) to invest rather than pay it off.

If I overpaid everything to date rather than invest I expect I could have gotten that down to 210k
If I took all my investments out now and paid it off I'd be down to 197.
13k is the difference in one year.

Stocks and BTC, especially BTC, can go down though. you have your £60k deposit....you find a house and then boom, deposit drops off a cliff. Not ideal.

Is there an easy, safe, risk free, fsa backed savings in existance that offers a good return? Outside of premium bonds.

 

[413x]

Stocks and BTC, especially BTC, can go down though. you have your £60k deposit....you find a house and then boom, deposit drops off a cliff. Not ideal.

Is there an easy, safe, risk free, fsa backed savings in existance that offers a good return? Outside of premium bonds.

That's why I said 60k when I had 40k no way I'd put my whole house deposit on it. But even putting 10k of that in (which I would have) would have taken that to 60.
I don't regret it. As no point having all the cash and living in a box. But it just shows how much better you can do.

I have had 0 cash in bank until 2021 when I took some out. Risky? I guess. But I felt it was worth it

Obviously you have to contend with house price rises against that. But I was sure prices would fall. Never did I think the gov would prop it up!

 

[Psycho Sonny]

Interesting thread regarding the investments.

I take a different view and want the house bought and paid for ASAP with minimal to no risk so I can retire sooner and enjoy the finer things in life.

I could pay mine off tomorrow if I wanted to. I'd rather retire earlier and have several sources of passive income or keep working with several sources of passive income and live in the best area possible.

I'm very much of the opinion you should pay off as much of your mortgage as early as possible. It saves a lot of money in the long term and the sooner its paid off the better. I'm keeping up with the max overpayments on ours. 66k left to pay and want that paid for within ten years.

I have circa 40% left to pay and I was a first time buyer 5 years ago. So I've managed to triple the equity within 5 years thanks to substantial overpayments from investments into commodities. Rather than reinvesting I decided to play it safe since my interest was and still is for the next few months 2.84%.

The mortgage is now so cheap and insignificant my family would be financially secure even with the loss of a major source of income. That's why I'm now more averse to risk and decided to go with this approach.

I'd say this though investing will save you far more money than overpaying a mortgage will at today's rates.

Stocks and BTC, especially BTC, can go down though. you have your £60k deposit....you find a house and then boom, deposit drops off a cliff. Not ideal.

Is there an easy, safe, risk free, fsa backed savings in existance that offers a good return? Outside of premium bonds.

Bonds are a terrible investment and not risk free either.

 

[Mercenary Keyboard Warrior]

I'd have been a lot better off if I didn't buy my house when I did.
If I had put all that deposit on stock market/btc I'd have a 60k deposit rather than 40k. But this was an unprecedented time. And that's being cautious!

But it isn't always better to pay off mortgage.

For example my stocks have 2x in last 12 months.
My btc has 3-4x
I piled everything into stocks and crypto. Unfortunately starting from 2k after the house purchase has limited my gains.

If I had put that into paying off mortgage I'd be well down. In these ultra low rate times its better to pay back no extra. If you were really brave you'd be on a repayment only and have even more to invest.

Paying off extra off the mortgage is crazy right now.

To put numbers on this.
I owe 217k on a 262k house. At no point have I overpaid on the 30 year term.
It doesn't really matter your ltv. It's sti better in every case (at the moment) to invest rather than pay it off.

If I overpaid everything to date rather than invest I expect I could have gotten that down to 210k
If I took all my investments out now and paid it off I'd be down to 197.
13k is the difference in one year.

I take a somewhat different approach. I am paying down the mortgage and will end it next year, around 13 years early on a 20 year term

As far as my main home is concerned I am ultra low risk, I want it bought and paid for and mine. No one can take it away that way

When It comes to investments I can then be higher risk than if I needed that money. Investments returns are pretty much in line with more risk = more reward.
So I can make far higher returns and take far more risk on money I wont need, I wouldn't want to have to be balancing a portfolio risk when I knew I needed the money to pay for my house.
Long term corrections, failing assets / shares etc are all risks
The last significant one that has to be born in mind when talking of investing for better returns against clearing a mortgage is risk of capital lock in, or selling at a heavy loss if needed quickly.
Its why when you look at pensions most will taper the find as you approach retirement they start to wind down the investments into shorter term less risky but more capital and liquid safe assets

Many people used to have investment backed mortgages (endowment), when the returns started to fall below medium term returns many of them failed to up the payments needed and as such ended up short, having to take extra mortgages to ensure they had the funds needed at the end to pay off the mortgage.
There is a reason why people return to repayment after fads of endowment, capital only, one account etc and that is for the average person its far safer

My last point would be that taking some risk on investing as opposed to paying down should very much depend on the person and their income. If you are very employable and your mortgage is low in comparison to your income then its far less of a risk in regards leaving a balance outstanding than if your relatively at risk and not very well paid.

Investments / investment companies do fail, shares can plummet.
Lehman brothers etc
Look what COIVD did to IAG, rolls royce etc
Its fine if yu can ride out the storm, less so if you need your money back to pay off chunks of your mortgage

 

[413x]

I take a somewhat different approach. I am paying down the mortgage and will end it next year, around 13 years early on a 20 year term

As far as my main home is concerned I am ultra low risk, I want it bought and paid for and mine. No one can take it away that way

When It comes to investments I can then be higher risk than if I needed that money. Investments returns are pretty much in line with more risk = more reward.
So I can make far higher returns and take far more risk on money I wont need, I wouldn't want to have to be balancing a portfolio risk when I knew I needed the money to pay for my house.
Long term corrections, failing assets / shares etc are all risks
The last significant one that has to be born in mind when talking of investing for better returns against clearing a mortgage is risk of capital lock in, or selling at a heavy loss if needed quickly.
Its why when you look at pensions most will taper the find as you approach retirement they start to wind down the investments into shorter term less risky but more capital and liquid safe assets

Many people used to have investment backed mortgages (endowment), when the returns started to fall below medium term returns many of them failed to up the payments needed and as such ended up short, having to take extra mortgages to ensure they had the funds needed at the end to pay off the mortgage.
There is a reason why people return to repayment after fads of endowment, capital only, one account etc and that is for the average person its far safer

My last point would be that taking some risk on investing as opposed to paying down should very much depend on the person and their income. If you are very employable and your mortgage is low in comparison to your income then its far less of a risk in regards leaving a balance outstanding than if your relatively at risk and not very well paid.

Investments / investment companies do fail, shares can plummet.
Lehman brothers etc
Look what COIVD did to IAG, rolls royce etc
Its fine if yu can ride out the storm, less so if you need your money back to pay off chunks of your mortgage

Agreed.
I have a stable and employable job so even if my investments (I use that term loosely) went to 0 I'd still be fine.

Really, I don't know what I'm going to do with this cash. Its weird. This is the first time I'm not saving for anything. And it's addictive to put more and more in. I can see why rich people keep at it.
At one point I thought about paying off my student loan. But again, the interest is so small it's not worth it

It's not enough to change my life. But it's not completely insignificant. Ah present it would cut off 4 years of mortgage in a year of time.

I suppose I think forwards to my next (possibly forever) home and would put it against that.

Really, I don't want a mortgage any bigger than what k have now.. Ever.

 

[Psycho Sonny]

That only applies if you otherwise would spend the "overpayments" on general stuff. If you pile it into savings at >2% or whatever your mortgage rate is then you're worse off. Obviously the issue is it takes willpower and can't just say "Ooooh i have £20k in savings. Lets go to the Maldives for a month"

This is obviously a huge risk for those with little willpower.

You should therefore always have seperate savings or slush fund for such purposes.

 

[Mercenary Keyboard Warrior]

This is obviously a huge risk for those with little willpower.

Which the typical mortgage holding Brit has proved time and time again they do not have

- Endowments failing to make sure they upped contributions as necessary
- Drawdown of capital to buy a new BMW etc (probably partly why most mortgages dont even allow overpayments to be drawn down now)
- Interest only, failing to save/invest to be able to actually repay the on the contractual date

etc

 

[413x]

Which the typical mortgage holding Brit has proved time and time again they do not have

- Endowments failing to make sure they upped contributions as necessary
- Drawdown of capital to buy a new BMW etc (probably partly why most mortgages dont even allow overpayments to be drawn down now)
- Interest only, failing to save/invest to be able to actually repay the on the contractual date

etc

I hate credit. I've never had a new car, apart from mortgage I've never had an interest loan. All my Credit cards have been 0 percent. I thank my parents for being money savvy. It certainly wasn't taught in school

 

[DanTheMan]

Looking at it from a purely logical approach, historically you'd have made money keeping your mortgage over as long a term as possible and investing the rest. Even if you just picked an index linked tracker with low risk, you'd be up.

In reality, most people don't have the risk appetite to do it long term (me included) and it doesn't factor in potential risks such as job losses that come with inevitable economic downturns.

I'd be terrified if I'd fixed my mortgage over 35 years and invested the rest, only for investments to lose a big chunk and also have a decrease in income.

 

[413x]

Looking at it from a purely logical approach, historically you'd have made money keeping your mortgage over as long a term as possible and investing the rest. Even if you just picked an index linked tracker with low risk, you'd be up.

In reality, most people don't have the risk appetite to do it long term (me included) and it doesn't factor in potential risks such as job losses that come with inevitable economic downturns.

I'd be terrified if I'd fixed my mortgage over 35 years and invested the rest, only for investments to lose a big chunk and also have a decrease in income.

The index tracker is probably the most sensible for most.

It's low risk and a decent reward.

Crypto and individual shares is obviously high risk and don't blame people for avoiding that. But piling everything into mortgage is a bit cautious.

 

[Trifid]

As you say, it's a bigger potential risk if you have a lot more outstanding and a worse LTV. If I owed £300k+ I'd probably be more inclined to bring down the mortgage balance sooner.

I agree. I think loan to salary is the key decider. I felt a bigger need to bring my mortgage down when it was 4x salary. Now it is 2x I feel really comfortable with it.

I think I was looking at it with a lack of financial discipline too. I could see many people not always investing the full amount difference and spending it instead.

Investing in general needs to align to your life goals for it to be considered a good idea and investments, losses and diverting cash elsewhere can never be at the sacrifice of your family stability.

There's definitely a big difference between the logical choice and the realistic choice for many of us though.

Being in a fortunate position of having spare cash to overpay the mortgage is not a realistic choice for many and we should all have that in mind.

Surely most people have more than 20% invested monthly in their home and certainly their home makes up more than 5% of their investment portfolio long term.

I'd argue your home is not investment, but a necessity. And the 5% thing doesn't work in many investment scenarios, such as ETF or index trackers.

Interesting thread regarding the investments.

I take a different view and want the house bought and paid for ASAP with minimal to no risk so I can retire sooner and enjoy the finer things in life.

Ironically, this is exactly why I started investing. I wanted to build up the compounding growth of my investments sooner rather then later. The thing to remember is what your personal goals are. I'm not adverse to debt as a tool but it really depends on weighing up all factors. I'd be lying if I said I hadn't (and still don't) contemplate paying off my mortgage in full, it would actually allow me to open up an additional pension (SIPP) with the freed up cash and make use of the tax benefits of this.

 

[IvanDobskey]

I guess it all depends on what your money will be doing if you don't use it for overpayments. Mine would just be sitting in my current account doing nothing. So it makes sense for me to overpay. Since buying our current house, I've managed to get the monthly payments down from £460 to £370. So an extra £90 a month in our pockets.

 

[Psycho Sonny]

I guess it all depends on what your money will be doing if you don't use it for overpayments. Mine would just be sitting in my current account doing nothing. So it makes sense for me to overpay. Since buying our current house, I've managed to get the monthly payments down from £460 to £370. So an extra £90 a month in our pockets.

It's not doing nothing though in that situation it's providing some security in terms of should a bill bill arise from a car repair or roof leak or boiler exploding.

However that money is at the mercy of inflation and being devalued constantly.

 

[BennyC]

I guess it all depends on what your money will be doing if you don't use it for overpayments. Mine would just be sitting in my current account doing nothing. So it makes sense for me to overpay. Since buying our current house, I've managed to get the monthly payments down from £460 to £370. So an extra £90 a month in our pockets.

If you can achieve a higher return investing your overpayments as opposed to giving them back to your lender, it's worth considering.

Typically it's not difficult to make +5% annually using low cost, lower risk Funds. The value will fluctuate but overall you should come out on top and have that cash (relatively) liquid should you ever need it.

 

[john_smith]

If you can achieve a higher return investing your overpayments as opposed to giving them back to your lender, it's worth considering.

Typically it's not difficult to make +5% annually using low cost, lower risk Funds. The value will fluctuate but overall you should come out on top and have that cash (relatively) liquid should you ever need it.

for a complete novice where would you start if looking for a low risk +5% fund?

thank you.

 

[DanTheMan]

for a complete novice where would you start if looking for a low risk +5% fund?

thank you.

Look at index funds like 'Vanguard lifestrategy 80' or 'Legal & General International Index Trust - Class C'. They are relatively low risk

They aim to track the underlying index ie Dow Jones, FTSE 250 etc. They don't charge extortionate amounts because they don't need to be constantly adjusted by fund managers who take a big cut.

 

[john_smith]

Look at index funds like 'Vanguard lifestrategy 80' or 'Legal & General International Index Trust - Class C'. They are relatively low risk

They aim to track the underlying index ie Dow Jones, FTSE 250 etc. They don't charge extortionate amounts because they don't need to be constantly adjusted by fund managers who take a big cut.

Thank you. Can these be used inside an ISA and would you recomend a certain company to use? The Vanguard scores 5 9out of 7) on risk

 

[john_smith]

I'm at 2.14% fixed till Nov 2024. I've been overpaying approx £500/month.

 

[DanTheMan]

Thank you. Can these be used inside an ISA and would you recomend a certain company to use? The Vanguard scores 5 9out of 7) on risk

They can be invested in within a stock and shares ISA, yes. It all depends on your situation as to where to invest. It may be worth speaking to a financial adviser and have a think about what you financial goals are to try and narrow down the level of risk you're prepared to take on.

I can't recommend a specific company to use as I don't have a lot of experience with them outside Hargreaves Lansdown. Vanguard's own ISA accounts also get recommended a lot.

Maybe ask in this thread: https://www.overclockers.co.uk/forums/threads/trading-the-stockmarket-no-referrals.17994081/page-911

 

[john_smith]

Thanks Dan