Investment & Investing

We've managed to save some money in the last couple of years, so is it worth over paying the mortgage in a lump sum?

Dunno, but my sense is that in a situation where governments (US / UK particular) are basically printing a fuck load of money and a lot of it is finding its way in to asset prices and stocks / shares, it seems a bit silly and borderline dangerous to take money that you could invest and get 1.8% on it by paying down your mortgage, should there be inflation to match.

Make mortgage overpayments then pull them back as you go along?

Hmm, that's an idea, but that wouldn't use up all of it (without incurring early repayment charges), so I'd still have some to go into premium bonds.

Yeah the limit we can over pay in a year is 10% without a fee. How does paying a big chunk off work when we re-mortgage? Do we just transfer the debt to another/same bank minus the extra money we can now pay in cash?

Realistically we might want it in 3-5 years and with my limited understanding we would be exposing ourselves to short term fluctuations in the market. Could you explain what you mean by "should there be inflation to match"?

Over three years:

Asset prices go up by 20%
Fairly easy to buy in to stocks / shares / indexes by 15%
Food / gas / elec by 10%
Your pay does not increase
You get 5% say by paying down your mortgage

[removed rubbish advice]

Wouldn’t you achieve slightly better results by overpaying each month and using the surplus (lols, who has surplus money?!), plus the monthly overpayments to reduce term at remortgage time. The capital is paid off quicker so you pay less interest.

People on here keep telling me my logic is flawed, but it seems like it’s one of the safest ways to ‘grow’ your money, by not ‘spending’ it on long-term interest.

It's a bit flawed.

If you've got the money and you're earmarking it to pay a lump sum later then you may as well overpay as you go. That way you're reducing the interest throughout the term rather than just in chunks every 2/3/5 years.
This assumes you're allowed some overpayments. Most do allow some.

If the mortgage is 1.8% then any way of saving that lump sum and earning more than 1.8% (riskier certainly, but historically not too tough to find) would make you more money than you're spending on the extra interest, so even though you'd spend lots on long term interest, you'd earn that plus some more on the investments.

Mortgage advisor was saying he takes out interest only then puts what he would have paid as capital repayment into ETFs like S&P500 which generally give a pretty reliable rate of return (even if you look at the drop last march/april he will still be up over period).

Yep, I think if you’re disciplined enough to actually save the difference then it makes sense

Over the long term index have historical performed well especially if your drip feeding in.
Remember the ftse100 index is roughly were it was at the height of the dot com bubble in 1999. So nil capital gains for a lump sum invested then.
Dividends are the key especially when compounding would have roughly doubled your return in that time but it is over 2 decades.
And also dividends are not consistent they often get slashed/halted during down turn or recessions, and should not be relied upon.
Consistently drip feeding in capital and sheltering from tax (via isa or pension) are key to index investing for most people.

Edit: putting into a foreign index also puts in currency risk. S&p 500 is priced in USD

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Then the optimum arrangement for the rainy day fund would be an offset mortgage. That way the rainy day fund is still doing its work reducing your interest payments, but is always available.

If I could port my current mortgage (which is interest-only, and we manage the repayment portion separately) to a fixed rate interest-only offset mortgage it'd be perfect, but my current mortgage provider (Santander) doesn't offer one of these, and the chances of getting a new interest-only mortgage are very slim.

I am too millennial to have a mortgage but isn't there a product where you put your savings in some kind of linked account? And then the bank will use that to offset your interest? It achieves the same thing as overpaying except it's reversible so you can take the cash out again if you need it.

So say you had £100k mortgage and £50k in cash - you only pay interest on the remaining £50k. If you had £100k in cash, you'd pay no interest at all.

Yes, I'm right, this is a product and it's called an offset mortgage

Pretty brilliant really, everyone needs some emergency savings obviously but you're not going to get 1.8% interest, easy access and zero risk anywhere else

would make you more money than you're spending on the extra interest, so even though you'd spend lots on long term interest, you'd earn that plus some more on the investments

Yes. The ‘overpay your mortgage’ is kind of residual advice from when interest rates were 5% and the rest. In low interest rates / significant inflation situations you would do better to invest as there’s a chance you won’t come out poorer.

Especially as the time and mental energy required to do all of the admin required is not insignificant.

Last time I worked it out faffing around with all of it myself was looking like it could save me about ~£4k over the remaining life of the mortgage. Sounds a lot, but that's spread out over ~8 years in my case and ends up being less than two months mortgage repayments. Do I care whether my mortgage ends in Sep 2029 or July 2029. Right now not really.

Completely agree there was a time where on average over payment of £50 pm knocked 2 years off your mortgage term, and it doesnt seem too long ago.
That no longer applies in the low interest environment.
Off setting is effectively paying off your mortgage temporarily and as such the return on cash is the mortgage rate which by default is quite poor right now.

I paid off my mortgage. I don't have the time or energy to watch markets and shit like that and I don't really care about earning money (I need it, sure, but like, so long as I can do what I want it's just a hassle managing it).

What I appreciate now is not having a chunk of cash disappearing every month and my place is my place. Maybe I could've invested and made more money and paid it off but then what if I had done that? My money would've be invested in shares or some bollocks when Covid hit and how much would I have lost?

FIRE UK- Financial Independence Retire Early:

https://www.reddit.com/r/FIREUK/

Lots of smugness, some of it is interesting.

You don't retire early though, do you? You're "working" dealing with your shares and shit.

Covid hit and how much would I have lost?

Mine are all up 30% or something - largely because there’s loads of free money sloshing around and people with nothing better to spend it on than dick around with shares and whatnot.

Also: managing your own affairs > working for some bunch of dicks

The idea is you get your financial ducks in a row (long) before you retire so then all that's needed is an annual rebalancing of your portfolio, which is largely in funds to avoid having to deal with individual stocks.

That's the theory anyway.

I kinda like my job and I very much dislike staring at share prices. Whatever floats your boat I guess. But then I did get into bitcoin years ago so maybe I'm just a fucking genius investor?

Isn't that essentially what I'm doing with a pension fund though? The fact I paid off my house means pretty much whatever happens, I have a roof over my head. I look at it as pretty sensible, low-risk future-proofing.

I'm the last person you should be talking to about pensions tbh... You're mortgage free relatively early in life so probably doing better than a lot of us!