Advice needed on investing vs savings / mortgage

Dick Swiveller · Mar 16, 2017

mejonaNO12 aka riskit said:
I'm a bit of a THICKO so apologies if my question is a stupid one but can you explain that to me? my rate is fixed for 10 years. No matter how much I overpay now, I won't see a monthly benefit unless I remortgage?

It is unlikely you can overpay on a fixed mortgage. But regardless, by over paying you are paying off the capital rather than the interest which a lot of your monthly payments go towards on a repayment mortgage. Less capital means less capital to pay interest on. Although you pay a set amount per month over the term of the mortgage (assuming no change in interest rates), the amount that goes towards paying interest and the amount the goes towards paying off the capital shifts over time. At the start, you are paying interest on the whole amount of your loan and towards the end, you are paying a lot less interest so pay more off the capital. That is why your amount to repay goes down slower at the start and quicker at the end. The amount of interest you pay each month is calculated on the amount you have left to pay. The smaller that amount, the less interest so the more of your monthly payment goes towards paying off the capital.

That's my understanding, anyway. As I say, I am no expert.

Fungus · Mar 16, 2017

mikeyjh said:
The rate is fixed on the capital that is reducing every time you make an overpayment, therefore your monthly payments will reduce, and they reduce quickly. As Oxy mentioned, paying off your mortgage is hugely liberating. We paid off our £250k mortgage a few years back after 8 years, that's 17 years of interest avoided, if I recall correctly that saved us 100k plus.

Jeez, how much would you have to invest to "make" £100k any other way?

Springal · Mar 16, 2017

mejonaNO12 aka riskit said:
Secondly I saw the Share Centre mentioned.

If I'm happy to go for "higher risk" but have literally no knowledge of the markets/investments, is there the option to send a monthly payment into an account which is automatically invested on my behalf?

I'm really coming across as a DULLARD here.

You chose your aim / risk profile - which is a choice of 3, pay your money in and that is it. They manage the portfolio and investments and you see what happens. Literally nothing to do

Fungus · Mar 16, 2017

Springal said:
You chose your aim / risk profile - which is a choice of 3, pay your money in and that is it. They manage the portfolio and investments and you see what happens. Literally nothing to do

What would be the minimum reasonable investment period for a cautious old man?

Thunder Bolt · Mar 16, 2017

You could always look at an offset mortgage account.

http://www.moneysavingexpert.com/mortgages/offset-mortgage-calculator

Biscuit · Mar 16, 2017

mejonaNO12 aka riskit said:
I'm a bit of a THICKO so apologies if my question is a stupid one but can you explain that to me? my rate is fixed for 10 years. No matter how much I overpay now, I won't see a monthly benefit unless I remortgage?

Fixed for 10 years?! I've never done it for longer than 2 but fair play!

At the end of your fixed term you will need to get a new mortgage deal. If you don't, you'll be moved over to Standard Variable, which in my experience has always been ludicrously expensive. So you get a new deal, and you can pick fixed or variable and pick the option that suits you best. When you negotiate your new mortgage deal, you look at what's been paid off, and how much your property is now worth to work out the equity. Your house will be valued and then a mortgage is offered depending on affordability. Does that make sense?

So when my first fixed rate finished after 2 years, I switched to a new variable mortgage which meant the mortgage became cheaper, and I was paying less interest on the capital. Double win. If you can over pay a little each month I'd recommend it as every pound you pay off is paying down the capital, not the interest. If you're currently on a fixed mortgage, it's unlikely your bank will allow over payments.

On the share centre comment, you are essentially paying someone to invest your money. They take a cut, but you in theory benefit from their experience. I looked into this and peer-to-peer lending but decided against both for different reasons - but then I'm pretty risk-averse,

BBassic · Mar 16, 2017

I knew this topic would help, thanks to all for the advice.

hans kraay fan club · Mar 16, 2017

Dick Swiveller said:
It is unlikely you can overpay on a fixed mortgage.

Biscuit said:
If you're currently on a fixed mortgage, it's unlikely your bank will allow over payments.

Check the details.

I've just fixed for five years, and we are still allowed to overpay, by up to 10% of the balance, per year, as long as we don't pay the whole thing off completely before the end of the fixed term (we won't).

Biscuit said:
So when my first fixed rate finished after 2 years, I switched to a new variable mortgage which meant the mortgage became cheaper, and I was paying less interest on the capital. Double win. If you can over pay a little each month I'd recommend it as every pound you pay off is paying down the capital, not the interest.

Switching to the new fixed deal, together with paying off a modest lump, brought our monthly payments down by £130.00, if we kept the end date the same. We COULD have kept the monthly payments what they were, and brought the end date forward, but what we did instead is to leave the end date, and keep the monthly COMMITMENT at the new lower level, but set up a standing order to overpay a 'spare' £100 per month - thus bringing down the balance quicker but we can cancel that at any time if we need to.

Seagull · Mar 16, 2017

Pay off the mortgage unless as [MENTION=19156]warmleyseagull[/MENTION] says you want to use a bit of that cheap mortgage borrowing that you already have to earn more in investments. Remember to factor in tax if those investments are taxable. Money saving expert has some good advice on the subject: http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

virtual22 · Mar 16, 2017

If you are planning on paying off the mortgage early by making extra payments make sure the lender will let you have them back if you need them. Whilst everything is great now you never know whats around the corner and if you repay some off the mortgage, then you hit hard times you might not be able to get that money back without having to go through the financial assessment process (which as you're in harder times won't be anywhere near as friendly as now).

A lot of lenders I know of will allow you to withdraw over payments without asking any questions, they almost keep it separate account linked to the mortgage, but make sure you check.

Tricky Dicky · Mar 16, 2017

mikeyjh said:
The rate is fixed on the capital that is reducing every time you make an overpayment, therefore your monthly payments will reduce, and they reduce quickly. As Oxy mentioned, paying off your mortgage is hugely liberating. We paid off our £250k mortgage a few years back after 8 years, that's 17 years of interest avoided, if I recall correctly that saved us 100k plus.

I've not worked out how much it saved me, admittedly I was lucky with market timings etc. not skill or judgement,but I paid £280k for my house, had a One Account flexible mortgage and paid it off in 5 years. House is now worth £800k. So, that's about 20 years of mortgage payments saved, I guess.

trueblue · Mar 16, 2017

Personally I would overpay the mortgage. Followed by 'spare' cash (if there is some) into a pension because of the tax benefits i.e. Money that's not affecting my current lifestyle ... any left over, hold some for a rainy day in a cash ISA, otherwise a stocks and shares ISA for long term (though not guaranteed) gain.

mejonaNO12 aka riskit · Mar 16, 2017

Biscuit said:
Fixed for 10 years?! I've never done it for longer than 2 but fair play!

At the end of your fixed term you will need to get a new mortgage deal. If you don't, you'll be moved over to Standard Variable, which in my experience has always been ludicrously expensive. So you get a new deal, and you can pick fixed or variable and pick the option that suits you best. When you negotiate your new mortgage deal, you look at what's been paid off, and how much your property is now worth to work out the equity. Your house will be valued and then a mortgage is offered depending on affordability. Does that make sense?

So when my first fixed rate finished after 2 years, I switched to a new variable mortgage which meant the mortgage became cheaper, and I was paying less interest on the capital. Double win. If you can over pay a little each month I'd recommend it as every pound you pay off is paying down the capital, not the interest. If you're currently on a fixed mortgage, it's unlikely your bank will allow over payments.

On the share centre comment, you are essentially paying someone to invest your money. They take a cut, but you in theory benefit from their experience. I looked into this and peer-to-peer lending but decided against both for different reasons - but then I'm pretty risk-averse,

Cheers mate.

Yeah we did a 2 year fix when we moved in 5 years ago. I then switched to a 3 year fix when that expired.. After that I fixed for 10 with the rates so low. Also the property was worth more so my LTV was much better and lowered our repayments greatly.

I am allowed to overpay but I don't think my monthly payment will drop when I do. My capital will drop dramatically but I don't believe my payments will fluctuate because of it.

I think I was confused by the concept of my mortgage payment fluctuating as I know it is completely fixed (which I wanted)

Uncle Spielberg · Mar 16, 2017

A few points, most mortgages allow 10% of the capital to be repaid each year without a penalty, the issue with longer term fixed rates 5 years plus is there are usually large penalties for paying the mortgage off for that period so if life throws you a curve ball and you have to sell up that could be up to £ 10k on a £ 200k mortgage, the Barclays offset mentioned is an option to link savings to the mortgage balance, the nationwide 2.5% is good but there are rates well below that now, although you will need to check the revert svr after the initial rate, generic info

bhanutz · Mar 16, 2017

Uncle Spielberg said:
A few points, most mortgages allow 10% of the capital to be repaid each year without a penalty, the issue with longer term fixed rates 5 years plus is there are usually large penalties for paying the mortgage off for that period so if life throws you a curve ball and you have to sell up that could be up to £ 10k on a £ 200k mortgage, the Barclays offset mentioned is an option to link savings to the mortgage balance, the nationwide 2.5% is good but there are rates well below that now, although you will need to check the revert svr after the initial rate, generic info

Wont be called the Nationwide for much longer!

Lower West Stander · Mar 16, 2017

Another vote for paying off the mortgage here. I would also argue that investing in shares is inherently high risk given stock market volatility. Advisors tend to forget this in the good times but look at what happened in 2008. If you do go down this route I'd look at Terry Smith's fund. Large cap and yield stocks with great performance.

As everyone on here has said though, the amount of interest you save even with small pay downs is significant. I paid my mortgage off this way similar to others.

Sent from my iPad using Tapatalk

Mr Bridger · Mar 16, 2017

I had about 7k in ISA doing feck all and mange to pursued the wife to invest in one of these for £6500.

4 years later I'm seeing these being sold from between £10-15k. So I'm actually enjoying my ISA and the grandkids love it when they come round. With the resurgence of vinyl and the fact it was made in 1961 and in top notch condition I'm on to a winner.

bhanutz · Mar 16, 2017

Lower West Stander said:
Another vote for paying off the mortgage here. I would also argue that investing in shares is inherently high risk given stock market volatility. Advisors tend to forget this in the good times but look at what happened in 2008. If you do go down this route I'd look at Terry Smith's fund. Large cap and yield stocks with great performance.

As everyone on here has said though, the amount of interest you save even with small pay downs is significant. I paid my mortgage off this way similar to others.

Sent from my iPad using Tapatalk

Are you a qualified investment adviser?

dazzer6666 · Mar 16, 2017

Lower West Stander said:
Another vote for paying off the mortgage here. I would also argue that investing in shares is inherently high risk given stock market volatility. Advisors tend to forget this in the good times but look at what happened in 2008. If you do go down this route I'd look at Terry Smith's fund. Large cap and yield stocks with great performance.

As everyone on here has said though, the amount of interest you save even with small pay downs is significant. I paid my mortgage off this way similar to others.

Sent from my iPad using Tapatalk

No need to argue....it is ! There is virtually no way anyone will invest and earn better than mortgage rates without taking some capital risk. As others have said, a quickly diminishing and then paid off mortgage is very liberating.

The Fundsmith equity fund has performed fantastically well - I put some dosh in it in September 2014 for the first time, that's about 75% up on today's valuation.

CheeseRolls · Mar 16, 2017

mejonaNO12 aka riskit said:
I'm a bit of a THICKO so apologies if my question is a stupid one but can you explain that to me? my rate is fixed for 10 years. No matter how much I overpay now, I won't see a monthly benefit unless I remortgage?

This spreadsheet is well worth downloading; http://www.locostfireblade.co.uk/spreadsheet/Index.html
as discussed on moneysavingexpert.com here http://forums.moneysavingexpert.com/showthread.php?t=1157173

Input the key information and you will be able to see on a month by month basis, how much interest and how much capital you have paid off. There are then several different ways you can run scenarios, either use mortgage 2 and compare or play around changing overpayments interest rates etc.

Once you have got the hang of it, you will quickly see the benefits of overpayment. It really helps to visualise it.

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