I paid my mortgage off in 2015. At the time, my then manager said to me, "No-one EVER regretted paying-off their mortgage early". I've never heard anyone contradict that.
Hi Pete, a very timely update. I’m 63 with 11 years left on our mortgage, moved 6 years ago taking on a 17 year mortgage at 2.19%. We overpaid on this and I was paying larger amounts into my pension as I was earning well ( for me anyway) and bonuses etc split between treats, pension and mortgage. I remortgaged just as rates started to rise 5 years at 1.29%, but importantly our over payments meant we only owed half of the original amount, net result payment was £370 a month less. Needed to do this as lost job in covid and new job 50% of previous salary. So when you look at overpaying it has a second advantage in reducing your payments as the mount being borrowed is lower than the original loan. My wife’s contribution is used as an overpayment, so when we retire we could either pay it off or just keep the mortgage going ( very likely) and use our pension cash to enjoy our lives. The funds I freed up by reducing the mortgage payment I invest but into my pension as every £1 I put in I get £1.25 into my pension pot, that gain beats any thing else out there and as I am Only a few years away from retirement. While my interest rate is so low on the mortgage every £ overpaid is almost taking a pound of the capital amount. As you showed paying the mortgage off early and then investing all of the now free cash builds up very quickly.
Surely it depends on your particular circumstances, risk appetite and time of life. In crude terms, when you are young it usually pays to invest rather than overpay a mortgage. You have enough time to weather any peaks and troughs in the economy and can expect to see a better income over decades. But when you are older and closer to retirement, it can be better to overpay the mortgage or pay it off, because then you aren't so vulnerable to short term movements in your investments. And in middle age you can do a bit of both. I suppose it's a variant on the idea of shifting gradually from stocks to bonds as we get older. We should aim to transition from high risk/ high reward to lower risk/ less worry. There's a lot to be said for working to get peace of mind. You don't worry so much about investments if you plan to hold them for a long time. And you don't worry so much about interest rates increasing if you've paid off your mortgage. Which is better - invest or overpay? Don't know and don't care. I've done both over my lifetime and I'd do the same again.
You should do both and use the money saved in investments to pay off a significant amount of mortgage at the end of the low interest term. I have used a series of 5 year fixed deals to secure the best interest rate. At the same time I have saved into an investment account then at the end of the 5 year term used the money saved to make a large payment against the mortgage. The new mortgage repayment is then much lower and when I renewed last time I was saving an additional £350 per month compared to my previous deal that I was able to use to add to my investment savings. When this mortgage deal at 1.9% ends in September 2024 there will be about £40k outstanding on the mortgage. Rather than go on another fixed deal at a much higher interest rate I should have enough money saved to pay the mortgage off in full. The trick to major savings is shortening the mortgage term rather than being committed to a mortgage or investments for the full term. In your example you use a 20 year term. Reduce it to 15 or even 10 years and you will save much more money particularly so as interest rates go up to 5% and beyond over the coming months.
🤔 interesting. I’ve got three years left at 1.72%. I won’t be seeing that again. I’ve got 189k to pay off with twenty years to go. I’m currently in a job that is giving me the chance to overpay. Maybe 500 here or 100 there, but I’m making a concerted effort to get as much as I can off the total before my three years is up. Should I go for the shorter term when the three years is up? It would be good to drop the payment substantially after the term is over, like you have.
Im hedging my bets for now. In 3 years time my mortgage deal will be up (currently 1.41%). In the meantime, I'm keeping money in cash in the highest interest rate accounts i can find (tax is not ideal!). Will see if it makes sense to pay it off when the mortgage deal expires.
Great video as ever, Pete. Thank you for all the advice over so many years. Really helped me sort out my finances several years ago by introducing the Ramsey baby steps. Keep up the good work
My mortgage was 2% and my investments were making 8%, so I decided to keep investing. Since the rises my monthly mortgage payment has now gone up to £250 so not much really, I'm 52.
Good video, as always. The increase in electric/gas bills of 100% has wiped out majority of my disposable income. Hope you are on the mend health wise.
Great video! I thank myself for never giving up even when it was very hard I kept pushing through until I made it out. My advice is that If you do your own investing, have you ever thought whether you should turn things over to a financial advisor? If you have significant assets, you have probably felt anxiety when making choices with your money. Perhaps you sensed that you might make better investing decisions if you knew just a little more and could invest without emotion. If this is the case, consulting a financial advisor makes perfect sense.
Hey Pete. Welcome back. Glad you’re feeling better. When it comes to property I’m old school; securing the roof over your head is a priority. Before he passed away my dad was forced to move in his 70’s from his privately rented bungalow because his landlord unexpectedly passed away and the beneficiaries of the estate wanted the cash. He found moving really stressful at that time of his life. The sad thing is that my dad once owned his own property but decided to sell it and use the money to supplement his pension income, something I’m not sure he had to do!
I overpaid my mortgage and have been mortgage-free since 2009. I now invest. TBH, I didn’t know there was the option between the two at the time. Glad you’re feeling better!
Hi Pete, great video. Could you do a comparison between paying into your pension via salary sacrifice or paying off your mortgage? Mortgage payments will be with post tax income so if higher rate tax payer it might make sense to pay into your pension? Even a basic rate tax payer retains approx 32% of their salary if paying into their pension with salary sacrifice.
Overpaying a Mortgage is a no brainer, shit hits the fan with the economy and or work, at least one knows the nest has no monthly instalment to pay.. investments & property go up & down, no one can time it, with the mortgage paid off or overpaying reducing the term gives one peace of mind...
Very informative and clear. Despite the logical investment approach personally the emotional element was a stronger pull. The feeling of being mortgage free is difficult to put into words but a decade on I still feel it was the best decision for me. My property is my home not a means to make money. 😋
I can really see the benefit of overpaying, simply the peace of mind. Investing does carry risks, but investing right now when many share prices are low could mean a decent gain when eventually stock markets recover. Investing in a stocks and shares ISA would mean being able to cash the gains in and not pay tax on those gains. You could cash in some or all of the gains and then use the money to pay off part of your mortgage. Does that make sense??
Reducing Risk is key. When you have seen mortgage rates hit 15% in the 80s you know that paying the mortgage off and being debt free is a very appealing factor.
I bet the opinions differ wildly between those who are old enough to have experienced 08 and those that aren’t. The amount of younger buyers lapping up 40 year terms and saying interest rates will get back to normal soon, worrying. The answer is both, but the weighting needs flexibility. So many variables in the equation right?
Excellent as ever, Pete. Have the advantage of an offset mortgage and this has helped convince me that putting the extra into an offset pot where it's still accessible is the right approach.
You have a caveat for US long term mortgages at 4:00 in. However the bigger difference for US homeowners is that the mortgage interest on your primary residence is a tax write off, which makes investing more rewarding and the bigger mortgage you have the bigger your tax write off. This is why many cash rich US billionaires also have large mortgages. Sadly no such policy available in the UK.
Always appreciate your emotion consideration. I get the 20 year comparison but I personally stick to the predicable, and that’s my fixed rate mortgage period.
It seems like mortgage rates will drop, even if it takes a couple of years. You may reduce mortgage interest at 5% now but in 2 years time that may be 3%, so miss growth on that £6k at 2% for next decade Would like to see thoughts on interest only mortgages and investing to beat repayment. Higher risk but higher reward? Edit: interesting video, did enjoy.
It's all guesswork I suppose. I've seen plenty of folk speculate we'll see low investment returns ove the next decade. Nobody really knows... As always, diversification is probably the way to go
I agree and I do both. I left a comment in the main section. The great thing about paying off a large sum at the end of the fixed term deal is that you have a lower monthly mortgage repayment on the new deal and the extra savings can then be added to your investment savings account. I find this to be better than over paying each month as you then also have a pot of savings available if it’s needed in an emergency.
Hi Pete, great video as ever! Just wondered what your thoughts about not overpaying mortgage and letting inflation chip away at it over 20-30 years? My thought is, inflation would reduce the value of money and hence of the debt this would then make it easier to just pay off as a lump many years in the future? Am I on the right lines?
An aspect I would be interested to hear your views on, and forgive me if I have missed something. At present, I’m fortunate to be in a fixed mortgage at at rate of 1.8% and I’m making overpayments. My logic is that the interest being charged (though at the ‘low’ rate of 1.8%) is more than the amount I would make on any invests due to the amount outstanding on the mortgage is much more than anything I would be investing. So it make more sense to make overpayments on that basis. Is this a good way to look at it or am I missing something? Interesting video.
This is not how it works. The interest saved is on the overpayment you have made, so the overall mortgage balance is irrelevant. For example, if you overpay by £1000, you save £1000 X 1.8% per year (£18). You have to ignore your total balance, it's not relevant. The video gave similar example. Given you can get 4% easy access savings, you'd be better off saving the money then paying off as a lump sum at the end of your fixed mortgage term. Congrats on your low rate BTW!
Pete, when I review this, do I base thte mortgage on the 1.5% i currently pay with 4 more years to go, or take a longer term view on this and base it on the current interest rate that I eould likely be paying? Obviously atm its better to £-cost-average into my pension, and LISA and standard S&S ISA, but overpaying starts to stack up a lot more if I use a current rate. Or maybe I pay my mortgage by the amount I would be paying at the current interest I would be on if I remortgaged now? There is as much psychology as there is maths in it I think. Also I have £50-60k to spend on the house, which should add £100k, so maybe just save up for that as it will potentially give the best ROI and make the place I live much nicer.
What are your thoughts about using money held in stocks and shares ISA which is at a low, to pay off some of the mortgage debt? I understand I would be locking in recent losses but I’m not sure there are going to be many gains over the next few years.
Depends when you think you'll want to access the money. Do you have adequate pension provisions already? Do you need an early retirement fund? Do you have an emergency fund? So many variables
Great video Pete. Although we paid off our mortgage nearly 15 years ago. The trick we used was a variation of overpayment, our lender only allowed a 10% over pay every year. So every year we set the amount we wanted to pay (including the 10%) and went to the lender as asked to reduce the term to match our payments. We went from a 20 year mortgage to 18, years, 15 years, 8 years, 5 years after that we were lucky to get a good bonus and cleared the mortgage after only 6 years will no fees
Very useful as always. However, there is a third way: the offset mortgages offered by a number of banks. You can overpay into the offset account and reduce interest as you do so. Then it is still accessible in case you need it, but you still get the guaranteed mortgage interest saving. Only downside is that the interest rates on these mortgages are a bit more expensive - you do pay for the flexibility it provides.
Most people don’t know they’re an option. I get a feeling of security from the thought of the funds still being accessible but acknowledge with rates where they are, people want to reduce their costs.
Hi Pete, any advice for a first time buyer on an optimum level of deposit as a percentage, ie would you rather put down a lower deposit in order to keep money in the stock market or would you put as much down as a deposit?
I paid my mortgage off in 1995 and lived it up a bit (aged 34) then bought more properties in 2006. Just about a gentleman of leisure now. I've never owned a share of anything.
Great video. On point your didn't discuss is pension tax relief. If you are few years from retirement - the invest option is much stronger especially if you are 40,% tax payer.
i am so worried about the world i have gone liquid 100 percent on my ISA funds and i am a property investor with levarage and i have worked out that the cash i use to pay dowm my BTL mortgages will make me 12.5 percent i am not changing my pension funds as i dont need the funds yet but i think we are in a very risky place with the stock market As a BTL investor inflation is my freind as a stock market investor its my enemy I will come back to the stock market but i am out for now am i wrong or right long term time will tell but a fixed rate 4.2% for five years looks good
Great stuff as usual, I confess that the guaranteed return of paying down debt against the uncertainties of investment returns is very compelling. If you take a potential 5% cost mitigation vs an investment return that might be around 6%, its an easy call for me. There is psychological value of chipping away at it over time too... it feels like progress at a time when investment markets might be a roller-coaster.
Hello. I'm new to this channel. I have a question. If ISA allowance already fully utilised. Then investment need to pay 20% CGT. On this case. Overpay mortgage should more make sense??
Am doing both. Need to overpay as my mtg term straddles into retirement and so aim to overpay (enough) before then. Have done enough but aiming to now double up. Overpay more and invest for retirement where i can withdraw and enjoy my money whilst giving the pension some more growth. All three pensions, investments (mainly ISA) and mortgage debt are my financial square
Overpay: Mortgage free in my 40s, a major step towards financial independence while I'm still young enough to do something with it. Invest: Wealthier overall, but I'll be in my 60s before I realise the full benefit. It's an easy decision for me. Overpaying (or saving to overpay) like a madman. I do still invest a bit though.
Thank you for the video. Honest question, do you NOT believe that the government will tax the hell out of private pensions eventually? Labour is already calling for it. If your pension exceeds what they deem "wealthy" people pension money, it will be taxed to hell... I honestly have 0 faith in the pension system, even the private one. I think we WILL be punished for saving money, as we now have "too much".
At 3:50 the most important reason for not paying off your mortgage early. I am currently reducing but not paying off my mortgage. Why? If in five years time I need an emergency payment, then it’s a good job I didn’t lock it away in repayment. I can get 6% in a building society by locking it away for three years. If I needed a loan or equity release that would be very costly. I can still overpay by 10% a year and pay a lump sum in the period between one fix agreement and the next. Santander are giving me a 21 day window to do so.
For me this missed the mark as a lot of people still on fixed rage mortgages below the interest they can get through a savings account SHOULD NOT be paying down their mortgage. The inflation impact is also devaluing the outstanding liability at the same time.
That is true if your wages keep up with inflation. Unfortunately this inflation cycle is driven just by rising prices, not wage inflation. I don’t know anyone who has had a pay rise this year that is remotely near the official inflation rate of 10%. In my humble opinion minimising the impact of higher mortgage interest rates in the future is more important. I will be paying off as much as I can at the end of my current fixed rate deal to reduce the hit on the next deal. As the BoE is saying today “we need to get used to being poorer” 😡
One thing to appreciate, is that if your mortgage rate is low, then your overpayment eats into the capital amount more than it does with a higher rate. Effect of this is that after your fixed rate term the amount owed is substantially less and as Pete said your LTV % is a lot lower so you get offered better mortgage rates.
Whilst I can see where you are coming from that the % saving when on a low fix means in the short term I see two factors why overpaying before your "cheap" fix ends. Firstly if you overpay by the difference between your current rate and what you would pay if you took out the new mortgage today then you'll be used to that much going to your mortgage. And secondly and in my opinion far more importantly the more you chip off it whilst it's cheap the less your monthly repayment is going to rise when your cheap fix ends! It probably works out better to shove it in high interest savings now and then paying in a lump sum on switching fixes though.
@@4shadsy as Pete has said in previous videos, there is an emotional aspect to consider. You can crunch the numbers and show sometimes it might work out a bit better to pay into a high interest bearing account for 3-5 years then pay the lump sum into the mortgage. Your partner may prefer knowing the money is going in straight away and emotionally that is more valuable. You also have a smaller amount ( your savings getting a better rate of interest ) V a large amount ( capital sum of mortgage) being charged a lower rate of interest. The then enefit of the capital amount having been reduced in the long te
I paid off my variable interest morgage in 1995. It felt good. I considered what if I become unemployed, inflation takes off and the interest rate exceeds 13% again?
I think theres potentially other reasons to pay down the mortgage . If you’ve recently purchased a property with a 5% deposit the rising interest rates could cause a dip in property prices and cause some people to be in negative equity when their fixed term ends leaving them with a potentially worse follow on rate. In terms of against saving for me personally, im only allowed to pay off 10% of my mortgage a year without incurring charges. Hopefully though i will have some room to do both!
When you say "invest" I assume you mean Stock and Shares ISA, right? Otherwise you'll have to pay taxes on your return on investment every time you withdraw money from it. Is that correct?
Unless you've used your annual or lifetime allowance then the tax savings of investing in a mortgage or other tax effective wrapper need to be factored into the calculations. Not clear from the video if this has been done. Pete?
Hi Pete, great video as always! is it worth considering offset mortgages again now that interest rates have risen? I’d be interested on your latest views (after watching your video from 4 years ago!)
Brilliant as always. I have 2 small mortgages on my house (90k at 1.9% for another 8 years still, and 50k just fixed a month ago at 4.75% for 5 years). I have a £100 a week savings/investment budget. I currently put £30 into my pension, £30 into my S&S ISA, £30 into my 3.5% easy access account and £10 overpayment
Oh! LOL I was wondering ... I didn't know that in the UK you don't take mortgages for a full term, but have to do a series of 5-year mortgages to get to a fully paid home. I was so confused for a few minutes there..😊
Following Dave Ramsey No debt (apart from mortgage), £6300 in emergency fund, Saving 15% into retirement, get 6% on top off that as Employer match No kids Any extra make money is going into paying off mortgage early
Good video, well presented.. covering a clients tax position would have been helpful and thus the ability to invest for a net 5% return. But nice video 👍
Given the atrocious performance of the stock markets over the last 2 years I think its a no brainer. Paying down the mortgage would always be my priority.
I don’t disagree with paying down your mortgage but the last two years of the stock market can tip the argument either way, depending on how you see it. Paying down mortgages and investing are long term activities. Some would argue that the poor performance of the last 18 months is even more reason to invest. I know I always felt pretty good about investing in ‘bad’ times, before I retired.
Depending on your age investing the extra into your pension gives it an immediate 25% boost as you get the tax back. That’s guaranteed and very protected money
I was lucky to lock my mortgage deal before interest rates started rising. I am curently on 5 year fixed deal with 1.14% interest. So I will definitelly not be overpaying the mortgage. More puzzling for me is: should I overpay my student loan debt where interest is now set at 5%? I guess it is best to retain flaxibility and keep the money in the bank rather than overpay. Especialy if interest on savings can offset interest on debt. If interest on debt is higher than interest on savings, then perhaps overpaying is not a bad idea but that depends on a lot of other factors/personal circumstances. For example, I would not be even thinking of overpaying if, first, I've not had built financial safety net in a form of emergency cash fund.
@Not Me not really. Let's say he's got 4yrs left on 1%. Mathematically in that scenario it would make more sense to invest the extra and if he wanted to could then pay down the gains from investment after the 4years are up?
@Not Me sometimes the emotional and security reassurance of overpaying is worth it for that alone. Also it's a guaranteed return. So do whatever makes you sleep better at night. It might not always be mathematically the best decision but when have you ever heard of anyone regretting clearing their mortgage 😉
My deal is ending in 2025, and IF the rates stay around the same, I will be in serious do do as I am currently on 1.45%. I am currently squirrelling away cash so I can pay a lump just before the deal ends. VERY tough times coming :(
Thanks for watching! I appreciate you!
I paid my mortgage off in 2015. At the time, my then manager said to me, "No-one EVER regretted paying-off their mortgage early". I've never heard anyone contradict that.
I paid mine of in December. Best feeling ever.
+1
Turns out you can buy peace of mind 😊
Yep. It just feels so good.
A lot of managers give financial advice it seems. Or is it just the managers of people who follow this channel ?
That peace of mind is attractive to me. Probably more so than a healthy stock portfolio.
What you’ve missed out is overpaying while the rate is low to reduce balance when the rate rises…
That’s the situation I’m in. 1.72%. In three years, god know what it’ll be.
Hi Pete, a very timely update. I’m 63 with 11 years left on our mortgage, moved 6 years ago taking on a 17 year mortgage at 2.19%. We overpaid on this and I was paying larger amounts into my pension as I was earning well ( for me anyway) and bonuses etc split between treats, pension and mortgage. I remortgaged just as rates started to rise 5 years at 1.29%, but importantly our over payments meant we only owed half of the original amount, net result payment was £370 a month less. Needed to do this as lost job in covid and new job 50% of previous salary.
So when you look at overpaying it has a second advantage in reducing your payments as the mount being borrowed is lower than the original loan.
My wife’s contribution is used as an overpayment, so when we retire we could either pay it off or just keep the mortgage going ( very likely) and use our pension cash to enjoy our lives.
The funds I freed up by reducing the mortgage payment I invest but into my pension as every £1 I put in I get £1.25 into my pension pot, that gain beats any thing else out there and as I am Only a few years away from retirement.
While my interest rate is so low on the mortgage every £ overpaid is almost taking a pound of the capital amount. As you showed paying the mortgage off early and then investing all of the now free cash builds up very quickly.
Mortgage free and an emergency supply for when things go south . It’s one less thing to have to worry about.
Surely it depends on your particular circumstances, risk appetite and time of life. In crude terms, when you are young it usually pays to invest rather than overpay a mortgage. You have enough time to weather any peaks and troughs in the economy and can expect to see a better income over decades. But when you are older and closer to retirement, it can be better to overpay the mortgage or pay it off, because then you aren't so vulnerable to short term movements in your investments. And in middle age you can do a bit of both. I suppose it's a variant on the idea of shifting gradually from stocks to bonds as we get older. We should aim to transition from high risk/ high reward to lower risk/ less worry.
There's a lot to be said for working to get peace of mind. You don't worry so much about investments if you plan to hold them for a long time. And you don't worry so much about interest rates increasing if you've paid off your mortgage.
Which is better - invest or overpay? Don't know and don't care. I've done both over my lifetime and I'd do the same again.
You should do both and use the money saved in investments to pay off a significant amount of mortgage at the end of the low interest term. I have used a series of 5 year fixed deals to secure the best interest rate. At the same time I have saved into an investment account then at the end of the 5 year term used the money saved to make a large payment against the mortgage. The new mortgage repayment is then much lower and when I renewed last time I was saving an additional £350 per month compared to my previous deal that I was able to use to add to my investment savings. When this mortgage deal at 1.9% ends in September 2024 there will be about £40k outstanding on the mortgage. Rather than go on another fixed deal at a much higher interest rate I should have enough money saved to pay the mortgage off in full. The trick to major savings is shortening the mortgage term rather than being committed to a mortgage or investments for the full term. In your example you use a 20 year term. Reduce it to 15 or even 10 years and you will save much more money particularly so as interest rates go up to 5% and beyond over the coming months.
🤔 interesting. I’ve got three years left at 1.72%. I won’t be seeing that again. I’ve got 189k to pay off with twenty years to go. I’m currently in a job that is giving me the chance to overpay. Maybe 500 here or 100 there, but I’m making a concerted effort to get as much as I can off the total before my three years is up. Should I go for the shorter term when the three years is up? It would be good to drop the payment substantially after the term is over, like you have.
That’s what I’ve done . My fix is ending the start of July which im paying off the mortgage this time.
I invest and overpay my mortgage at equal amounts. Best of both worlds. Hopefully be mortgage free in 8 years.
Im hedging my bets for now. In 3 years time my mortgage deal will be up (currently 1.41%). In the meantime, I'm keeping money in cash in the highest interest rate accounts i can find (tax is not ideal!). Will see if it makes sense to pay it off when the mortgage deal expires.
Great video as ever, Pete. Thank you for all the advice over so many years. Really helped me sort out my finances several years ago by introducing the Ramsey baby steps. Keep up the good work
My mortgage was 2% and my investments were making 8%, so I decided to keep investing. Since the rises my monthly mortgage payment has now gone up to £250 so not much really, I'm 52.
Good video, as always. The increase in electric/gas bills of 100% has wiped out majority of my disposable income. Hope you are on the mend health wise.
First timer watching ur video. Thought it was excellent, very clear and informative. Thank you! I’ve subscribed now!
Thank you, Nilar - great to have you with us!
Great video! I thank myself for never giving up even when it was very hard I kept pushing through until I made it out. My advice is that If you do your own investing, have you ever thought whether you should turn things over to a financial advisor? If you have significant assets, you have probably felt anxiety when making choices with your money. Perhaps you sensed that you might make better investing decisions if you knew just a little more and could invest without emotion. If this is the case, consulting a financial advisor makes perfect sense.
Hey Pete. Welcome back. Glad you’re feeling better.
When it comes to property I’m old school; securing the roof over your head is a priority.
Before he passed away my dad was forced to move in his 70’s from his privately rented bungalow because his landlord unexpectedly passed away and the beneficiaries of the estate wanted the cash. He found moving really stressful at that time of his life.
The sad thing is that my dad once owned his own property but decided to sell it and use the money to supplement his pension income, something I’m not sure he had to do!
I overpaid my mortgage and have been mortgage-free since 2009. I now invest. TBH, I didn’t know there was the option between the two at the time. Glad you’re feeling better!
Hi Pete, great video. Could you do a comparison between paying into your pension via salary sacrifice or paying off your mortgage? Mortgage payments will be with post tax income so if higher rate tax payer it might make sense to pay into your pension? Even a basic rate tax payer retains approx 32% of their salary if paying into their pension with salary sacrifice.
Excellent as always and your last comment hit nail on head 😂…..I do both ❤️
Overpaying a Mortgage is a no brainer, shit hits the fan with the economy and or work, at least one knows the nest has no monthly instalment to pay.. investments & property go up & down, no one can time it, with the mortgage paid off or overpaying reducing the term gives one peace of mind...
Very informative and clear. Despite the logical investment approach personally the emotional element was a stronger pull. The feeling of being mortgage free is difficult to put into words but a decade on I still feel it was the best decision for me. My property is my home not a means to make money. 😋
I can really see the benefit of overpaying, simply the peace of mind. Investing does carry risks, but investing right now when many share prices are low could mean a decent gain when eventually stock markets recover. Investing in a stocks and shares ISA would mean being able to cash the gains in and not pay tax on those gains. You could cash in some or all of the gains and then use the money to pay off part of your mortgage. Does that make sense??
Reducing Risk is key. When you have seen mortgage rates hit 15% in the 80s you know that paying the mortgage off and being debt free is a very appealing factor.
I bet the opinions differ wildly between those who are old enough to have experienced 08 and those that aren’t. The amount of younger buyers lapping up 40 year terms and saying interest rates will get back to normal soon, worrying.
The answer is both, but the weighting needs flexibility. So many variables in the equation right?
Excellent as ever, Pete. Have the advantage of an offset mortgage and this has helped convince me that putting the extra into an offset pot where it's still accessible is the right approach.
Another great video Pete. My strategy is: for every £100, overpay my mortgage by £10 and invest the rest into a stocks and shares ISA.
You have a strategy, that’s the point - nice work! 👊🏻
You have a caveat for US long term mortgages at 4:00 in. However the bigger difference for US homeowners is that the mortgage interest on your primary residence is a tax write off, which makes investing more rewarding and the bigger mortgage you have the bigger your tax write off. This is why many cash rich US billionaires also have large mortgages. Sadly no such policy available in the UK.
Always appreciate your emotion consideration. I get the 20 year comparison but I personally stick to the predicable, and that’s my fixed rate mortgage period.
Surely if you invest the money into a pension you also get tax relief on your investment? That's a big gain.
It seems like mortgage rates will drop, even if it takes a couple of years. You may reduce mortgage interest at 5% now but in 2 years time that may be 3%, so miss growth on that £6k at 2% for next decade
Would like to see thoughts on interest only mortgages and investing to beat repayment. Higher risk but higher reward?
Edit: interesting video, did enjoy.
It's all guesswork I suppose. I've seen plenty of folk speculate we'll see low investment returns ove the next decade. Nobody really knows... As always, diversification is probably the way to go
Glad you're feeling better Pete
Thanks Simon! 🙏🏻👍🏻
You read my mind! Thank you for this!
I aim to please - thanks for watching!
The answer is: do both! It can be done.
That’s the conclusion; I agree!
I agree and I do both. I left a comment in the main section. The great thing about paying off a large sum at the end of the fixed term deal is that you have a lower monthly mortgage repayment on the new deal and the extra savings can then be added to your investment savings account. I find this to be better than over paying each month as you then also have a pot of savings available if it’s needed in an emergency.
Thank you, very helpful.
Great video 👍🏻
Great content
Hi Pete, great video as ever!
Just wondered what your thoughts about not overpaying mortgage and letting inflation chip away at it over 20-30 years? My thought is, inflation would reduce the value of money and hence of the debt this would then make it easier to just pay off as a lump many years in the future?
Am I on the right lines?
Potentially yes. Inflation also works against investment returns, remember, so that’s a factor too.
Wage inflation is way behind price inflation, so for the time being at least I don’t think that this strategy will work like it did in the 1970’s
Only if you can guarantee your wages increase by the rate of inflation, for many that hasn't been the case
Should over-paying automatically reduce your mortgage term?
Didn’t here the word risk here. The investment risk is much higher than overpayment
An aspect I would be interested to hear your views on, and forgive me if I have missed something. At present, I’m fortunate to be in a fixed mortgage at at rate of 1.8% and I’m making overpayments. My logic is that the interest being charged (though at the ‘low’ rate of 1.8%) is more than the amount I would make on any invests due to the amount outstanding on the mortgage is much more than anything I would be investing. So it make more sense to make overpayments on that basis. Is this a good way to look at it or am I missing something? Interesting video.
This is not how it works. The interest saved is on the overpayment you have made, so the overall mortgage balance is irrelevant. For example, if you overpay by £1000, you save £1000 X 1.8% per year (£18). You have to ignore your total balance, it's not relevant. The video gave similar example.
Given you can get 4% easy access savings, you'd be better off saving the money then paying off as a lump sum at the end of your fixed mortgage term.
Congrats on your low rate BTW!
Pete - in this example m, assuming £200k fell into your lap and nothing else in your life changed, is the mortgage getting cleared that day?
Pete, when I review this, do I base thte mortgage on the 1.5% i currently pay with 4 more years to go, or take a longer term view on this and base it on the current interest rate that I eould likely be paying? Obviously atm its better to £-cost-average into my pension, and LISA and standard S&S ISA, but overpaying starts to stack up a lot more if I use a current rate. Or maybe I pay my mortgage by the amount I would be paying at the current interest I would be on if I remortgaged now? There is as much psychology as there is maths in it I think. Also I have £50-60k to spend on the house, which should add £100k, so maybe just save up for that as it will potentially give the best ROI and make the place I live much nicer.
What are your thoughts about using money held in stocks and shares ISA which is at a low, to pay off some of the mortgage debt? I understand I would be locking in recent losses but I’m not sure there are going to be many gains over the next few years.
Bad idea to crystallise losses! Treat this period as a stock sale and buy more as they are cheap, especially outside US.
I think the smart thing to do is invest.
I paid off my mortgage. 😂😂
Rates need to go to 10%, its as simple as that.
Not gonna happen though, right?
@@MeaningfulMoney Ha ha. 10% was normal for a long time.
Only if you want to destroy the housing market overnight and make everyone who bought a house in the last five years homeless
Put into private pension or invest it?
Depends when you think you'll want to access the money. Do you have adequate pension provisions already? Do you need an early retirement fund? Do you have an emergency fund? So many variables
Great video Pete. Although we paid off our mortgage nearly 15 years ago. The trick we used was a variation of overpayment, our lender only allowed a 10% over pay every year. So every year we set the amount we wanted to pay (including the 10%) and went to the lender as asked to reduce the term to match our payments. We went from a 20 year mortgage to 18, years, 15 years, 8 years, 5 years after that we were lucky to get a good bonus and cleared the mortgage after only 6 years will no fees
Very useful as always. However, there is a third way: the offset mortgages offered by a number of banks. You can overpay into the offset account and reduce interest as you do so. Then it is still accessible in case you need it, but you still get the guaranteed mortgage interest saving. Only downside is that the interest rates on these mortgages are a bit more expensive - you do pay for the flexibility it provides.
I do this. I feel as though these mortgages should be far more popular given current interest rate levels
Most people don’t know they’re an option. I get a feeling of security from the thought of the funds still being accessible but acknowledge with rates where they are, people want to reduce their costs.
Can you elaborate? I don't know how to do this
Yes these mortgages are normal in Australia so this is what I am doing.
Hi Pete, any advice for a first time buyer on an optimum level of deposit as a percentage, ie would you rather put down a lower deposit in order to keep money in the stock market or would you put as much down as a deposit?
I paid my mortgage off in 1995 and lived it up a bit (aged 34) then bought more properties in 2006.
Just about a gentleman of leisure now. I've never owned a share of anything.
Great video. On point your didn't discuss is pension tax relief. If you are few years from retirement - the invest option is much stronger especially if you are 40,% tax payer.
Have 6 months salary n the bank & pay down debt.
i am so worried about the world i have gone liquid 100 percent on my ISA funds and i am a property investor with levarage and i have worked out that the cash i use to pay dowm my BTL mortgages will make me 12.5 percent i am not changing my pension funds as i dont need the funds yet but i think we are in a very risky place with the stock market As a BTL investor inflation is my freind as a stock market investor its my enemy I will come back to the stock market but i am out for now am i wrong or right long term time will tell but a fixed rate 4.2% for five years looks good
I paid mine off 10 years early threw the best part of my salary to it for 2.5 years to be debt free. Best thing I ever did.
Great stuff as usual, I confess that the guaranteed return of paying down debt against the uncertainties of investment returns is very compelling. If you take a potential 5% cost mitigation vs an investment return that might be around 6%, its an easy call for me. There is psychological value of chipping away at it over time too... it feels like progress at a time when investment markets might be a roller-coaster.
That’s the important thing - steady progress!
Hello. I'm new to this channel. I have a question. If ISA allowance already fully utilised. Then investment need to pay 20% CGT. On this case. Overpay mortgage should more make sense??
Am doing both.
Need to overpay as my mtg term straddles into retirement and so aim to overpay (enough) before then. Have done enough but aiming to now double up. Overpay more and invest for retirement where i can withdraw and enjoy my money whilst giving the pension some more growth. All three pensions, investments (mainly ISA) and mortgage debt are my financial square
100,000 left on mortgage. Fix deal ends sept. Looking to roll onto SVR and clear balance in full.
Having that much money tied up in a single asset is a real turn-off. Diversify!
Overpay: Mortgage free in my 40s, a major step towards financial independence while I'm still young enough to do something with it.
Invest: Wealthier overall, but I'll be in my 60s before I realise the full benefit.
It's an easy decision for me. Overpaying (or saving to overpay) like a madman. I do still invest a bit though.
How strange, I was actually watching the original video. Thanks for the update! Hope you feel better.
The stars aligned! Thanks for watching…
Another brilliant video, thankyou Pete. Keep up the good work👍🏻
I appreciate it, Chris!
Thank you for the video. Honest question, do you NOT believe that the government will tax the hell out of private pensions eventually?
Labour is already calling for it. If your pension exceeds what they deem "wealthy" people pension money, it will be taxed to hell...
I honestly have 0 faith in the pension system, even the private one. I think we WILL be punished for saving money, as we now have "too much".
At 3:50 the most important reason for not paying off your mortgage early. I am currently reducing but not paying off my mortgage. Why? If in five years time I need an emergency payment, then it’s a good job I didn’t lock it away in repayment. I can get 6% in a building society by locking it away for three years. If I needed a loan or equity release that would be very costly. I can still overpay by 10% a year and pay a lump sum in the period between one fix agreement and the next. Santander are giving me a 21 day window to do so.
For me this missed the mark as a lot of people still on fixed rage mortgages below the interest they can get through a savings account SHOULD NOT be paying down their mortgage. The inflation impact is also devaluing the outstanding liability at the same time.
That is true if your wages keep up with inflation. Unfortunately this inflation cycle is driven just by rising prices, not wage inflation. I don’t know anyone who has had a pay rise this year that is remotely near the official inflation rate of 10%. In my humble opinion minimising the impact of higher mortgage interest rates in the future is more important. I will be paying off as much as I can at the end of my current fixed rate deal to reduce the hit on the next deal. As the BoE is saying today “we need to get used to being poorer” 😡
One thing to appreciate, is that if your mortgage rate is low, then your overpayment eats into the capital amount more than it does with a higher rate.
Effect of this is that after your fixed rate term the amount owed is substantially less and as Pete said your LTV % is a lot lower so you get offered better mortgage rates.
Whilst I can see where you are coming from that the % saving when on a low fix means in the short term I see two factors why overpaying before your "cheap" fix ends. Firstly if you overpay by the difference between your current rate and what you would pay if you took out the new mortgage today then you'll be used to that much going to your mortgage. And secondly and in my opinion far more importantly the more you chip off it whilst it's cheap the less your monthly repayment is going to rise when your cheap fix ends! It probably works out better to shove it in high interest savings now and then paying in a lump sum on switching fixes though.
@@4shadsy as Pete has said in previous videos, there is an emotional aspect to consider. You can crunch the numbers and show sometimes it might work out a bit better to pay into a high interest bearing account for 3-5 years then pay the lump sum into the mortgage. Your partner may prefer knowing the money is going in straight away and emotionally that is more valuable.
You also have a smaller amount ( your savings getting a better rate of interest ) V a large amount ( capital sum of mortgage) being charged a lower rate of interest.
The then enefit of the capital amount having been reduced in the long te
I paid off my variable interest morgage in 1995. It felt good. I considered what if I become unemployed, inflation takes off and the interest rate exceeds 13% again?
I think theres potentially other reasons to pay down the mortgage . If you’ve recently purchased a property with a 5% deposit the rising interest rates could cause a dip in property prices and cause some people to be in negative equity when their fixed term ends leaving them with a potentially worse follow on rate. In terms of against saving for me personally, im only allowed to pay off 10% of my mortgage a year without incurring charges. Hopefully though i will have some room to do both!
When you say "invest" I assume you mean Stock and Shares ISA, right? Otherwise you'll have to pay taxes on your return on investment every time you withdraw money from it. Is that correct?
Unless you've used your annual or lifetime allowance then the tax savings of investing in a mortgage or other tax effective wrapper need to be factored into the calculations. Not clear from the video if this has been done. Pete?
Hi Pete, great video as always! is it worth considering offset mortgages again now that interest rates have risen? I’d be interested on your latest views (after watching your video from 4 years ago!)
Brilliant as always. I have 2 small mortgages on my house (90k at 1.9% for another 8 years still, and 50k just fixed a month ago at 4.75% for 5 years).
I have a £100 a week savings/investment budget. I currently put £30 into my pension, £30 into my S&S ISA, £30 into my 3.5% easy access account and £10 overpayment
Oh! LOL I was wondering ... I didn't know that in the UK you don't take mortgages for a full term, but have to do a series of 5-year mortgages to get to a fully paid home. I was so confused for a few minutes there..😊
Hi Pete, glad you kicked Covids backside 😁
Nicely timed video, I'm sure a lot of viewers have been thinking about this given the current situation.
What about the equity aspect of paying off your mortgage though?
B O T H
I N D E E D
How do the figures fare against investing extra in to your pension pot as a higher rate tax payer?
Could you do a video on dividend and taxes. An allowance reduction.
You should do a video on whether to repay your student loan early
Thanks Pete. Useful video and perfect timing. Many thanks for helping me consider approaching financial choice from a slightly different viewpoint.
Following Dave Ramsey
No debt (apart from mortgage),
£6300 in emergency fund,
Saving 15% into retirement, get 6% on top off that as Employer match
No kids
Any extra make money is going into paying off mortgage early
Lol Dave Ramsey advises not to have kids? 😂
I’m doing both.
Hope you have recovered okay 😷
Many thanks Pete, once again sensible advice in these strange times.
Thanks Pete. Pleased you are on the mend.
Very educational and helpful.
Good video, well presented.. covering a clients tax position would have been helpful and thus the ability to invest for a net 5% return. But nice video 👍
Thanks Jamie. There are more than 450 other videos, many dealing with exactly that! Like this one: th-cam.com/video/MUA4RjH24Sk/w-d-xo.html
Lose the debt, compound the repayment as the principal reduces, secure the roof over your head… you can always invest a lot more once it’s paid 👍
Agreed disposable income being debt free gives choices and eliminates worry.
Thank you Pete
Given the atrocious performance of the stock markets over the last 2 years I think its a no brainer. Paying down the mortgage would always be my priority.
I don’t disagree with paying down your mortgage but the last two years of the stock market can tip the argument either way, depending on how you see it. Paying down mortgages and investing are long term activities. Some would argue that the poor performance of the last 18 months is even more reason to invest. I know I always felt pretty good about investing in ‘bad’ times, before I retired.
Depending on your age investing the extra into your pension gives it an immediate 25% boost as you get the tax back. That’s guaranteed and very protected money
Thank you for all your help.
You are most welcome! 🙏🏻
I was lucky to lock my mortgage deal before interest rates started rising. I am curently on 5 year fixed deal with 1.14% interest. So I will definitelly not be overpaying the mortgage. More puzzling for me is: should I overpay my student loan debt where interest is now set at 5%?
I guess it is best to retain flaxibility and keep the money in the bank rather than overpay. Especialy if interest on savings can offset interest on debt.
If interest on debt is higher than interest on savings, then perhaps overpaying is not a bad idea but that depends on a lot of other factors/personal circumstances. For example, I would not be even thinking of overpaying if, first, I've not had built financial safety net in a form of emergency cash fund.
@Not Me not really. Let's say he's got 4yrs left on 1%. Mathematically in that scenario it would make more sense to invest the extra and if he wanted to could then pay down the gains from investment after the 4years are up?
@Not Me sometimes the emotional and security reassurance of overpaying is worth it for that alone. Also it's a guaranteed return. So do whatever makes you sleep better at night. It might not always be mathematically the best decision but when have you ever heard of anyone regretting clearing their mortgage 😉
@notme1345 did you watch the video?
Thanks Pete
Thank you!
My deal is ending in 2025, and IF the rates stay around the same, I will be in serious do do as I am currently on 1.45%. I am currently squirrelling away cash so I can pay a lump just before the deal ends. VERY tough times coming :(