Mortgage rates are currently at an all time high since 2000(23 years) and based on statistics on inflation, we might see that number skyrocket further, a 30-year fixed rate was only 5% this time last year, so do I just keep waiting for a housing crash before buying or redirect my focus to the equity market
The stock market is no different, to maintain profit you need to have some in-depth knowledge on the market. I mostly just buy and hold stocks, but my portfolio has been mostly in the red for quite awhile now. Unfortunately to be able to make good gains, you’ll need to be consistent and restructure your portfolio frequently.
In my opinion, it was much easier investing back in the 80s but it’s a lot trickier now, those making consistent profit in these times are professionals reason I’ve been using an advisor for the past 5 years to consistently build my portfolio in preparations for retirement.
Amber Dawn Brummit is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
Back in the day, when I purchased my first home to live-in; that was Miami in the early 1990s, first mortgages with rates of 8 to 9% and 9% to 10% were typical. People will have to accept the possibility that we won't ever return to 3%. If sellers must sell, home prices will have to decline, and lower evaluations will follow. Pretty sure I'm not alone in my chain of thoughts.
If anything, it'll get worse. Very soon, affordable housing will no longer be affordable. So anything anyone want to do, I will advise they do it now because the prices today will look like dips tomorrow. Until the Fed clamps down even further, I think we're going to see hysteria due to rampant inflation. You can't halfway rip the band-aid off.
consider moving your money from the housing market to financial markets or gold due to high mortgage rates and tough guidelines. Home prices may need to drop significantly before things stabilize. Seeking advice from a financial advisor who understands the market could be helpful in making the right decisions.
If you overpay your mortgage (like I did) you get into the habit of living within your means and not squandering your money. You pay out (meaning DON'T SQUANDER) more of your disposable income on your mortgage.... When your mortgage comes to an end (and mine did Much MUCH earlier than the term), I have the dreadful habit of NOT SQUANDERING my money - but seeing as my mortgage has gone that habit has become a 60% of income savings habit! Yep - I now know how to live within my means and the banks HATE it. They cannot get their fangs back into me to suck out my financial lifeblood anymore because the disciplines of overpaying just turn into the disciplines of saving. I have a BELOW AVERAGE income for the UK but I have managed to save about £11 grand a year from my earnings since I became debt free. I am a part time idiot, so I was told, for paying off my mortgage so quickly. I have NO debt at all. You can do this too! PAY IT OFF!
Well this decision always depends on how financially disciplined you are. If you are disciplined enough to use the amount you would have used as over payment, and put it in an investment, then over the 30 year mortgage, it will definitely be more financially beneficial to invest instead of over pay. But if you are likely to use that overpayment amount as extra disposable income and buying more random junk, instead of investing into something, then its better to just overpay the mortgage. It always depends on the persons financial discipline and views on debt.
I paid off my house, threw everything at it. Took 7 years. It’s great that I don’t have to make monthly payments on a shelter anymore. I use this money to dollar cost average into the markets on a monthly basis now
To pay off a 25 year mortgage surely you mustve incurred early repayment penalties as most mortgages only allow a 10% overpayment each year without penalty?
@@brendonread7318 You have to factor in that your monthly payment adds to the 10% payment. If you make payments for 10000 per year and the 10% overpayment is 15000 (150k home), once you have only 50000 to pay, there is little interest, so you're paying at least 20000 per year which is almost half of what's left to pay. The payments accelerate very fast toward the end of the mortgage without penalties.
You can overpay by the allowed amount each year - ours is 10% - and put any surplus that you would pay off into an ISA. Then, when your current mortgage term comes to an end, you can use the money in the ISA to pay off a chunk of the mortgage when it switches to the variable rate.
I saved 20% of my salary in my 401K. Then we overpaid our mortgage by $400/month. Also, we periodically made lump sum payments to pay down the mortgage. It was a really great feeling to be completely out of debt. So you make money two ways. The money you save off of your mortgage interest is completely tax free. If you are using taxed earnings to pay off your mortgage, you are paying anywhere from 20% to 40% of your gross income on taxes. So if you save 5OK on interest, it is actually saving the taxes you would have paid to earn the money to pay the mortgage.
A general told me: tactics are meaningless, strategy and logistics win wars. I think we can apply that to most stuff. Get the good choices right (save big chunks of your income), the rest matters little.
But this money that you would earn will be taxed no mather what, so there is no diference in taxation. Just the diference in interest that you would not pay if you pay of your mortgage earlier.
Multiple points: * Inflation doesn't matter. Just compare nominal to nominal, because inflation will (roughly) also inflate house and other assets (not bonds, though) * Taxes, man, TAXES. Investment gains, dividends, and interests are all taxed. You can't compare 6% mortgage with 6% investment return. * What you "invest" into the house you already have doesn't add how much you're invested into the housing market. You already "invested" 100% of your house's value, whether you have 100% or 0% mortgage. IOW: Your mortgage doesn't double when your house value doubles.
The best investment one can do right now is investing on real estate though stocks are good but ever since I swapped to real estate, I've seen so much difference.
Do a bit of both and rest easy that you're doing 2 very good things for your future. Also, there's something to be said for not having to pay that massive monthly bill
imo it lets you be much more risky with investments if you want, as well as frees up your time to do/learn something that can increase your value/earnings (more investment power) without having to work AND learn. With high interest rates, it makes sense to me. Lower interest rates though? Not so much.
We paid ours off in 14 years by over paying. Plenty of friends said it's pointless, invest it, put in pension etc. Yes, these all may work too but the relief of not being a slave to your monthly bills is huge. I got made redundant (laid off) by one company. I didn't worry and chose an interesting new job on less money which then worked out even better! I could not have taken that gamble if I had monthly payments to make.
Agree, had 25yr mortgage paid it in 9ys 3mths, higher interest rates than what people paid throughout the last decade or so, started as a first time buyer with 6.39%, then 5.49% and finished on 4.74%. Sacrifices have to be made, any disposable income I had I paid it towards my mortgage. Mortgage free at 38yrs of age. It can be done.
Dave Ramsey has quite simple rules that have a great idea of making a mix. The first rule after paying non-mortgage debt is a saving account / emergency fund, followed by investing 15% of income AND using the extra left to pay back mortgage. I think optimal solution is a mix, but not sure about exact details.
I follow Dave simply for motivation and he’s good at reminding people to not spend money on stupid sh*t. But he’s very narrow minded with his investing strategy and usually doesn’t factor in people’s different individual goals and risk tolerance.
@@Chedda3000music I agree, I think that kind of proves the other parts of the system he advocates that people succeed even with fairly crappy investment advice.
@@Chedda3000music Dave focuses on extremely broad, widely applicable advice that is sound advice for the vast majority of people. If he starts making all kinds of exceptions to his rules then they become convoluted and difficult to follow for the average person. Lots of people who think they know better than Dave actually don't - but people who are very smart and savvy realise Dave's advice is what it is and may not apply to people on very high incomes or to people with advanced knowledge of investing. The great thing about Dave's advice is it's very easy to recommend to a friend or family member because he gives very sound general advice and, like you say, is great at making fun of people's stupid purchases which is funny and needed. Not enough people make fun of people with big car payments and people overextending themselves to buy stupid shit
Paying your mortgage off is one of the most sound financial advise you can get. A house is your castle, if you own it outright you will not lose it if things turn to shit. If you still owe money and all of a sudden you cannot make the payments you risk losing the roof over your head and being out on the street and if you have family it’s best to play it safe. Whilst you can make more money doing something else etc, nothing brings security than owning your home outright.
100%. Property taxes will always be a "mini mortgage" in the sense that it can still be taken from you for lack of payment, but the exposure is so much more tolerable. Paid my mortgage off last year through selling, and moved to a cheaper less volatile market to wait for things to cool off before moving back. Hopefully, natural economic cycles will work in my favor overall. It's night and day paying it off completely. I'd never mortgage my primary residence at this point.
100% correct. we own our house outright. paid it off in 10 years flat. now just water sewage and leccy to pay for. solar panels next year so no more leccy to pay for. we earn 11k a month between us and save over 5k each month. planing to buy a villa in spain 2030 in cash ofc
@@restingsmirkface yep. at the end of the day the government have a hold on your house. here in sweden we have to pay 700 quid a year property taxes. you stop paying that you'll find out you never 100% own your house.
It's not that complicated a decision. If you pay off your mortgage, you'll always have a place to live even if the economy implodes. Don't risk being homeless for an extra percent or two return.
Your fiat mentality strikes. You don’t own anything other than a piece of paper with your title. So you cannot assume you will always gonna be able to live there. That is an assumption!
During a bear market, the headlines will focus on negative news, whether it's declining economic growth, geopolitical upheaval, cultural and legal turmoil, or some combination of all three. I listened to a podcast of someone that grew his reserve from $120k to almost $460k during this Red season, can you share tips on how to make such aggressive proceeds in short periods?
Investors should be cautious about their exposure and be wary of new buys, especially during inflation. Such high yields in this recession is only possible under the supervision of a professional or trusted advisor
We’re on a very low rate, fixed last year for 5 years. We’re still over paying. Last year I did the exact same analysis as what you’ve done in this video. My conclusion was, don’t do all in one. In an ideal world the numbers play out fine, but you cannot predict the future from past performance so diversification is key to limiting long term losses. Of all savings I do roughly 30% into pension, 50% into stocks and shares (high risk accumulation portfolio) and 20% into mortgage overpayment. Currently 32 with the aim to be financially free in my late 40s.
@@szabolcstrucz2220 Cheers, no kids currently. But finance is the same as every aspect in life, you reevaluate when there’s a change in circumstances. My plan for savings and investments now will be very different to those 5/10/15+ years from now, that’s a given.
one point i noticed you glossed over - Even if property values tank in your area effecting your net worth your debt doesn't vanish. You just end up whats referred to as negative equity. So by the numbers you have lost money but by reality you haven't actually lost anything physical just theoretical money. Another side that people forget when we talk about this - your house is a asset, but you also need somewhere to live. If you ever tried to liquidate the value in your home you generally have to buy a new home, and if the cost of homes has gone up the relative price of the new property will also have gone up. Which makes downsizing easier but climbing the property ladder more difficult. Renting is a possibility but difficult currently and if it became much easier the cost of buying would drop. basically - your house/home is a asset with value but its not a value asset that you can liquidate without replacing(at least without changing your and your families entire lifestyle), so paying off the debt on it reduces your risk and exposure - plus you don't get taxed on money saved but you may well be taxed on gains (depending where your living)
Great video! Was going to comment early on saying the tax you will pay on any investment or savings interest needs to be factored in but you went on to cover that though I don't think you did in the very first set of figures. Its definitely a big aspect to factor in. But having so much money trapped in one asset like you mentioned with no cheap or easy way to release that equity is also a really big deal. Im concluding that any savy investor should hedge their bets on this one and do a mix or both because let's face it.. interest rates and market returns are equally as unpredictable right now. Having said that, if you just want security and peace of mind but not the very best returns, then paying down your mortgage is definitely the way to go.
I moved at 57 with a 17 year £200K mortgage. From the start we overpaid and brought therm down a few years. I also received money from inheritance which I used to invest in a rental, my pension and into the mortgage. I lost my job during Covid and my repayment of £1170 became nearly 60% of my salary in my new job at a much lower salary. I remortgaged early paying a 2% fee taking the term back out to the original 2034 end point. My savings were £370 a month as a lower amount and a better rate. We’re still overpaying but what I am also doing is having the overpayment bring down the monthly payment and keep the term the same. The bank only calculated this once a year in January unless we overpay by £500 so I make this payment every 6 months. Net result is I add the payment reduction to the overpayment meaning our sown is the same but we benefit more. Mortgage will be running when we retire but should be in the low £500 range with only about 4 years to run if we keep overpaying. Money from the rental I put into my pension fund. The feeling knowing our mortgage is easily manageable compared to a figure of £1170 just two years ago is priceless. When the house is paid for it’ll be even better
If your interest is that low and it's fixed for at least 5 years, you should be paying minimal payments on the house and putting everything into investing. Any mutual fund recommended by any of the donkeys at the banks will do better over the course of 5 years than 6% annually.
If you can get a guaranteed rate of return after taxes, then it's an easy decision. But if you have an adjustable rate mortgage, most likely the rate isn't going down, and you are faced with a big bump up. If I had an ARM at a low rate, I would be prepaying with every dollar I had. A 30 year fixed, they wouldn't see a nickel extra.
We’re on a very low rate, fixed last year for 5 years. We’re still over paying. Last year I did the exact same analysis as what’s mentioned in this video. My conclusion was, don’t do all in one. In an ideal world the numbers play out fine, but you cannot predict the future from past performance so diversification is key to limiting long term losses. Of all savings I do roughly 30% into pension, 50% into stocks and shares (high risk accumulation portfolio) and 20% into mortgage overpayment. I’m 32 so I’m happy with a higher risk s/s. As I get older I’ll move to less risk portfolios. Ie more bonds less stocks. If s/s go great you could pay off your remaining mortgage with some. If s/s dont perform well you’ve already paid off a chunk of mortgage. Pension, well that’s a no brainer for me in any scenario.
@@Iain31313trying to figure out my own budget and thinking I want and need to be paying into pension, 6% of gross wage goes to that matched by employer. Then need to invest in s/s and make extra mortgage repayments. Then I have to put some away for emergency fund, holiday fund, new car fund (as I want to pay cash), Xmas fund, fun money fund, golf club membership fund… that’s the fund list so far 😂 idk how to split it all up!
Only looking at the 25 year period is a mistake. You should be looking at your whole working lifetime. The answer to this question really has more to do with your job security. If you have high job security you should be investing. If you have low job security you should be paying off that mortgage.
Deciding to pay down your mortgage early or invest in shares involves weighing pros and cons. Paying down the mortgage offers peace of mind, reduced interest, and faster home ownership. Investing in shares brings potential higher returns, but it comes with market risks. It's a personal decision based on financial goals, risk tolerance, and priorities. #PersonalFinance #MortgageVsInvesting
dont pay back your mortgage, and investing that money instead, is the same as : having a payed off house, taking a loan against it, and using that money to invest yet lots of people would do nr1, but ive not heard many that would do nr2
Good video but ONE HUGE FLAW. The trailing 10 year annual average return of the S&P500 for example the Vanguard US equity index find here in the UK. Is 14.6%!!!!! That won't continue at that rate forever, but plug those figures and it's a TOTALLY different story. And all you had to do was buy the index, put it on auto invest, and ignore. You didn't even have to stock pick for those returns.
Whilst it feels great to be free of a mortgage, it may be worth considering pension contributions. In addition to the investment growth, you gain tax relief at your marginal rate in a nutshell adding 20% straight away on each contribution. The compound growth will put you in a much better place than putting everything in to clearing your mortgage earlier. Do a mix is a better approach.
A lot of people taking out their pensions in 2020/2021 had a bad time due to the crash. The problem with pensions is that you can't take your money out when you want, even if you can foresee a crash coming.
Most pensions allow funds to be switched to cash funds but this is risky as you are gambling on what will happen when n the markets. Most of the best returns are achieved after a crash. Most diversified portfolios that dropped significantly in March 2020 due to the pandemic will have seen a net return above cash in the bank by December of 2020. Always retain a cash emergency buffer to prevent the need to access stocks and shares during these periods or have a alternative strategy running alongside like Prudentials Prufund which offers a smoothed return which especially did well throughout 2022
I did the use all my income to invest in more property. I started at 25. I'm now 40 and have 5 properties. Worth 3.5mill and owe 1.2mill I'll be retired at 50 with $2k per week income. I'd recommend investing
Other thing i would love to see covered is the tax implications. As i understand we don’t pay tax on money saved, but we do pay tax on money invested. My personal tax rate is about 37% so I think the equations lean towards paying down debt :-)
In Ireland there's a massive incentive to invest via pension. Tax relief is given at source which generally makes it more appealing than paying higher rate of tax and then using the rest of your salary to try over pay your mortgage
Hard to beat free money, which is what the bank gives you. Even harder to beat freedom, which is what you get when you return the free money you borrowed to them with interest.
The missing point here is risk appetite. Paying your mortgage down makes your downside less risky. When your monthly payments are low you are freed up to make different choices. And it doesn’t have to be one or the other. Everyone needs a full financial plan.
I save 50% of my salary in my pension tax free. My growth of course tax free. Then I will take this tax free 25% of the pension and use part of it to clear the mortgage. This is THE BEST and most efficient way to clear the mortgage with tax free money. I could have paid mortgage ages ago but it is poor advice and waste of money. Especially when interest rates were below 2% and mortgage is low
Only pay off the mortgage early if you have a high interest rate. Otherwise take advantage of the low interest rate and take your time. You also get a tax deduction on that interest. Pay off your credit card every month because chances are your interest rate is 10% or more. After that, pay off car loans because they usually have the next higher interest rate, somewhere between mortgage rates and credit card rates. And if you still have money, then over pay your mortgage so you can get out of debt.
I don’t think the bank rate can go much beyond 5% nor can it stay that high for long because it effects the government debt interest repayments and the government has a lot of debt.
You can never predict which way a rate will jump. Rule of thumb is that every 20 years money halves in purchasing power. 4% compounding is doubling every 20 years. Historic trends forever. A mortgage is a compounding liability. Overpay it and you increase the size of the shovel clearing the debt every month. Or another analogy, the bucket bailing out the boat gets bigger and thus more effective each month as the boat becomes more sea worthy. Assets minus liabilities equals capital. Your house should appreciate in value as you maintain it and the liabilities should decrease as you pay it off. Focus on one thing and do it well, then focus all newly available cash flow on the future investment until funded to a level you can leave for something else to invest in. Your mortgage is a current liability until it is paid. Maintance is a smaller liability throughout ownership but you can always dispose of the asset at any time.
Another factor is that for every payment, the money you pay in interest goes down. So what you could do is to "match" the interest savings by increasing the amount you pay off.
Confusingly you would make more money in the long term investing in the stock market when interest rates are high and put in mortgage when rates are low. The reason is the stock market usually falls a lot more than %interest rate change during high inflation periods. Try and fix those rates before interest rates go up high when possible. Basically buy the stock market dips and pay off mortgage when they are overvalued. In your case it sounds like the flexibility of an offset mortgage would work best.
Great video - first time someone’s talked about this topic, isn’t a financial planner and given a fair explanation as to what the key variables are that determine the optimal decision. Every planner uses the S&P returns as a guideline but if you have diversified your portfolio then you probably have lower returns shown by your vanguard research
It is better to do both invest into monthly dividend stocks and over paid your mortgage. 100 a month to mortgage and 100 to stocks. Once the mortgage is paid off move that same 100 to stocks. The more you buy stocks, cryptos, land and start up companies that way you save money for you family. And retire early.
I paid off the mortgage before interest rates went high. It’s life changing. Plus you have a great deal of pride in the fact u own your own home. The mortgage payments now go to the market. Last years return was 25.6%.
Don’t forget here in the states, you’re mortgage payment stays the same while Property taxes, insurance, maintenance, utilities go up every year…so it’s not the mortgage that’s the problem but the other costs… that being said, instead focus heavily on investing so that in 25 years your investments wiki pay for it all.
I paid off my mortgage 5 years ago and it felt good for a while. Then I remortgaged to buy my commercial premises which saved me £1000/pm and a new mortgage payment of £400 so £600 better off. I'm now about to pay the mortgage off again but will remortgage again for another opportunity. I feel as though you have lots of capital tied up in a residential property that you can use to get more assets such as BTL'S or stocks.
Take the risks you can afford and research best you can. Like you say it’s not always in your power to control all of the cogs that affect the outcome.
Whenever in doubt, go for 50:50. You will not feel pain of missing out. If the equity returns are more, you will be thankful that atleast 50% were going to equity. If the mortgage rate goes higher, you will be thankful that 50% were going towards overpaying...
I wish I knew as much about mortgages at your age as you do I have one suggestion why not do both decide what is the maximum you can afford to over pay now take half to over pay the mortgage and invest the other in investment funds. Thus benifiting from both scenarios The best action is always to diversify your savings and investments
Also factor in inflation your salary will increase over time and therefore the ratio of mortgage cost to income will improve a £600pm month mortgage cost today will take up a lager share of your income compared to in 10 years.
There are 2 flaws in this argument. Interest rates will come down to around 5%. And global equities have historically returned around 9% per year on average over the long term. Run the figures again based on the above and you'll get a very different result.
My rate is 1.8% and fixed for another 17 years. My focus is just on investing now and optimizing whatever gets the best return (Mortgage at 1.8%, student loans at 0.18% and investments at 9% average per year so far)
I’m American and guessing from this video that banks in the UK don’t offer fixed mortgage rates like in the US? There are many Americans today with fixed 30 year mortgage rates below 3% and even if inflation was more normal instead of 8%+, it’s hard to come up with calculations that make it the clear better choice. But a new mortgage today at 7.5% would be totally different. That said, some people just sleep better at night knowing their mortgage is paid down. I have a good friend like that. I’ve always slept better knowing I have cash available if needed.
Hi Nathan, thanks for the comment. Over here in the UK we do have fixed term mortgage rates but it is common for people to fix for 2 - 5 years. Some people fix for 10 but that is relatively quite rare. Because of that, people of course remortgage quite often, meaning that some people will have to get a new mortgage now whilst rates are quite high!
Its a risk free, tax free return. I worked in Mortgage IT. What you have forgotten about, is that people lose jobs, win jobs, get married, get divorced, get sick, have accidents, etc. If you cant make the payments, the interest rate jumps up to about 20%.
Right now the math shows investing is _probably_ better than overpaying. But there is a psychological/habit factor to consider. Personally I pay 8k on shares and 7k on property. Per month.
Are mortgage rates in the UK flexible to the current rate. The US rate is a fixed rate when you get your mortgage. In the US the interest is also Amortized to the front of the mortgage. The first 5 years is almost all interest and almost no principal. Some factors that need to be considered…
There are benefits to both. Overpaying is a set return really. Less volatility. But you could do the standard diversifaction method. Just do both! If you can.....
I wouldn’t overpay on a mortgage as over the longterm an aggressive portfolio of equities should outperform what ever savings you make on overpaying on your mortgage. I think the secret is to not to buy a house that’s too big for your needs. The individuals that borrow as much as they can to buy their main residence can often trap themselves into a life time of high mortgage payments and not having any cash to invest. Don’t get caught in that trap. People also think it’s a good investment buying a large property when in reality it’s not if that’s the only asset you own. I’d take a semi detached property with 75k mortgage and a 75k investment portfolio any day. It’s all about mind set and life outlook.
I had 1 mortgage that was low-interest, fixed-rate, from 2013-2021. In that scenario, unless you are paying your mortgage off completely, or you are still maintaining 1 full years' expenses in savings, then any overpayment is piling more assets into into the risk of a mortgage... the risk being that you are betting on future stability. "You can profit from being in debt" is 100% true... IF you have long-term stability and your income keeps pace with inflation. I sold my home when the market went up, and moved to a cheaper (and less volatile) market for now. When real-estate is more reasonably priced compared to incomes, I can move back.
So I have a fix at 2% until mid 2027. I'm going to invest fully in mine and my wife's ISA, then use our premium bond (tax free interest) allowance then overpay the mortgage. If rates are still high when I need to get a new mortgage I'll use our none ISA money to pay off the mortgage.
It always depends on the circumstances and the person in question. Objectively, reinvesting the "overpayment" amount into the markets is always better in almost every situation, especially if its over a 30 year period. No questions. But debt is never objective for the person in question, and it always varies by person. Someone who doesn't find a mortgage scary, and has enough financial discipline to save that "overpayment" amount and invest it in the market index should definitely not over pay the mortgage, because in the long term, they will always benefit from the inflation (which makes the loan and monthly mortgage payments worth less over time), and B: the growth of the market investment. But someone who lives in fear of debt and it has a strangle hold on them, lives pay check to pay check, and has a 10% loan because they have terrible credit, should prioritize paying off the mortgage early.
Always over pay. I over pay the 10% each year. Much better once you pay off your mortgage your be able to save all of the money you paid on your mortgage
I did the math a bit different as you have two different scenarios with at least two different timespans you need to consider. If you only do one 25 years timespan it's worthless. You need to consider your purchasing power for a potential stock portfolio and the budget you keep parked your your overpayments. With this in mind I have seen it's good to at least do both in the beginning and then go towards even more additional down payments. Because once it's all paid. It will releave not only the mortgage payment plus the parked budget as well. So please do the math in written by yourself.
Having equity is always an excellent option. It gives you the ability to capitalize on an opportunity that you otherwise couldn't if you didn't have the money. I think overpaying on your mortgage allows you to have a backup plan for something that you don't know that you're going to need it for.
It really depends a lot on the fine print of your home loan. My initial home loan (Germany) said that I could set my regular monthly rates at the base of an annual repayment of 1-3% but I'd be allowed only two switches during the 10 years the interest rate was fixed for, plus I was allowed one extra annual payment of up to 5% of the nominal amount. So basically I could go from 1% annual repayment to 8% without any penalties. The trouble of building complex models is that the results often aren't really clear but show you exactly how much wrong assumptions may cost you in the long run 😂.
All nice and well, but Ive got a 1,8% interest over 30 years. Id rather put 200k in investments than paying off my mortgage. Even my savings account beats that interest. Plus I got an extra tax break on my mortgage interest, which makes me pay 1,2% actually
Perhaps it is better to invest in over paying your mortgage when interest rates are low. Hear me out; your monthly payment will be lower and you’ll be better able to afford over payments. When the interest rates rise, you can stop over paying (so you don’t feel the financial hit) or you’ll have already paid it off.
Some countries also have taxadvantages or writeoffs you can take advantage of reducing the actual payment. So percentages are not directly compareable. Furthermore realestate can also be considered an investment vechicle itself, and you can also get income from renting out an extra home. Aswell as being able to use devaluation as writeoff on property improvements, being able to roll forward taxes on rentincome if it’s reinvested in the property. Eventually being able to sell realestate at highmarket if rates go down paying tax as if it’s long term capital gains or rolling it into a bigger piece of property. So even if effective rates are the same tax on that money, they are not directly compareable, especially if you have to pay managment fees and brokeragefees and instead effectivally having more similar taxburden as compared to fixed income assets. So depending om how much you have to invest different assets might have hidden advantages.
One thing that none of these videos mention is that in real terms you are paying far higher than the mortgage rates of 6 percent (currently). This is 6% AFTER tax so if you are a high earner then you actually need to earn an extra 10-11% to match this and that would only be interest repayment not capital. You have to pay your mortgage down asap in the next 5 years at least.
I always overpaid my mortgages but once paid I was making making sure I still had a mortgage going on against one then two rental properties. I am not planning to buy more since I am 58 and I am starting to downsize. I sold the big house in the leafy posh area. Feels good. No debt but one mortgage still going on the latest rental that pays itself.
It's weird that people are saying mortgage interests rates are 3-6% this year. I moved home on 28th of Jan and got 1.24% fixed for 5 years. It was locked in for a few months but still... I think people need to use go compare and get a decent mortgage broker.
Thanks for the video. It was very useful. I have a further question if you don't mind. I am on the last stretch of my mortgage, we have around 18 k left and this summer, when we remortgage, we could pay it off. Of course we started questioning if we would better off using the money and just keep the mortgage going as it is quite a little monthly payment. So your video was quite helpful on this side. Unfortunately, what really confused me, was a colleague a few weeks ago. He told me, do not pay it off your mortgage, because it is beneficial to have a small mortgage open and for the bank to still partially own your property. Now, I have no idea why he said so, he told me, this is what he heard. It does sound like a stupid question. But I was wondering if you had any insight or extra suggestion of what would be the best thing to do. Thanks!! Andrea
interest rates are linked to inflation. The higher the inflation the higher the banks set interest rates(double blow). So although there is a limit to interest rates before everyone starts to default. By paying off your mortgage quicker. You are helping to track your savings return against inflation. Because banks and government induced double financial pain on you, while inflation is high and interest rates high. And that's why it feels good to be dept free and makes financial sense. When the banks don't have the hold over you to rub your nose in it while you are feeling the inflation pain. Paying down the mortgage a bit ,investing a bit over the past few years.But for me , mortgage interest rate above 5% is my trigger point to pay down the mortgage .by pulling out of low risk investments and paying off the mortgage in big chunks.
I loved the efficient market GameStop reference, if that company were fairly valued all investors could pay off all mortgage debt at the end of their fix
Mortgage rates are currently at an all time high since 2000(23 years) and based on statistics on inflation, we might see that number skyrocket further, a 30-year fixed rate was only 5% this time last year, so do I just keep waiting for a housing crash before buying or redirect my focus to the equity market
The stock market is no different, to maintain profit you need to have some in-depth knowledge on the market. I mostly just buy and hold stocks, but my portfolio has been mostly in the red for quite awhile now. Unfortunately to be able to make good gains, you’ll need to be consistent and restructure your portfolio frequently.
In my opinion, it was much easier investing back in the 80s but it’s a lot trickier now, those making consistent profit in these times are professionals reason I’ve been using an advisor for the past 5 years to consistently build my portfolio in preparations for retirement.
My partner’s been considering going the same route, could you share more info please on the advisor that guides you
Amber Dawn Brummit is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
She appears to be well-educated and well-read. I ran a Google search for her name and came across her website; thank you for sharing.
Back in the day, when I purchased my first home to live-in; that was Miami in the early 1990s, first mortgages with rates of 8 to 9% and 9% to 10% were typical. People will have to accept the possibility that we won't ever return to 3%. If sellers must sell, home prices will have to decline, and lower evaluations will follow. Pretty sure I'm not alone in my chain of thoughts.
If anything, it'll get worse. Very soon, affordable housing will no longer be affordable. So anything anyone want to do, I will advise they do it now because the prices today will look like dips tomorrow. Until the Fed clamps down even further, I think we're going to see hysteria due to rampant inflation. You can't halfway rip the band-aid off.
consider moving your money from the housing market to financial markets or gold due to high mortgage rates and tough guidelines. Home prices may need to drop significantly before things stabilize. Seeking advice from a financial advisor who understands the market could be helpful in making the right decisions.
I will be happy getting assistance and glad to get the help of one, but just how can one spot a reputable one?
I am on her site doing my due diligence. She seems proficient. I wrote her an email and scheduled a phone call. Thanks for sharing
I’m at 3.6% It’s a blessing
If you overpay your mortgage (like I did) you get into the habit of living within your means and not squandering your money. You pay out (meaning DON'T SQUANDER) more of your disposable income on your mortgage....
When your mortgage comes to an end (and mine did Much MUCH earlier than the term), I have the dreadful habit of NOT SQUANDERING my money - but seeing as my mortgage has gone that habit has become a 60% of income savings habit! Yep - I now know how to live within my means and the banks HATE it. They cannot get their fangs back into me to suck out my financial lifeblood anymore because the disciplines of overpaying just turn into the disciplines of saving.
I have a BELOW AVERAGE income for the UK but I have managed to save about £11 grand a year from my earnings since I became debt free. I am a part time idiot, so I was told, for paying off my mortgage so quickly. I have NO debt at all. You can do this too! PAY IT OFF!
Good for you! Congratulations 🎉 very inspiring
Well this decision always depends on how financially disciplined you are. If you are disciplined enough to use the amount you would have used as over payment, and put it in an investment, then over the 30 year mortgage, it will definitely be more financially beneficial to invest instead of over pay. But if you are likely to use that overpayment amount as extra disposable income and buying more random junk, instead of investing into something, then its better to just overpay the mortgage.
It always depends on the persons financial discipline and views on debt.
Well done, man! Congratulations!
We have terribly normalised being in debt.
Congratulations. That’s really impressive 🎉
There is nothing like the last mortgage payment . After that the world is yours
Until you die and Charlie and Sunak come for you for IHT.
@@prettyricky8988 how big do think it is !
@@prettyricky8988 It is not a mansion ! 500k you get as a single .
I paid off my house, threw everything at it. Took 7 years. It’s great that I don’t have to make monthly payments on a shelter anymore. I use this money to dollar cost average into the markets on a monthly basis now
Sounds like the dream!
To pay off a 25 year mortgage surely you mustve incurred early repayment penalties as most mortgages only allow a 10% overpayment each year without penalty?
@@brendonread7318 You have to factor in that your monthly payment adds to the 10% payment. If you make payments for 10000 per year and the 10% overpayment is 15000 (150k home), once you have only 50000 to pay, there is little interest, so you're paying at least 20000 per year which is almost half of what's left to pay. The payments accelerate very fast toward the end of the mortgage without penalties.
a shelter ahahah, your house should be a home that you create some core memories in
You can overpay by the allowed amount each year - ours is 10% - and put any surplus that you would pay off into an ISA. Then, when your current mortgage term comes to an end, you can use the money in the ISA to pay off a chunk of the mortgage when it switches to the variable rate.
I saved 20% of my salary in my 401K. Then we overpaid our mortgage by $400/month. Also, we periodically made lump sum payments to pay down the mortgage. It was a really great feeling to be completely out of debt.
So you make money two ways. The money you save off of your mortgage interest is completely tax free. If you are using taxed earnings to pay off your mortgage, you are paying anywhere from 20% to 40% of your gross income on taxes. So if you save 5OK on interest, it is actually saving the taxes you would have paid to earn the money to pay the mortgage.
A general told me: tactics are meaningless, strategy and logistics win wars. I think we can apply that to most stuff. Get the good choices right (save big chunks of your income), the rest matters little.
But this money that you would earn will be taxed no mather what, so there is no diference in taxation. Just the diference in interest that you would not pay if you pay of your mortgage earlier.
Multiple points:
* Inflation doesn't matter. Just compare nominal to nominal, because inflation will (roughly) also inflate house and other assets (not bonds, though)
* Taxes, man, TAXES. Investment gains, dividends, and interests are all taxed. You can't compare 6% mortgage with 6% investment return.
* What you "invest" into the house you already have doesn't add how much you're invested into the housing market. You already "invested" 100% of your house's value, whether you have 100% or 0% mortgage. IOW: Your mortgage doesn't double when your house value doubles.
The best investment one can do right now is investing on real estate though stocks are good but ever since I swapped to real estate, I've seen so much difference.
I’m interested I want to move to real estate investment can you help me ?.
STEPHINE KOPP MEEKS she is whom i work with look her,,,,,
You guys are so obvious from your first comment I knew it was a scam. How stupid do you think people are.
Real estate right now is actually a terrible investment because of interest rates and you have to sell to acquire gains.
Do a bit of both and rest easy that you're doing 2 very good things for your future. Also, there's something to be said for not having to pay that massive monthly bill
I agree! Thanks for watching agent Beans
imo it lets you be much more risky with investments if you want, as well as frees up your time to do/learn something that can increase your value/earnings (more investment power) without having to work AND learn. With high interest rates, it makes sense to me. Lower interest rates though? Not so much.
I took a 30y mortgage and payed it off in 7. Best advice I ever got from my grandfather.
yep. we paid ours off in 10 years. now we live like royalty. we need a new car we just buy one in cash.
not being a slave to the banks is worth it.
We paid ours off in 14 years by over paying. Plenty of friends said it's pointless, invest it, put in pension etc. Yes, these all may work too but the relief of not being a slave to your monthly bills is huge. I got made redundant (laid off) by one company. I didn't worry and chose an interesting new job on less money which then worked out even better! I could not have taken that gamble if I had monthly payments to make.
What was your mortgage rate?
Agree, had 25yr mortgage paid it in 9ys 3mths, higher interest rates than what people paid throughout the last decade or so, started as a first time buyer with 6.39%, then 5.49% and finished on 4.74%. Sacrifices have to be made, any disposable income I had I paid it towards my mortgage. Mortgage free at 38yrs of age. It can be done.
@@elenat5769hey - how much was your mortgage? I.e how much did you borrow?
Dave Ramsey has quite simple rules that have a great idea of making a mix. The first rule after paying non-mortgage debt is a saving account / emergency fund, followed by investing 15% of income AND using the extra left to pay back mortgage. I think optimal solution is a mix, but not sure about exact details.
Sounds reasonable! I think different things work for different people, and it’s important to stay flexible
I follow Dave simply for motivation and he’s good at reminding people to not spend money on stupid sh*t. But he’s very narrow minded with his investing strategy and usually doesn’t factor in people’s different individual goals and risk tolerance.
@@Chedda3000music I agree, I think that kind of proves the other parts of the system he advocates that people succeed even with fairly crappy investment advice.
@@Chedda3000music Dave focuses on extremely broad, widely applicable advice that is sound advice for the vast majority of people. If he starts making all kinds of exceptions to his rules then they become convoluted and difficult to follow for the average person. Lots of people who think they know better than Dave actually don't - but people who are very smart and savvy realise Dave's advice is what it is and may not apply to people on very high incomes or to people with advanced knowledge of investing. The great thing about Dave's advice is it's very easy to recommend to a friend or family member because he gives very sound general advice and, like you say, is great at making fun of people's stupid purchases which is funny and needed. Not enough people make fun of people with big car payments and people overextending themselves to buy stupid shit
Paying your mortgage off is one of the most sound financial advise you can get. A house is your castle, if you own it outright you will not lose it if things turn to shit. If you still owe money and all of a sudden you cannot make the payments you risk losing the roof over your head and being out on the street and if you have family it’s best to play it safe. Whilst you can make more money doing something else etc, nothing brings security than owning your home outright.
Wise words from Rambo
@@iQinvesting good video, you got yourself a sub 👍🏻
100%. Property taxes will always be a "mini mortgage" in the sense that it can still be taken from you for lack of payment, but the exposure is so much more tolerable. Paid my mortgage off last year through selling, and moved to a cheaper less volatile market to wait for things to cool off before moving back. Hopefully, natural economic cycles will work in my favor overall. It's night and day paying it off completely. I'd never mortgage my primary residence at this point.
100% correct. we own our house outright. paid it off in 10 years flat. now just water sewage and leccy to pay for. solar panels next year so no more leccy to pay for.
we earn 11k a month between us and save over 5k each month.
planing to buy a villa in spain 2030 in cash ofc
@@restingsmirkface yep. at the end of the day the government have a hold on your house. here in sweden we have to pay 700 quid a year property taxes. you stop paying that you'll find out you never 100% own your house.
It's not that complicated a decision. If you pay off your mortgage, you'll always have a place to live even if the economy implodes. Don't risk being homeless for an extra percent or two return.
Your fiat mentality strikes. You don’t own anything other than a piece of paper with your title. So you cannot assume you will always gonna be able to live there. That is an assumption!
Then owning those.pieces paper in the stock market are even more worthless... pay off the house.
@@BarringtonDrive You seem to to be missing the point. Who said anything about stocks. It is still a fiat thinking. ;)
@@mp_petrov crypto or gold since stocks, property and land are fiat?
@@impyrobot gold is not so versatile. I personally prefer crypto, Bitcoin to be exact.
During a bear market, the headlines will focus on negative news, whether it's declining economic growth, geopolitical upheaval, cultural and legal turmoil, or some combination of all three. I listened to a podcast of someone that grew his reserve from $120k to almost $460k during this Red season, can you share tips on how to make such aggressive proceeds in short periods?
Investors should be cautious about their exposure and be wary of new buys, especially during inflation. Such high yields in this recession is only possible under the supervision of a professional or trusted advisor
I thought so! a spam lede!
buy the dip when stocks fall...those who bought in 2022 are deep in the money esp if they bought the magnificient 7 stocks
It's far more motivating paying down a mortgage than just investing for an indefinite amount of time.
We’re on a very low rate, fixed last year for 5 years. We’re still over paying.
Last year I did the exact same analysis as what you’ve done in this video. My conclusion was, don’t do all in one. In an ideal world the numbers play out fine, but you cannot predict the future from past performance so diversification is key to limiting long term losses. Of all savings I do roughly 30% into pension, 50% into stocks and shares (high risk accumulation portfolio) and 20% into mortgage overpayment.
Currently 32 with the aim to be financially free in my late 40s.
good luck with that mate. Any kids?
@@szabolcstrucz2220 Cheers, no kids currently. But finance is the same as every aspect in life, you reevaluate when there’s a change in circumstances.
My plan for savings and investments now will be very different to those 5/10/15+ years from now, that’s a given.
Stay well away from wife and kids in that case
one point i noticed you glossed over - Even if property values tank in your area effecting your net worth your debt doesn't vanish. You just end up whats referred to as negative equity. So by the numbers you have lost money but by reality you haven't actually lost anything physical just theoretical money.
Another side that people forget when we talk about this - your house is a asset, but you also need somewhere to live. If you ever tried to liquidate the value in your home you generally have to buy a new home, and if the cost of homes has gone up the relative price of the new property will also have gone up. Which makes downsizing easier but climbing the property ladder more difficult. Renting is a possibility but difficult currently and if it became much easier the cost of buying would drop.
basically - your house/home is a asset with value but its not a value asset that you can liquidate without replacing(at least without changing your and your families entire lifestyle), so paying off the debt on it reduces your risk and exposure - plus you don't get taxed on money saved but you may well be taxed on gains (depending where your living)
Great video! Was going to comment early on saying the tax you will pay on any investment or savings interest needs to be factored in but you went on to cover that though I don't think you did in the very first set of figures. Its definitely a big aspect to factor in. But having so much money trapped in one asset like you mentioned with no cheap or easy way to release that equity is also a really big deal.
Im concluding that any savy investor should hedge their bets on this one and do a mix or both because let's face it.. interest rates and market returns are equally as unpredictable right now.
Having said that, if you just want security and peace of mind but not the very best returns, then paying down your mortgage is definitely the way to go.
I moved at 57 with a 17 year £200K mortgage. From the start we overpaid and brought therm down a few years. I also received money from inheritance which I used to invest in a rental, my pension and into the mortgage.
I lost my job during Covid and my repayment of £1170 became nearly 60% of my salary in my new job at a much lower salary. I remortgaged early paying a 2% fee taking the term back out to the original 2034 end point. My savings were £370 a month as a lower amount and a better rate. We’re still overpaying but what I am also doing is having the overpayment bring down the monthly payment and keep the term the same. The bank only calculated this once a year in January unless we overpay by £500 so I make this payment every 6 months.
Net result is I add the payment reduction to the overpayment meaning our sown is the same but we benefit more. Mortgage will be running when we retire but should be in the low £500 range with only about 4 years to run if we keep overpaying.
Money from the rental I put into my pension fund. The feeling knowing our mortgage is easily manageable compared to a figure of £1170 just two years ago is priceless. When the house is paid for it’ll be even better
My interest rate is 2.85. seems like it would make more sense to invest, but paying off a house seems so much more rewarding down the road
If your interest is that low and it's fixed for at least 5 years, you should be paying minimal payments on the house and putting everything into investing. Any mutual fund recommended by any of the donkeys at the banks will do better over the course of 5 years than 6% annually.
If you can get a guaranteed rate of return after taxes, then it's an easy decision. But if you have an adjustable rate mortgage, most likely the rate isn't going down, and you are faced with a big bump up. If I had an ARM at a low rate, I would be prepaying with every dollar I had. A 30 year fixed, they wouldn't see a nickel extra.
We’re on a very low rate, fixed last year for 5 years. We’re still over paying.
Last year I did the exact same analysis as what’s mentioned in this video. My conclusion was, don’t do all in one. In an ideal world the numbers play out fine, but you cannot predict the future from past performance so diversification is key to limiting long term losses. Of all savings I do roughly 30% into pension, 50% into stocks and shares (high risk accumulation portfolio) and 20% into mortgage overpayment.
I’m 32 so I’m happy with a higher risk s/s. As I get older I’ll move to less risk portfolios. Ie more bonds less stocks.
If s/s go great you could pay off your remaining mortgage with some. If s/s dont perform well you’ve already paid off a chunk of mortgage. Pension, well that’s a no brainer for me in any scenario.
@@Iain31313trying to figure out my own budget and thinking I want and need to be paying into pension, 6% of gross wage goes to that matched by employer. Then need to invest in s/s and make extra mortgage repayments. Then I have to put some away for emergency fund, holiday fund, new car fund (as I want to pay cash), Xmas fund, fun money fund, golf club membership fund… that’s the fund list so far 😂 idk how to split it all up!
I overpaid, and i feel much better as its gone
Lads this video is brilliant, richly deserves the views it’s getting. Well done.
Cheers mate, much appreciated!!
Only looking at the 25 year period is a mistake. You should be looking at your whole working lifetime. The answer to this question really has more to do with your job security. If you have high job security you should be investing. If you have low job security you should be paying off that mortgage.
As inflation eats away at the purchasing power we will all have less money to spend in the years ahead
For American listeners: investing into an IRA or 401k has an effective return 20-40% higher than market return because of the tax preference.
Deciding to pay down your mortgage early or invest in shares involves weighing pros and cons. Paying down the mortgage offers peace of mind, reduced interest, and faster home ownership. Investing in shares brings potential higher returns, but it comes with market risks. It's a personal decision based on financial goals, risk tolerance, and priorities. #PersonalFinance #MortgageVsInvesting
Locked in at 1.35% for 4 more years, won't be overpaying anytime soon, 1.35% is ridiculous.
Jeez nice one! Can’t complain then 😂
Congratulations.
Well done!
Stocks will go negative soon
What’s your LTV?
dont pay back your mortgage, and investing that money instead, is the same as :
having a payed off house, taking a loan against it, and using that money to invest
yet lots of people would do nr1, but ive not heard many that would do nr2
it's not only 6% guaranteed return, it's also tax free!
9.45% here in Poland, no doubt I'm repaying instead of investing
Good video but ONE HUGE FLAW.
The trailing 10 year annual average return of the S&P500 for example the Vanguard US equity index find here in the UK.
Is 14.6%!!!!!
That won't continue at that rate forever, but plug those figures and it's a TOTALLY different story.
And all you had to do was buy the index, put it on auto invest, and ignore.
You didn't even have to stock pick for those returns.
Whilst it feels great to be free of a mortgage, it may be worth considering pension contributions. In addition to the investment growth, you gain tax relief at your marginal rate in a nutshell adding 20% straight away on each contribution. The compound growth will put you in a much better place than putting everything in to clearing your mortgage earlier. Do a mix is a better approach.
Exactly what i did
A lot of people taking out their pensions in 2020/2021 had a bad time due to the crash. The problem with pensions is that you can't take your money out when you want, even if you can foresee a crash coming.
Most pensions allow funds to be switched to cash funds but this is risky as you are gambling on what will happen when n the markets. Most of the best returns are achieved after a crash. Most diversified portfolios that dropped significantly in March 2020 due to the pandemic will have seen a net return above cash in the bank by December of 2020. Always retain a cash emergency buffer to prevent the need to access stocks and shares during these periods or have a alternative strategy running alongside like Prudentials Prufund which offers a smoothed return which especially did well throughout 2022
Averaging 4.6% on equities is very low. I can only assume it’s in real terms and they are expecting 5% inflation.
I did the use all my income to invest in more property.
I started at 25. I'm now 40 and have 5 properties.
Worth 3.5mill and owe 1.2mill
I'll be retired at 50 with $2k per week income.
I'd recommend investing
Numbers don't make sense - but whatever.
@@meibing4912 haha ok mate
I over paid my mortgage and in the long run it saved me thousands in interest payments.
So, in short, we should get out of debt quickly because we don't know when the lender will change the rates?
Other thing i would love to see covered is the tax implications.
As i understand we don’t pay tax on money saved, but we do pay tax on money invested.
My personal tax rate is about 37% so I think the equations lean towards paying down debt :-)
Its a good point, I assumed investments were inside a tax wrapper, but if these are full then taxes rwally must be considered!
In Ireland there's a massive incentive to invest via pension.
Tax relief is given at source which generally makes it more appealing than paying higher rate of tax and then using the rest of your salary to try over pay your mortgage
I think as long as you're intentional with your money and frugal it doesn't matter which you decide to do. It's impossible to predict the future.
Hard to beat free money, which is what the bank gives you.
Even harder to beat freedom, which is what you get when you return the free money you borrowed to them with interest.
The missing point here is risk appetite. Paying your mortgage down makes your downside less risky. When your monthly payments are low you are freed up to make different choices.
And it doesn’t have to be one or the other. Everyone needs a full financial plan.
I save 50% of my salary in my pension tax free. My growth of course tax free. Then I will take this tax free 25% of the pension and use part of it to clear the mortgage. This is THE BEST and most efficient way to clear the mortgage with tax free money. I could have paid mortgage ages ago but it is poor advice and waste of money. Especially when interest rates were below 2% and mortgage is low
Only pay off the mortgage early if you have a high interest rate. Otherwise take advantage of the low interest rate and take your time. You also get a tax deduction on that interest. Pay off your credit card every month because chances are your interest rate is 10% or more. After that, pay off car loans because they usually have the next higher interest rate, somewhere between mortgage rates and credit card rates. And if you still have money, then over pay your mortgage so you can get out of debt.
That's what I do, then invest in stocks
I don’t think the bank rate can go much beyond 5% nor can it stay that high for long because it effects the government debt interest repayments and the government has a lot of debt.
This is a great video. I'm not sure why you stopped making them but you have a bright future ahead if you carry on 🙏
Don’t ignore maximising your pension contributions. The tax relief means that it blows your mortgage over payment returns out of the water
You can never predict which way a rate will jump. Rule of thumb is that every 20 years money halves in purchasing power. 4% compounding is doubling every 20 years. Historic trends forever. A mortgage is a compounding liability. Overpay it and you increase the size of the shovel clearing the debt every month. Or another analogy, the bucket bailing out the boat gets bigger and thus more effective each month as the boat becomes more sea worthy.
Assets minus liabilities equals capital. Your house should appreciate in value as you maintain it and the liabilities should decrease as you pay it off. Focus on one thing and do it well, then focus all newly available cash flow on the future investment until funded to a level you can leave for something else to invest in. Your mortgage is a current liability until it is paid. Maintance is a smaller liability throughout ownership but you can always dispose of the asset at any time.
Another factor is that for every payment, the money you pay in interest goes down. So what you could do is to "match" the interest savings by increasing the amount you pay off.
Confusingly you would make more money in the long term investing in the stock market when interest rates are high and put in mortgage when rates are low. The reason is the stock market usually falls a lot more than %interest rate change during high inflation periods. Try and fix those rates before interest rates go up high when possible. Basically buy the stock market dips and pay off mortgage when they are overvalued. In your case it sounds like the flexibility of an offset mortgage would work best.
Great video - first time someone’s talked about this topic, isn’t a financial planner and given a fair explanation as to what the key variables are that determine the optimal decision. Every planner uses the S&P returns as a guideline but if you have diversified your portfolio then you probably have lower returns shown by your vanguard research
“Business opportunities are like buses, there’s always another one coming.” - Richard Branson
What a nice channel.
Keep up the good work fella!
Thank you! Appreciate that a lot!
It is better to do both invest into monthly dividend stocks and over paid your mortgage. 100 a month to mortgage and 100 to stocks. Once the mortgage is paid off move that same 100 to stocks. The more you buy stocks, cryptos, land and start up companies that way you save money for you family. And retire early.
I paid off the mortgage before interest rates went high. It’s life changing. Plus you have a great deal of pride in the fact u own your own home. The mortgage payments now go to the market. Last years return was 25.6%.
Don’t forget here in the states, you’re mortgage payment stays the same while Property taxes, insurance, maintenance, utilities go up every year…so it’s not the mortgage that’s the problem but the other costs… that being said, instead focus heavily on investing so that in 25 years your investments wiki pay for it all.
I paid off my mortgage 5 years ago and it felt good for a while. Then I remortgaged to buy my commercial premises which saved me £1000/pm and a new mortgage payment of £400 so £600 better off. I'm now about to pay the mortgage off again but will remortgage again for another opportunity. I feel as though you have lots of capital tied up in a residential property that you can use to get more assets such as BTL'S or stocks.
Take the risks you can afford and research best you can. Like you say it’s not always in your power to control all of the cogs that affect the outcome.
Bro, you deserve 1m plus subscribers
Whenever in doubt, go for 50:50. You will not feel pain of missing out. If the equity returns are more, you will be thankful that atleast 50% were going to equity. If the mortgage rate goes higher, you will be thankful that 50% were going towards overpaying...
I wish I knew as much about mortgages at your age as you do I have one suggestion why not do both decide what is the maximum you can afford to over pay now take half to over pay the mortgage and invest the other in investment funds. Thus benifiting from both scenarios The best action is always to diversify your savings and investments
Also factor in inflation your salary will increase over time and therefore the ratio of mortgage cost to income will improve a £600pm month mortgage cost today will take up a lager share of your income compared to in 10 years.
Good points here, definitely worth considering! Thanks a lot
200% interest rates... disguised as 5% "yearly"
There are 2 flaws in this argument. Interest rates will come down to around 5%. And global equities have historically returned around 9% per year on average over the long term. Run the figures again based on the above and you'll get a very different result.
My rate is 1.8% and fixed for another 17 years. My focus is just on investing now and optimizing whatever gets the best return (Mortgage at 1.8%, student loans at 0.18% and investments at 9% average per year so far)
What country are you in where rates are 1.8%?
@@joey-pn3xe the Netherlands.
I’m American and guessing from this video that banks in the UK don’t offer fixed mortgage rates like in the US? There are many Americans today with fixed 30 year mortgage rates below 3% and even if inflation was more normal instead of 8%+, it’s hard to come up with calculations that make it the clear better choice. But a new mortgage today at 7.5% would be totally different. That said, some people just sleep better at night knowing their mortgage is paid down. I have a good friend like that. I’ve always slept better knowing I have cash available if needed.
Hi Nathan, thanks for the comment. Over here in the UK we do have fixed term mortgage rates but it is common for people to fix for 2 - 5 years. Some people fix for 10 but that is relatively quite rare. Because of that, people of course remortgage quite often, meaning that some people will have to get a new mortgage now whilst rates are quite high!
Its a risk free, tax free return. I worked in Mortgage IT. What you have forgotten about, is that people lose jobs, win jobs, get married, get divorced, get sick, have accidents, etc. If you cant make the payments, the interest rate jumps up to about 20%.
Right now the math shows investing is _probably_ better than overpaying.
But there is a psychological/habit factor to consider.
Personally I pay 8k on shares and 7k on property. Per month.
Are mortgage rates in the UK flexible to the current rate. The US rate is a fixed rate when you get your mortgage. In the US the interest is also Amortized to the front of the mortgage. The first 5 years is almost all interest and almost no principal.
Some factors that need to be considered…
There are benefits to both. Overpaying is a set return really. Less volatility. But you could do the standard diversifaction method. Just do both! If you can.....
You should have wayyy more subs with this quality!
Thanks Joshua, appreciate that a lot!
DM’d you on IG! I can help with your IG growth if you’re down to help with UA-cam :) I’m at 122K on IG & 300K on TikTok
One year after this video was made, I have had two years of 17% returns on my investments, so perhaps this video hasn’t aged very well…
There is not down side to paying off your home.
I wouldn’t overpay on a mortgage as over the longterm an aggressive portfolio of equities should outperform what ever savings you make on overpaying on your mortgage.
I think the secret is to not to buy a house that’s too big for your needs. The individuals that borrow as much as they can to buy their main residence can often trap themselves into a life time of high mortgage payments and not having any cash to invest. Don’t get caught in that trap. People also think it’s a good investment buying a large property when in reality it’s not if that’s the only asset you own. I’d take a semi detached property with 75k mortgage and a 75k investment portfolio any day. It’s all about mind set and life outlook.
I had 1 mortgage that was low-interest, fixed-rate, from 2013-2021. In that scenario, unless you are paying your mortgage off completely, or you are still maintaining 1 full years' expenses in savings, then any overpayment is piling more assets into into the risk of a mortgage... the risk being that you are betting on future stability.
"You can profit from being in debt" is 100% true... IF you have long-term stability and your income keeps pace with inflation.
I sold my home when the market went up, and moved to a cheaper (and less volatile) market for now. When real-estate is more reasonably priced compared to incomes, I can move back.
So I have a fix at 2% until mid 2027. I'm going to invest fully in mine and my wife's ISA, then use our premium bond (tax free interest) allowance then overpay the mortgage. If rates are still high when I need to get a new mortgage I'll use our none ISA money to pay off the mortgage.
you also could argue that renting + investing gets you a house faster and cheaper then getting in debt
It always depends on the circumstances and the person in question. Objectively, reinvesting the "overpayment" amount into the markets is always better in almost every situation, especially if its over a 30 year period. No questions. But debt is never objective for the person in question, and it always varies by person.
Someone who doesn't find a mortgage scary, and has enough financial discipline to save that "overpayment" amount and invest it in the market index should definitely not over pay the mortgage, because in the long term, they will always benefit from the inflation (which makes the loan and monthly mortgage payments worth less over time), and B: the growth of the market investment.
But someone who lives in fear of debt and it has a strangle hold on them, lives pay check to pay check, and has a 10% loan because they have terrible credit, should prioritize paying off the mortgage early.
Clear well delivered honest information
So you stoped to underinvest, to overpay? Cant u meet in the midle and do both?
Always over pay. I over pay the 10% each year. Much better once you pay off your mortgage your be able to save all of the money you paid on your mortgage
I did the math a bit different as you have two different scenarios with at least two different timespans you need to consider. If you only do one 25 years timespan it's worthless.
You need to consider your purchasing power for a potential stock portfolio and the budget you keep parked your your overpayments. With this in mind I have seen it's good to at least do both in the beginning and then go towards even more additional down payments. Because once it's all paid. It will releave not only the mortgage payment plus the parked budget as well. So please do the math in written by yourself.
Having equity is always an excellent option. It gives you the ability to capitalize on an opportunity that you otherwise couldn't if you didn't have the money. I think overpaying on your mortgage allows you to have a backup plan for something that you don't know that you're going to need it for.
Fabulous video 👍👍👍
Thanks Lawrence, appreciate your support!!
It really depends a lot on the fine print of your home loan.
My initial home loan (Germany) said that I could set my regular monthly rates at the base of an annual repayment of 1-3% but I'd be allowed only two switches during the 10 years the interest rate was fixed for, plus I was allowed one extra annual payment of up to 5% of the nominal amount.
So basically I could go from 1% annual repayment to 8% without any penalties.
The trouble of building complex models is that the results often aren't really clear but show you exactly how much wrong assumptions may cost you in the long run 😂.
It is extremelly basic one should get free of debt first before investing. Specially because if you overpay your debt you will pay less interest.
I own several properties out right. Paying down debt should always be a priority.
All nice and well, but Ive got a 1,8% interest over 30 years. Id rather put 200k in investments than paying off my mortgage. Even my savings account beats that interest. Plus I got an extra tax break on my mortgage interest, which makes me pay 1,2% actually
You made a bad financial decision? Seriously, interest on investment (index funds) is way higher compounded than what you're saving on mortgage.
You haven't included tax....work in the investment lives in a ISA or better a SIPP it massively out performs overpaying a mortgage
Perhaps it is better to invest in over paying your mortgage when interest rates are low. Hear me out; your monthly payment will be lower and you’ll be better able to afford over payments. When the interest rates rise, you can stop over paying (so you don’t feel the financial hit) or you’ll have already paid it off.
Some countries also have taxadvantages or writeoffs you can take advantage of reducing the actual payment. So percentages are not directly compareable.
Furthermore realestate can also be considered an investment vechicle itself, and you can also get income from renting out an extra home. Aswell as being able to use devaluation as writeoff on property improvements, being able to roll forward taxes on rentincome if it’s reinvested in the property. Eventually being able to sell realestate at highmarket if rates go down paying tax as if it’s long term capital gains or rolling it into a bigger piece of property. So even if effective rates are the same tax on that money, they are not directly compareable, especially if you have to pay managment fees and brokeragefees and instead effectivally having more similar taxburden as compared to fixed income assets.
So depending om how much you have to invest different assets might have hidden advantages.
Interesting stuff. But 4.6% return on equities is too low. James Shack did an excellent video on this topic, which might also be interesting.
I also address this in the latter half of the video! Thanks for the comment though
One thing that none of these videos mention is that in real terms you are paying far higher than the mortgage rates of 6 percent (currently). This is 6% AFTER tax so if you are a high earner then you actually need to earn an extra 10-11% to match this and that would only be interest repayment not capital. You have to pay your mortgage down asap in the next 5 years at least.
I always overpaid my mortgages but once paid I was making making sure I still had a mortgage going on against one then two rental properties. I am not planning to buy more since I am 58 and I am starting to downsize. I sold the big house in the leafy posh area. Feels good. No debt but one mortgage still going on the latest rental that pays itself.
It's weird that people are saying mortgage interests rates are 3-6% this year.
I moved home on 28th of Jan and got 1.24% fixed for 5 years.
It was locked in for a few months but still...
I think people need to use go compare and get a decent mortgage broker.
Plus a pension is a guaranteed return with tax relief. A LISA also gives 25% bonus.
How to overcomplicate a very simple concept
Thanks for the video. It was very useful. I have a further question if you don't mind.
I am on the last stretch of my mortgage, we have around 18 k left and this summer, when we remortgage, we could pay it off. Of course we started questioning if we would better off using the money and just keep the mortgage going as it is quite a little monthly payment.
So your video was quite helpful on this side.
Unfortunately, what really confused me, was a colleague a few weeks ago. He told me, do not pay it off your mortgage, because it is beneficial to have a small mortgage open and for the bank to still partially own your property. Now, I have no idea why he said so, he told me, this is what he heard.
It does sound like a stupid question. But I was wondering if you had any insight or extra suggestion of what would be the best thing to do.
Thanks!!
Andrea
interest rates are linked to inflation. The higher the inflation the higher the banks set interest rates(double blow). So although there is a limit to interest rates before everyone starts to default. By paying off your mortgage quicker. You are helping to track your savings return against inflation. Because banks and government induced double financial pain on you, while inflation is high and interest rates high. And that's why it feels good to be dept free and makes financial sense. When the banks don't have the hold over you to rub your nose in it while you are feeling the inflation pain. Paying down the mortgage a bit ,investing a bit over the past few years.But for me , mortgage interest rate above 5% is my trigger point to pay down the mortgage .by pulling out of low risk investments and paying off the mortgage in big chunks.
I loved the efficient market GameStop reference, if that company were fairly valued all investors could pay off all mortgage debt at the end of their fix
You have to pay taxes on your investment income appreciation. Unless you buy and hold, that will hinder you appreciation.
You can always sell your house
But by investing you become liquid, once you've overpaid your mortgage you don't have time on your side anymore to let that compound