I Stopped Investing and Overpaid My Mortgage… This Is What Happened.
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- Опубліковано 12 лис 2022
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Overpaying your mortgage is as good as it has ever been, but should you do it?
With inflation at a high, the Bank of England have been raising the bank rate throughout the year. This has resulted in mortgage rates rocketing, up to an average value of 6% per year, meaning that overpaying your mortgage is as attractive as it has ever been.
In this video, I explore the benefits of overpaying your mortgage, and compare it to investing in the stock market. Choosing between investing and mortgage overpayments is an extremely difficult decision, but I found a solution.
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.
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?
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.
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.
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 .
All the best and good video. In my opinion it is still a good time to invest in different stocks like gold, silver and digital currencies. This is one of the most important skills to learn and everyone should invest instead of saving. Some may agree, some may disagree. My big compliments to Natalie Rose Strayer for improving my portfolio!!......
I'm surprised that you just mentioned Natalie Strayer here also Didn’t know she has been good to so many people too this is wonderful, i'm in my fifth trade with her and it has been super.
The very first time we tried, we invested $2000 and after a week, we received $9500. That really helped us a lot to pay up our bills.
Natalie Strayer has really set the standard for others to follow, we love her here in Canada 🇨🇦 as she has been really helpful and changed lots of life's
This sounds so good and I would like to be a party to it, is there any way I can speak with her?
After I raised up to 125k trading with her I bought a new House and a car here in the states also paid for my son's surgery
Glory to God shalom.
I took out a mortgage in Jan 2020 for five years. I have overpaid the penalty free amount each year. NatWest now let me overpay 20% a year and I did that this week. I will do it again next year. Dropped the loan from £211k to £110k. No regrets
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.
Buying a stock is easy, but buying the right stock without a time-tested strategy is incredibly hard. Hence what are the best stocks to buy now or put on a watchlist? I’ve been trying to grow my portfolio of $160K for sometime now, my major challenge is not knowing the best entry and exit strategies ... I would greatly appreciate any suggestions
I'll suggest you find a mentor or someone with experience guide you especially in this recession.
I agree, I thought I was doing alright profit wise, until I needed assistance with diversification, I reached out to a financial advisor and in less than a year I was just $51,000 shy away from $850k which is like 7x more than I make on my own..
Having a counselor is essential for portfolio diversification. My advisor is Jenny Pamogas Canaya who is easily searchable and has extensive knowledge of the financial markets.
thank you for saving me hours of back and forth investigation into the markets. I simply copied and pasted jenny’s full name into my browser, and her website came up first in search results. She looks flawless.
Researched her accreditation. She seem very proficient, I wrote her detailing my Fin-market goals and scheduled a call.
Certain 'people', including some 'friends', told me to never-ever-never pay my mortgage off! I didn't wake up for a long time after that advice! But when I did wake up, I never looked back. Paid it all off early by age 55, then retired at age 60. I'm 63 now, still living rent-free and mortgage free, doing just fine financially. The only difference I noticed was my bank has reduced my credit score quite a bit, because I no longer borrow any money for anything, which suits me just fine!
Yeah, my score went down too. But I heard someone say that banks don't really use that score to judge whether to give a loan or not.
Same for me, zero loans or mortgage so credit score started to drop. So I recently got a credit card and I use that for everyday expenses inclding grocery shopping and pay it in full on payday. Dunno if it'll make a difference and I'm very conscious of how stupidly easy it is to overspend as I've had to stop myself buying crap twice already.
@@mariconor242Why would you need a credit score if you had no need to borrow for anything? Seems pointless to use the credit card.
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
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.
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.
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
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
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.
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
It's far more motivating paying down a mortgage than just investing for an indefinite amount of time.
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.
I overpaid, and i feel much better as its gone
Given the level of uncertainty in markets right now overpaying on the mortgage for the risk free return just makes too much sense. Also agree with another commenter that the financial freedom provides a sense of relief that is priceless.
Interesting view but I'd personally say that's the best time to invest. If you use dollar cost averaging and leverage the uncertainty in the global economy, you're likely to get undervalued stock (as people pull their money due to fear). Hold those for 5+ years and you're looking at some serious gains
Overpaying a mortgage is only "risk-free" if you either have enough other assets to pay it off completely, or maintain a large savings buffer outside your home-equity. Mortgages of any balance carry the same risk that you may not have enough long-term stability to pay them off on schedule. You do not gain any financial freedom at all by paying a mortgage down if you still have a mortgage after the over-payments... all you've done is limit your financial mobility while still carrying the same risk of a mortgage - though you do lower your mortgage burden slightly.
I paid off my mortgage at 28 years old..... Im 33 now and Its the best decision I have ever made, not having a mortgage makes life pretty easy.
Yup, once you're there life isn't that expensive anymore. You can tune down or up your lifestyle with total control.
Mortgage pay off every time for me paid mine ten years early, finished a year ago. When the government print money to infinity and subsequent inflation follows, interest rates are going up. Zero regrets in struggling to pay it off.
Half of the total interest paid is in the first 10 years of a mortgage. In the first 10 years you will pay off about 20% of the principal. Your goal should be to pay down 20 % of principal as fast as you can. The Last 5 years of a mortgage is almost all principal with very little interest paid. The earlier you pay extra principal the more interest you save. For most people once you paid down 40% of principal it will make more sense to invest the extra money vs paying extra on your mortgage.
I don't want to pick on your post, but this isn't proper advice for most (will explain why "most") people. Just because you're paying off interest in the first period of time doesn't make each subsequent payment less (aside from refinancing the mortgage). The decision should like solely on whether or not you'll make more profits with the Investments that it will cost you in Interest. The easy way to decide is determining if you think your returns in the market will be twice the percentage of the Mortgage Rate you're paying. These returns cover your interest + an equal additional amount to either reinvest or to pay off the mortgage principal.
The "most" part: A strategy some (very few) use is to NEVER pay off their house. It involves making the minimum allowed mortgage payment while investing the rest of their income. As they pay off equity, they immediately re-borrow this and invest that. They use their Mortgage as an economy shelter by taking profits and paying towards the principal when their account reaches some threshold and then re-borrow when their account dips below some threshold. Their mortgage payments are a tax shelter. Assuming your income is steady/secure, this is the fastest way to create wealth.
Yrs. This! Finally someone who gets it. Pay off your mortgage as fast as you can afford to until you get to 80% Loan-to-value ratio or 20% equity. At that point, lenders come to you with great rates, and you can refinance to your benefit.
After that, just overpay enough to ensure you've paid $1 more each year in principal than interest. That's it. Keep it simple.
I did this, then refinanced at 2.325% with a large cash-out, which put my equity stake back to 18.9%. Then the housing market took off. I'm now at 23% equity and keeping everything in the market.
We had a 56% deposit so not paying much interest
@@jonnyjazzz well, it's more that paying extra on the principle early in the mortgage has a big effect and you will pay off the mortgage much faster. however, the longer you wait the less effect it has on reducing the time remaining in the mortgage. just example, paying 1000 extra to principle in year one might knock 5 months off the end of the term! however paying 1000 extra in year 15 might have much less effect, maybe knocking only two months off (just made up numbers to show the effect). extra principle payments are much more effective in the early years, and that should be accounted for.
Averaging 4.6% on equities is very low. I can only assume it’s in real terms and they are expecting 5% inflation.
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.
Great video with good points! What you are referring to is the leverage effect.
Only thing I disagree with is that you get „overexposed to your home equity if you pay off your mortgage early“. You have the exact same exposure, what you just change is that you reduce the leverage.
In the end it is a question of risk tolerance. Do you take the safe return of paying down your mortgage or do you risk variable returns in the stock market.
Lads this video is brilliant, richly deserves the views it’s getting. Well done.
Cheers mate, much appreciated!!
What a nice channel.
Keep up the good work fella!
Thank you! Appreciate that a lot!
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.
Clear well delivered honest information
Paid off my 2009 £75,000 offset- mortgage in 6 years. Fear of losing my job & need to build a pension pot was the incentive I needed. Paid at least £1000.00 per month which was the rent equivalent at the time. Even "borrowed" £5000 from the mortgage pot to help fund property improvement, replacement cheap car.Boosted by some inheritance in 2013 & increased payments it was bye bye mortgage in 2015. Since 2015 the focus changed to creating a potential "3rd Pension" & the future, making loads of money from my 2009 property. Bought for £165,000 sold for £292,000, relocating, getting hitched again, continuing to invest & finally been able to afford to take early retirement, full private pension back in 2017 at the age of 57 & enjoy life.
Recommend you get shot of your mortgage as soon as you possibly can.
Certainly the best thing I ever did.
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
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
9.45% here in Poland, no doubt I'm repaying instead of investing
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
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.
you should look into an off set account if you want to lower your interest payments but stay relatively liquid with your cash
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%.
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
Fabulous video 👍👍👍
Thanks Lawrence, appreciate your support!!
Buy high sell low also applies to things like mortgages. The math is clear, paying off your mortgage rather than investing at far higher rates of returns is a losing play long term. People panic and start overpaying when mortgage rates are high, not realizing it’s likely going to be the peak.
The maths is clear? Are you factoring in probabilities? Have you ever been made redundant in a depression? Yes clearly making a good return on investments could help pay off your mortgage early, but outside of an ISA your going to pay tax and if your earning good money then you could get screwed not only for tax but also the taxable allowance. Also once overpaying your mortgage and getting mortgage free allows you the money you used to pay into the mortgage to invest with the added benefit that your not going to lose your house in the event of you being made redundant. Also when you are unemployed your benefits take into account any investments so you may not earn any dole or council tax relief and you could be forced to sell those investments regardless of the loss you may or may not incur and you can’t just dispose of those.
Everyone that says invest rather than pay off your debt clearly didn’t look at the causes of the Great Depression where leveraged asset purchase eventually caused collapse when the market moved and if you own a mortgage and invest instead then you are doing exactly that.
Remember people that are saying if you had invested instead of paying your mortgage off are looking back at past events, not factoring in potential risk. It’s easy to say “do this because the data for things that happened in the past…” dosnt make it 100% right for the future.
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
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!
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.....
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…
Great video! Thx
Cheers Nikolaj!
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
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.
I over paid my mortgage and in the long run it saved me thousands in interest payments.
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?
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.
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.
it's not only 6% guaranteed return, it's also tax free!
One further factor, pensions and tax relief - if you add more money into your pension instead. Especially as a high rate taxpayer you are getting somewhere between 15-40% guaranteed long term return entirely aside from investment returns which is impossible to beat.
And yes as you indicate the thing that most overpayers forget is that they aren't allowing inflation to eat away the value of their loan, why pay a pound off now at the real cost of a pound when in say 20 years time youd be paying it iff with half or less of that.
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?
Carol Vivian Constable 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..
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
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 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.
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.
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
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.
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.
Have you done a video like this comparing investment for growth stock versus dividend stock?
Seems like adjustable rate mortgages are more common in the UK.
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.
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.
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.
Or learn to sell options on stocks. Build a sizeable portfolio, then use the monthly returns from the options sales and add it to the cash overpayment and use all as overpayment 😊. Probably too much overpayment
We paid off our mortgage here in the USA, and we still have more 1mil in retirement accounts. When we were considering doing this we thought it was a choice between investing or paying off the mortgage, we discovered that it wasn’t that simple. In the end we did both. In essence we were really just we deciding to get serious or not. We decided yes we would get with it.
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%.
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 😂.
Sadly, banks continue to stumble, mortgage rates is on the rise with higher imports and lower exports, yet the FED is to lessen cost. So, where do we grow and safeguard our money now? something will eventually break if they keep raising interests and quantitative tightening.
ideally, you should consider financial planning to get the best results with your money, notwithstanding economy situation
Well agreed, I'm quite lucky exposed to finance at early age, started job at 19, purchased first home at 28, got married shortly afterwards to raise kids early. Going forward, got laid-off at 40 amid covid '19 outbreak, immediately consulted with an advisor in order to stay afloat and after subsequent investments, I'm barely 25% short of $1m ballpark goal as of today.
that's incredible! would you mind if I vet your advisor please? started investing in stocks november 2022, but not confident to make the correct investments as of now, seeking professional help to achieve my financial goals
There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’Marisa Michelle Litwinsky for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.
Thanks a lot for this suggestion. I needed this myself, I looked her up, and I have sent her an email. I hope she gets back to me soon.
Its not as good as the stock market (long term) but its certainly better than saving (beyond emergency fund). But for peace of mind nothing like no mortgage - do a bit of both. I'd be careful of the UK stock market though - look at its number in 2000 and look at it now - its hardly moved.
“Business opportunities are like buses, there’s always another one coming.” - Richard Branson
That why in Australia we link an offset account with your home loan and park your savings in there. Not over paying the loan but it had a similar impact in terms of slashing the loan repayments times as you have to play less interest, but still you can take money out similar to a normal bank account. 😂
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
I did a similar analysis for credit cards. The conclusion I came to is it is more profitable to pay them early if your time horizon is 10 months or longer.
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
Inflation may be rising but income is not rising to meet it. As lenders, the banks wish to avoid inflation (or its outcomes) and thats why they raise rates. So unless salaries rise to match inflation in due time then inflation is certainly a bad thing for home owners paying a mortgage?
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...
So you stoped to underinvest, to overpay? Cant u meet in the midle and do both?
I own several properties out right. Paying down debt should always be a priority.
My mortgage is due up in August. 121k left on the house. Going from 2.8 % to 4.8%.
Wondering if I should over pay or remortgage by borrowing abit more and release 40k to invest in another property?
Overpay. New rental reform will shrink the rental market in England like it has done in Scotland. Or still it in a fixed rate bond sit back and take the cash (or isa)
Don’t ignore maximising your pension contributions. The tax relief means that it blows your mortgage over payment returns out of the water
How do you figure out the saving you will make/ the years you will shave off when you over pay? For example a 575k mortgage on 6% interest over 35years. If we work with the current standard policy of being able to overpay by 10% every year what are the numbers? And how are they calculated?
This calculator is the one that I used: www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/
What do you think about the opportunity cost post-term, though?
After you pay off that debt, the house will continue to appreciate in value, but your “investment” into the debt side is then stopped and doesn’t return any %age.
Whereas if you invested it, compound growth on year 26,27,28,29,30, and upwards just gets better and better.
food for thought.
AND on saved money you dont pay extra taxt. Stock gain tax here in Finland is direct 30-34%
A home isnt an investment, you instantly expose yourself to the UK market the second you buy one (mortgage or paid off) so overpaying into it means nothing really. You have to live somewhere and unless you are moving abroad or prefer renting this is just an envitable situation that shouldnt impact your investing choice, its far more important not to buy too much house (becuz investment yo) so you have plenty of disposable income to throw at debt/mortgage/investments. The main difference between investing and overpaying is risk, returns are similar if you overpay and when its paid off roll the payments into investments. Best answer is invest and overpay obviously, larger the loan the more id lean to overpay personally because of risk.
Really good video!
Thanks Hannah!
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!
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.
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.
Having 1.1% interest rate i dont need to pay that mortgage off early, luckily
I am overpaying my mortgage purely because i don't want the bank to strip out a huge amount of equity if I ever have issues having/ finding work and they sell it for me for 75% of worth. Also the volatility of investments just now scare the shit out of me!
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.
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.
When people years ago keep telling not to overpay but invest.. look at now??? Theyre struggling and chasing the market.. Good thing i never listened to them.. im about to end my fixed rate from 99k ill be 55k balance of my mortgage due to overpaying. Atleast now my interest rate, as i finish my fixed rate wont be that high compared to if i didnt make overpayment. Ill stay Standard Variable rate one i finish my fixed rate. Ill overpay as much as i can and completely get this mortgage out of the way.
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
Except you cant access the funds in your house without selling or taking out a loan.