Advice needed on investing vs savings / mortgage

[bhanutz]

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

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

The argument is, that investing in equities is HIGH risk..That is a very sweeping statement.

 

[Thunder Bolt]

Wont be called the Nationwide for much longer!

Why?

 

[bhanutz]

Why?

I have been informed that they are Re-Branding!

 

[Thunder Bolt]

I have been informed that they are Re-Branding!

Don't they have to ask their members first?

 

[bhanutz]

Don't they have to ask their members first?

I don't know...what I have been told is that they will be called.....wait for it....."Building Society Nationwide"

 

[dazzer6666]

The argument is, that investing in equities is HIGH risk..That is a very sweeping statement.

True......almost always some risk but there are degrees and ways of limiting it.....

 

[bhanutz]

True......almost always some risk but there are degrees and ways of limiting it.....

exactly.. that is my point!

 

[Lord Bracknell]

I have been informed that they are Re-Branding!

The last time they rebranded, they changed to Nationwide from The Co-operative Permanent Building Society.

Probably a good move, given the bad publicity the Co-operative Movement has recently been enjoying.

 

[Uncle Spielberg]

The Nationwide Building Society is a very strong brand with a good reputation

 

[Perkino]

Best advise I was ever given was to invest in bricks and mortar as most other things loose their value. We are on track to be mortgage free by the age of 45 with a house which will have cost us around £300k. The current value of our house is already £300k as it has risen by over 30% in 3 years since we bought it.

I intend to have paid off the mortgage in the next 15 years and then purchase a 2nd property buy to let to help generate an income for when I retire.

Pay off the mortgage as quickly as you can

 

[dazzer6666]

The argument is, that investing in equities is HIGH risk..That is a very sweeping statement.

True......almost always some risk but there are degrees and ways of limiting it.....

 

[AZ Gull]

One alternative I thought of as well was not investing at all and instead putting one half into a separate account and at the end of the year using that to pay off a bit more of the mortgage; doing that on top of the monthly payments would knock about ten years off it.

Anybody have any advice / suggestions? Cheers

Over here there is a guy called Dave Ramsey who is something of a personal finance guru. He has developed what he calls his "7 Baby Steps" - The 7 Baby Steps

I think his approach is excellent. Basically, ensure you have an emergency fund; then pay off any credit card and non-mortgage debt; augment the emergency fund to be 3-6 months of expenses; invest 15% of income into retirement savings and then pay off the mortgage early (I've missed out the save for kids' college funding step which may or may not apply to you).

Assuming you've completed all the prior steps, I would thoroughly suggest you look to pay off the mortgage early. I paid off my 30-year mortgage at the end of last year, after just over 7 years, at the age of 48. Having zero debt is a great place to be.

 

[dazzer6666]

Over here there is a guy called Dave Ramsey who is something of a personal finance guru. He has developed what he calls his "7 Baby Steps" - The 7 Baby Steps

I think his approach is excellent. Basically, ensure you have an emergency fund; then pay off any credit card and non-mortgage debt; augment the emergency fund to be 3-6 months of expenses; invest 15% of income into retirement savings and then pay off the mortgage early (I've missed out the save for kids' college funding step which may or may not apply to you).

Assuming you've completed all the prior steps, I would thoroughly suggest you look to pay off the mortgage early. I paid off my 30-year mortgage at the end of last year, after just over 7 years, at the age of 48. Having zero debt is a great place to be.

That's a pretty sound set of principles I reckon.

 

[Biscuit]

Cheers mate.

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

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

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

Fair play. I wanted to go fixed too, but it was so much higher than variable it felt pointless. The rate would have to go up massively to make it worthwhile. Doing it for 10 years sounds like a very smart move though, I think everyone acknowledge that rates are only going up!

 

[Biscuit]

Check the details.

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



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

Yes I understand some deal do allow over payments on a fixed term, but I've never found one that's right. I might give you a call when renewal time comes around..

In your humble, if you had another 'modest' amount.. for arguments sake lets say £25k, would you look into paying it off your mortgage or investing it in another property? I generally feel like limiting exposure to risk is the best bet, (and saving a shit ton in interest payments) but then the equity you could see in a second property could mean doubling your deposit in five years..

 

[Tricky Dicky]

Best advise I was ever given was to invest in bricks and mortar as most other things loose their value. We are on track to be mortgage free by the age of 45 with a house which will have cost us around £300k. The current value of our house is already £300k as it has risen by over 30% in 3 years since we bought it.

I intend to have paid off the mortgage in the next 15 years and then purchase a 2nd property buy to let to help generate an income for when I retire.

Pay off the mortgage as quickly as you can

That's what I did. Mortgage paid off 12 years ago, bought a flat in central Brighton which pays me £750 pcm, plus the value of the flat has nearly doubled. I know as a landlord I will be seen as the devil by some on here, but it was a good investment - especially as health dictates much of my life these days (I never saw that coming).

 

[Audax]

Yes I understand some deal do allow over payments on a fixed term, but I've never found one that's right.

Mine's with Nationwide. Middle of this year we'll be 3 years into a 5 year fix. We're allowed to overpay by 10% of the original loan amount each year (of the mortgage, not calendar year), and we have the choice of either keeping the end date and reducing the monthly repayments (this is what we do currently) or bringing forward the end date. In both of those cases, the overpayment needs to be at least £500 in any given month to automatically trigger the recalculation. From memory, for us, overpaying by £1000 slices around £9 off the monthly repayment. It's been a while since we made a large overpayment, though, so I may be wrong.

We also have the option, in an "emergency" (if we need the money for any reason), to ask for our regular monthly repayments to be taken out of what we've already overpaid. That then frees up the normal monthly repayment funds to be used to deal with the emergency. The overpayments made so far are listed separately on our statement, so we always know how much we've overpaid by so far and thus how many months we could pause payments for if we needed to.

The thing we can't do is withdraw the overpayments back out directly, and from what I understand that's a feature that very few loans (if any) provide these days.

 

[mejonaNO12 aka riskit]

Mine's with Nationwide. Middle of this year we'll be 3 years into a 5 year fix. We're allowed to overpay by 10% of the original loan amount each year (of the mortgage, not calendar year), and we have the choice of either keeping the end date and reducing the monthly repayments (this is what we do currently) or bringing forward the end date. In both of those cases, the overpayment needs to be at least £500 in any given month to automatically trigger the recalculation. From memory, for us, overpaying by £1000 slices around £9 off the monthly repayment. It's been a while since we made a large overpayment, though, so I may be wrong.

We also have the option, in an "emergency" (if we need the money for any reason), to ask for our regular monthly repayments to be taken out of what we've already overpaid. That then frees up the normal monthly repayment funds to be used to deal with the emergency. The overpayments made so far are listed separately on our statement, so we always know how much we've overpaid by so far and thus how many months we could pause payments for if we needed to.

The thing we can't do is withdraw the overpayments back out directly, and from what I understand that's a feature that very few loans (if any) provide these days.

Interesting. thanks for this. My 10 year fix is with Nationwide so I'll look into this as I wasn't aware I could potentially effect my monthly payment by overpaying. I know I have the option of, if I overpay, to then use that to take a payment holiday if ever crisis hits (as you mentioned above).

 

[Bodian]

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

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

You may not be - but I wish experts would explain things in the Plain English fashion that you have. When I looked into this 10 years or so ago I was befuddled by terms such as 'amortization', and 'integer or decimal parameters'.....

I would also recommend paying the mortgage - not just for the financial reasons. Getting rid of the mortgage means that you can be free of a lot of the stress of having to both work full-time just to keep a roof over our heads. I'm now only working four days a week, and the domestic manager has gone self-employed and does 2-3 days a week at most. It's great.

 

[BBassic]

Thanks again for all the responses. Seems over-paying on the mortgage is the way to go!