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Pay off mortgage in 7 years or invest in index funds

If you had Β£500 left over every money after paying off your mortgage repayments and bills, would you overpay on your mortgage or invest the savings in index funds?

I appreciate this is a student forum but I’m sure you all have interesting ideas.

For context: there is 24 years left on the mortgage term. Debt remaining is Β£102k. The house is currently worth Β£150-Β£155k (so there is around Β£50k equity in the house). The interest rate is 3.5%.

If you overpaid the mortgage by say Β£500 a month, and perhaps paid the odd lump sum payment in to, you could pay off the mortgage in 7 years and save Β£32-Β£38k in interest payments.

Or instead would you put the Β£500 in a variety of index funds on the stock market? In the long term, index funds have always outperformed the market.

Or would you do something else with the money, if so what?

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Original post by mattymoo432
If you had Β£500 left over every money after paying off your mortgage repayments and bills, would you overpay on your mortgage or invest the savings in index funds?

I appreciate this is a student forum but I’m sure you all have interesting ideas.

For context: there is 24 years left on the mortgage term. Debt remaining is Β£102k. The house is currently worth Β£150-Β£155k (so there is around Β£50k equity in the house). The interest rate is 3.5%.

If you overpaid the mortgage by say Β£500 a month, and perhaps paid the odd lump sum payment in to, you could pay off the mortgage in 7 years and save Β£32-Β£38k in interest payments.

Or instead would you put the Β£500 in a variety of index funds on the stock market? In the long term, index funds have always outperformed the market.

Or would you do something else with the money, if so what?


Overpay on the mortgage
Original post by mattymoo432
If you had Β£500 left over every money after paying off your mortgage repayments and bills, would you overpay on your mortgage or invest the savings in index funds?

I appreciate this is a student forum but I’m sure you all have interesting ideas.

For context: there is 24 years left on the mortgage term. Debt remaining is Β£102k. The house is currently worth Β£150-Β£155k (so there is around Β£50k equity in the house). The interest rate is 3.5%.

If you overpaid the mortgage by say Β£500 a month, and perhaps paid the odd lump sum payment in to, you could pay off the mortgage in 7 years and save Β£32-Β£38k in interest payments.

Or instead would you put the Β£500 in a variety of index funds on the stock market? In the long term, index funds have always outperformed the market.

Or would you do something else with the money, if so what?

Is the mortgage on a fixed rate? That normally limits overpayments.

(I would overpay the mortgage by Β£2-300 and use the rest to have fun now)
Original post by claireestelle
Overpay on the mortgage

Why?
Original post by PQ
Is the mortgage on a fixed rate? That normally limits overpayments.

(I would overpay the mortgage by Β£2-300 and use the rest to have fun now)

Currently fixed and will be charged 2% for overpayments. however fixed term
is coming to end next year so variable is an option at around 5% interest. What would you do - move over to variable and pay off more or fix again?
I would split 50/50 for a few years. Maybe 5.
That would give some savings to fall back on.
Then use it all on mortgage. No brainer
Original post by Sammylou40
I would split 50/50 for a few years. Maybe 5.
That would give some savings to fall back on.
Then use it all on mortgage. No brainer

What if you already had a safety net savings of Β£10-Β£15k?
Reply 7
On pure monetary terms and taking long term averages it would be better to invest the money.

However most people like to spread the risk so do a bit of overpayments and a bit on investing.
Certainly never overpay if it’s going to charge you an early repayment fee!!
Original post by mattymoo432
What if you already had a safety net savings of Β£10-Β£15k?

Current guidelines are that you need to have between 9-12 months net income saved. Most people can’t manage that. So if you’re in that position you’d be doing very well. And that’s for both of you if you have a partner
Also, what’s your aim for paying off the mortgage?
do you want to have the security of that or do you want to move up the ladder and mortgage again?
Original post by Sammylou40
Current guidelines are that you need to have between 9-12 months net income saved. Most people can’t manage that. So if you’re in that position you’d be doing very well. And that’s for both of you if you have a partner
Also, what’s your aim for paying off the mortgage?
do you want to have the security of that or do you want to move up the ladder and mortgage again?

Am single. Will probably want to move up the ladder when I have a partner. Am currently torn between paying off mortgage or investing in index funds.
Reply 10
Original post by mattymoo432
If you had Β£500 left over every money after paying off your mortgage repayments and bills, would you overpay on your mortgage or invest the savings in index funds?

I appreciate this is a student forum but I’m sure you all have interesting ideas.

For context: there is 24 years left on the mortgage term. Debt remaining is Β£102k. The house is currently worth Β£150-Β£155k (so there is around Β£50k equity in the house). The interest rate is 3.5%.

If you overpaid the mortgage by say Β£500 a month, and perhaps paid the odd lump sum payment in to, you could pay off the mortgage in 7 years and save Β£32-Β£38k in interest payments.

Or instead would you put the Β£500 in a variety of index funds on the stock market? In the long term, index funds have always outperformed the market.

Or would you do something else with the money, if so what?

It's tricky because it depends on your risk appetite.

If 9 years ago you invested in an etf that tracks the performacne of say the S&P 500, you would be up.

Using the iShares Core S&P 500 as an example, a $10,000 investment made in early Feburary of 2009 would be $41,000 today. (https://www.ishares.com/us/products/239726/ishares-core-sp-500-etf#chartDialog)

But then you have to balance that with the fact that the US economy has been in a bullish market over the past 9 years. Will this bull market continue over the next 7? Most likely not because of how markets move in cycles.

It's good that you have long time horizon, but whether or not you can meet that Β£32-Β£38 threshold to make it worth your while will depend on which ETFs you choose to invest in, this will then depend on your risk appitte.
If I was you then I’d split. Unless there are penalties on early repayment.
And if you do move in with a partner and buy together, you have a significant deposit and equity so get some proper expert advice to protect your finances.
Good luck
Original post by mattymoo432
Currently fixed and will be charged 2% for overpayments. however fixed term
is coming to end next year so variable is an option at around 5% interest. What would you do - move over to variable and pay off more or fix again?


Find out what the maximum overpayment is - with my mortgage with nationwide we can fix but overpay up to 10% of the original loan amount with no penalties (and often it's possible to pay off a lump sum when re-fixing to avoid overpayment fees).

If you overpay the max and pay it all off in 7 years.....then what would you do? What are you paying it off FOR.

I had the choice with my mortgage of paying it off in 8 years or 10 - personally I'd prefer an extra meal out a month or an extra holiday (and a bit of extra slush fund in my bank account to deal with emergencies) over 10 years rather than an extra 2 years mortgage free. I want to enjoy my life NOW not at some possible future date.

Saving money for moneys sake isn't noble or worthwhile.
The other alternative is.... get a BTL property, but the gains nowadays aren’t as good. Although you get paid twice: in rent and capital appreciation. Would be a long term investment
Original post by mattymoo432
If you had Β£500 left over every money after paying off your mortgage repayments and bills, would you overpay on your mortgage or invest the savings in index funds?

I appreciate this is a student forum but I’m sure you all have interesting ideas.

For context: there is 24 years left on the mortgage term. Debt remaining is Β£102k. The house is currently worth Β£150-Β£155k (so there is around Β£50k equity in the house). The interest rate is 3.5%.

If you overpaid the mortgage by say Β£500 a month, and perhaps paid the odd lump sum payment in to, you could pay off the mortgage in 7 years and save Β£32-Β£38k in interest payments.

My first mortgage had a 5 year term, and was paid-off in 3. I currently have what most would consider a large mortgage, by choice - it's fixed at 2.74% for ~4 more years, and I get tax relief on the interest (US).

Do your early repayment penalties cease at the end of the fixed rate period?
If you make over-payments, can you get them back, if needed?
What interest rate can you get in a savings account?

I wouldn't put money in shares (other than a pension) before getting your mortgage down.
(edited 5 years ago)
Original post by RogerOxon
My first mortgage had a 5 year term, and was paid-off in 3. I currently have what most would consider a large mortgage, by choice - it's fixed at 2.74% for ~4 more years, and I get tax relief on the interest (US).

Do your early repayment penalties cease at the end of the fixed rate period?
If you make over-payments, can you get them back, if needed?
What interest rate can you get in a savings account?

I wouldn't put money in shares (other than a pension) before getting your mortgage down.

I’m in U.K. Best savings accounts are 5% but can only deposit Β£2000 - and no more. Can then do monthly transfers for 3%, 2% savers.
Yeah depends what deal I get regarding whether I get penalities for overpayments
Original post by mattymoo432
I’m in U.K. Best savings accounts are 5% but can only deposit Β£2000 - and no more. Can then do monthly transfers for 3%, 2% savers.
Yeah depends what deal I get regarding whether I get penalities for overpayments


Get an offset mortgage, put the monthly surplus and savings in the offset where they reduce the monthly mortgage repayments but you still have access to the funds if you need. No penalties for overpayments, because that's the whole point. Can also choose to reduce the capital sum rather than monthly payments.
Aren't you simply saying "can I make more than 3.5% returns by investing?"

Answer is probably yes but then the question is by how much and is that difference worth the risk of you potentially being wrong?
Original post by Zerforax
Aren't you simply saying "can I make more than 3.5% returns by investing?"

Answer is probably yes but then the question is by how much and is that difference worth the risk of you potentially being wrong?

That is a good way to put it.
Original post by threeportdrift
Get an offset mortgage, put the monthly surplus and savings in the offset where they reduce the monthly mortgage repayments but you still have access to the funds if you need. No penalties for overpayments, because that's the whole point. Can also choose to reduce the capital sum rather than monthly payments.

Never heard of Offset. Any fees?

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