I’ve read enough money blogs to realize that investing and overpaying your mortgage can have benefits. But what if you don’t have the funds or are unsure if you should invest or make mortgage payments?
Our mortgage has 15 years remaining. I have thought about this a lot. However, it feels less possible to be able to pay our mortgage off earlier due to a change of circumstances.
I was also disqualified from various company pensions. I am thinking a lot about the possibility of investing what I have to increase my retirement income.
It’s not an easy decision, and you probably have wrestled without making the decision. Otherwise, this post wouldn’t be possible.
You can read the following post to learn more about how you can make the best decision.
Why don’t I tell you which option is best?
First, I am not a financial adviser and cannot advise you on the best option. Second, the decision to pay off your mortgage and invest or not is your choice based on your future goals and circumstances.
Why would you overpay your mortgage payment?
Your mortgage is, without a doubt, the largest debt you will ever have. You’ve likely been paying thousands of interest for years and are now burdened with it for over 25 years.
Reduce your mortgage payment earlier
It can be frustrating to think that you are working well into your retirement years while still paying your mortgage. But, you might be able to use that money for your retirement.
You could save years depending on how much you pay.
Interest rates will be lower.
Your money is more useful in your pocket than in the bank. They are also using your money to invest in making more money.
What can you pay more?
Since purchasing our home, I have been with three different mortgage companies. All of them were on a fixed term.
Each has allowed for a different structure of overpayments.
It was either a 10% overpayment of my mortgage balance or a 10% loan balance. I believe this to be standard practice across the board.
Here is information about the top mortgage lenders that allow you to pay more.
Lloyd’s– Up to 10% of the amount owed on the first January of each calendar year without paying the ERC. Nationwide– Up to 10% per year of the original loan amount.
Natwest: If you’re on a fixed- or tracker rate product, you can pay 10% of your outstanding balance each calendar year
HSBC – 10 percent of the remaining balance on your mortgage, calculated each anniversary after the start of your fixed-rate period
Is there any reason not to pay your mortgage off?
Early Repayment Charges
You could be charged if you pay too much or early on the amount you have paid if you lock into a mortgage product.
Your monthly income won’t reduce your mortgage payment by much.
You might not be able to extend the mortgage for as long if you have a large mortgage.
The MoneySavingExpert has a great mortgage calculator, which will give you information about how quickly you will pay off your mortgage based on how much you have to overpay each month.
Why would you want to invest?
Contrary to a mortgage, where you pay more to reduce your interest burden or pay off your loan sooner, investing is about creating wealth through increased investment or receiving dividends.
There are many options available for investors.
I’m not a financial professional, nor am I one who can look at stock market valuations all day. So I will only talk about the two methods that I have used.
Stocks and shares ISA
Although investing is easier than ever, it doesn’t mean investing shouldn’t be as simple.
A Stocks and Shares ISA is the most popular way to invest.
These allow you to invest £20,000 during the 21/22 fiscal year, and you don’t have to pay any tax for the interest earned.
Commission-free trading platforms
A commission-free trading platform like Trading 212 or Freetrade is another option that seems to be very popular for the money.
These platforms allow you to purchase fractions of shares in companies you may not otherwise be able to.
There are reasons not to invest.
It’s not for the long-term.
Investing is a marathon and not a sprint. If you need quick access to your cash or are afraid of volatility and want to cash out, you shouldn’t invest.
You are one of the few who follow the crowd.
Many blogs and videos discuss investing. Some of them are better than others.
Many people out there would like to take your hard-earned money and make promises of unattainable gains.
How to decide whether you want to pay too much for your mortgage or invest.
When deciding whether you should overpay for your mortgage or invest, the most important thing is to remember that there is no right or wrong answer. Your decision must be based on what is best for you. This will also depend on your long-term financial goals.
Consider these things before you choose between the two options.
Is your debt more than your mortgage?
You should pay off any other debts then your mortgage first.
Are you able to afford any emergency expenses?
You should start an emergency fund if you don’t already have one.
Are you able to afford to lose your money?
Investing can be risky, and you could lose your money. Don’t invest in things you don’t know because you might miss out.
Do you have the right mortgage product for you?
You will most likely have been transferred to your mortgage company’s variable Standard Mortgage Rate product if you were on a fixed-rate mortgage.
It might be worthwhile to consult a mortgage advisor to see what deals you may be able to find. This could lower your monthly payments and allow you to overpay more each month.
How risk-averse are you?
Investing can be risky. I’ve said it before; you can lose as much as you make investments.
Your risk appetite will impact your potential gains depending on how much you invest in Stocks and Shares ISAs. A higher risk appetite means you have a greater chance of making more and a higher chance of losing.
It’s just a matter of numbers.
You shouldn’t let that stop you from trying.
You’ll be able to understand your options better if you are willing to do your research.
If you are still uncertain, your next port of call should be a financial adviser.