Overpay on Mortgage or Invest?

[1940s]

DH and I have recently had promotions and on a 'good' month (not Christmas or annual modest holiday month) we have approx £5k disposable income.

We are both naturally quite frugal and have no debts aside from mortgage (approx 400k with 250k equity)

No large outgoings we can predict (no wedding / no more children)

We have a float savings pot of around 6months bills/mortgage should either of us find ourselves unemployed.

The question is what to do with the £5k per month disposable income. Is it wiser to look at investment isa's / premium bonds or to overpay and aim to clear mortgage down.

DH and I both come from irresponsible financial backgrounds and I am so keen to set us up for long term comfort rather than the panic we watched our parents be in.

I forgot to add - both of us opt into salary sacrifice schemes for a private mortgage.

Are their any other investment opportunities I have missed - should we be aiming for a buy to let property?

Private pension not private mortgage!^^

Personally I'd be paying down a mortgage. Unless you have a big cash deposit btl is not really worthwhile. By the time you've taken tax, agency fees, repairs and maintance. I had a 60 ltv on mine with a really good interest and was barely making £1k a year and out of that had to pay back the capital. And I was lucky enough to have great tenants who paid on time and kept the place in good nick.

I'd be paying down the mortgage in the hope in future. I'd be able. To spend on. A. Nice life

I would save the max you can on the mortgage, if you have a fixed rate presumably this is capped at less than £5k per month so would invest the rest.

That's a huge sum of money per annum, I'd get a financial advisor if I were you.

Mortgages are so cheap at the moment, if you don't see a significant change in your future then I'd be investing that cash in long term investments. Alternatively if this could all come crashing down then yes pay off mortgage and you know you've got the security of the property.

Thanks so much, yes I think we will speak to a financial advisor.

We did toy with the idea of upgrading the house and maybe getting a 4 bed in a slightly nicer area now our salaries are higher. But the thought of another large mortgage is daunting to me. I'd rather keep our more modest house and be mortgage free much earlier than expected and then swap our corporate jobs in for something that brings us more joy.

@Bells3032

Personally I'd be paying down a mortgage. Unless you have a big cash deposit btl is not really worthwhile. By the time you've taken tax, agency fees, repairs and maintance. I had a 60 ltv on mine with a really good interest and was barely making £1k a year and out of that had to pay back the capital. And I was lucky enough to have great tenants who paid on time and kept the place in good nick.

I'd be paying down the mortgage in the hope in future. I'd be able. To spend on. A. Nice life

I'm ashamed to say I'm really not savvy on BTL. Whilst you weren't making any return year on year, did it not pay off long term with the mortgage of the property effectively being paid off. Ultimately if you did it for 20/25 years you'd then own the property outright? I wouldn't necessarily get into BTL for an annual return, but rather a way of long term turning a deposit on a flat into owning the flat outright in the long term.

Not qualified in anyway - thoughts just based on experience:

Are you already maxing out your tax free pension contribution? (You say you have a scheme but not how much you contribute). This is by my understanding by far the most beneficial place to put money, as the government will contribute your tax rate. Judging from your disposable income I assume that would mean at least 40%. Ie, you pay in 5 k, government immediately gives you 2k..... that's an amazing return. It can then be invested and also generate investment growth returns. Only catch of course is money is not accessible- but that's perfect if your priority is security and responsibility.

Between mortgage and investment, really depends on your mortgage rate v the potential gain you can get from investing in different stuff (dependent on your risk tolerance).

Also depends on your life plans..... when you might want to cash out investments, and whether ending your mortgage sooner is important to you.

Yes financial advisors can be good - but be careful - the ones that get commissions on products cannot generally be trusted to give unbiased advice.

I personally steer clear of investment properties, just because it's a real life hassle and time suck.... finding properties, renters, dealing with complaints, repairs, that's a serious cost, compared to sticking it in an electronic fund and seeing it grow..(hopefully!).

If you do invest then do 20k each a year in ISAs - you can get a stocks and shareS ISA and your gains will be tax free. You'd have a bit more left over to do something else with.

When you do invest, unless you are very financially astute and have time to monitor everything, just stick it in diverse tracking funds that are spread out globally across different industries and company types... then leave it! There is really interesting research that the more times people check their portfolio (ie more actively they try to 'play the market' the less money they make! Also don't invest like this if you need your money soon (eg to upsize your house) as you may be forced to sell when the market is down.

Hope this is useful.

You don't say how old you are but maybe start to think about what age you'd like to either retire or at least pull back from full on jobs? See if you can align paying off mortgage to that date? If you had any left probably invest more in pension plan to maybe plug the income gap to that date if it is before your final salary ones kick in. Def get advice, ask for recommendations from people you know

It depends if you are in secure jobs, I would top up pension first and then consider other long term investments. If not, I would pay down the mortgage. The security of having a home debt free is worth a lot.

Also, maybe a bit sad but I find premium bonds really fun way of investing, if you have a few you get "winnings" most months , works out about 1.5% for us which is way more than any ISA's and excitement of the (very small) chance of a big win

Just to mention I believe you can get best of both worlds..... ISAs used to be just savings accounts with fixed interest returns, but now I am pretty sure you can buy bonds or funds/ stocks and shares within an ISA..... I W
As lucky enough to get a little bit of spare cash recently and looked into it, and was surprised to find this out.

We are in a similar situation and put some into investments and have started to overpay the mortgage.

So much brilliant advice thank you.

We're mid 30s and jobs are secure.

I'd love to retire at 55 or even 50 but realistically I'd rather semi retire and find a low stress role - to earn some pocket money and keep busy. Maybe an assistant in a local school or low level admin type role in the city.

I've got some cash in premium bonds! Not had them long and yet to win but I also find them quite exciting :)

You are both doing workplace pensions.
Do you both have an ISA with what you deem to be a reasonable amount in it, such as £50k, for use at some point before pensions pay out?

Mortgage - I am very glad I don't have one having been made redundant again. A mortgage is often your highest outgoing. To me it makes sense to pay it off at a reasonably fast rate even though the interest rate on a mortgage at the moment is low. The peace of mind it gives when you don't have it, or is a low amount is amazing.

I would do investments and paying off the mortgage. They are both an investment, just different types.

S&S ISA is liquid, you can sell it.
Property is illiquid, whilst you can sell it, it takes time to sell.

Between us we have approximately £50k in savings across ISA's and company shares. The 5k monthly disposable is quite new due to recent promotions so from a savings / investment perspective it feels like we're starting from scratch.

I'd like to keep the 50k as it is as it's easy to use in an emergency

I'd love to retire at 55 or even 50 but realistically I'd rather semi retire

So aim towards that, it's good to have a goal to aim towards.

• You cannot access pension at that age, so you want to continue putting money in to pension for your 60's and beyond.

• You may want to look at using a LifetimeISA for some retirement savings for age 60+ (though currently if you are a higher rate tax payer a Pension/SIPP is better due to the tax relief - but we cannot predict taxes that would be payable when you are age 60).

• Pay off the mortgage before you are 50.

• Have a pot of money in a S&S ISA which you can assess in your 50's, tax free.

Overpaying the mortgage is risk free and easy to do. I would do this as much as you can as being mortgage free is such an incredible feeling of freedom. You can put money in more risky investments with anything left over after you have paid the most you can on a mortgage.

OP I noted you said "no more children" not "no children".

If you do have children then it is worth investing as @BraveGoldie mentioned as you will want to be able to access the funds to help them out when they are 18+.

Yes we have children so want to have accessible funds for them for Uni / house deposit in 18-20 years time

Come and join us on the FIRE thread if you are interested in early retirement OP www.mumsnet.com/Talk/legal_money_matters/4165470-FIRE-starter

I'm in the fortunate position of making a similar decision but with an unexpected lump sum. It's really hard to know what to do for the best. On the one hand given that interest rates are so low (and might even end up negative) it seems to be exactly the wrong time to pay down a mortgage as the interest saved will be much lower than it used to be and the potential upsides of the stock market could be much higher. At the same time, paying down the mortgage gives you such a secure base to deal with whatever life throws at you and it's much easier to take on riskier investments with that security in place. Plus there's obviously a risk of a stock market correction.

Of course it doesn't have to be all or nothing, you can split that surplus between investments and overpayments. The key is having a clear idea of your goals so that you can plan with a target in mind. It sounds as if you have a good idea of where you want to be in the future. The only thing I would say is that it sounds as if your children are very young and it might be that you decide to spend differently for them e.g. you might find yourself paying for private school depending on how things go for them.

Are school fees likely to be on the cards? If so they changes things a bit but personally I’d be looking to up pension contributions, pay into stocks and shares Isas and pay down the mortgage.

We were in a similar position to you 8 years ago, but slightly older. We overpaid on our mortgage and now in our 50s it's virtually paid off aLowing DH to reduce his hours. We also invested in stocks and shares ISAs.....and have had some lovely holidays.

I've been following the FIRE movement and am slowly drip feeding the idea to my husband - I'd be keen to be more radical than my DH especially whilst children are young and extravagant holidays are out of the question anyway!

My biggest turmoil with FIRE is pulling away from earning at the earliest opportunity with enough to comfortably live... I can't imagine how I would leave much scope my children.

Whilst we are incredibly fortunate with approx 5k disposable per month, we aren't super super wealthy and to save for early retirement would come at a cost for also saving for children.

Seeking the ultimate happy medium!

My biggest driver as mentioned in my OP has been the irresponsible attitude our parents had, I want to be intentional with this money as nobody really knows long term what could impact it (Ill health / stress / having to support our parents etc)