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Original poster

Should I be concerned by DH's approach to our mortgage / savings?

29 replies

PutThatInYourPipeandSmokeIt · 24/02/2008 16:15

He insists that it's best to pay the interest only on our house and put what we would have put in to pay off the actual mortgage, into options and stock etc. Does this sound reasonable? I am good with money but just do not understand the financial world at all.

OP posts:

vitomum · 24/02/2008 16:30

think that is a riskier way of doing it, so could save or lose you money over the longer term. can't really say more about it that that, sorry.

dittany · 24/02/2008 16:35

This reply has been deleted

Message withdrawn at poster's request.

Oblomov · 24/02/2008 16:37

I know this is very general, but 'generaly' people only choose interst only, if they can not afford the alternative - i.e a repayment. And it is considered a short term - maybe something you would do, until ideally maybe the children were grown up and both parents able to work.

PanicPants · 24/02/2008 16:37

I wouldn't do that at all. The worry that the lump sum wouldn't be there at the end of the mortgage would kill me!

I don't think it's worth the risk tbh

Iota · 24/02/2008 16:42

endowment policies, based on stocks and shares, used to be very popular until everyone started having massive shortfalls.

They are very unpopular these days

tribpot · 24/02/2008 17:00

It's a risk. I wouldn't do it, not with something like your house. Of course, he could be right, but he could also be wrong, and then what's the fallback?

I have an interest-only mortgage but that's because our capital is tied up in other houses, I don't think I'd risk it otherwise, although I know other MNers who view this as an acceptable risk. So it maybe depends on your attitudes to money a bit, for something this important I'd want dh to be pretty convincing that he'd thought the options through before I agreed.

hunkermunker · 24/02/2008 17:01

Very risky, imo. Get some decent independent financial advice.

Prufrock · 24/02/2008 17:10

We pay interest only, and we do invest quite a lot of money in shares, including some that is punted on riskier stuff. BUT, we already have more than the mortgage amount salted away in very tax efficient schemes that will eventually pay school fees, and we clear about 1/5th of the capital each year with dh's bonus. If you could still afford to keep your house if dh lost everything he invested, then it's a viable, but risky option. If there is any chance it would leave you homeless, it's not.

And please don't use the cop out of "I don't understand". This is your money as well, and you shouldn't be allowing your dh to do anything with it that you have not been able to make an informed decision baout. It really does annoy me when women ust opt out of financial responsibility and leave it all up to their husbands. If it's a good thing to do, and if he understands fully what he is doing, he should be able to explain it to you, and get your buy in.

Lulumama · 24/02/2008 17:16

i don;t beleieve it is the best way at all.... DH bought his first house, 13 years ago, with an endowment, it is going to fall short by a 1/3 at least...we have the rest of the mortgage for the house we subsequently bought on capital repayment.. it is nicve to get the mortgage statement every year and see the amount it has reduced by !!

interest only is not the best option at all, unless you can afford to take losses as well as gains with waht you invest in

see an independent financial advisor, together, so you can both talk about and understand the best options for you and your family

Miggsie · 24/02/2008 17:31

Buy Alvin Hall's books now!
OR The Which? guide to finances.
Gambling on a return on the stock market to pay off a large mortgage without having cash savings is mad.
Alvin Hall says "never invest any money in the stock exchange that you are not prepared to lose".
I am friends with a day trader and they say: there are two ways to do the stck market, day trade or short trade while watching the market every second (this is a full time occupation) OR invest small amounts each month in a good fund and leave it there for YEARS. Everything else is a mugs game (unless you are Warren Buffet of course).
Start watching Working Lunch.
If you only repay interest you never have an asset.
Mortgage rates are higher than savings rates so you lose money every month. Unless you earn lots and lots and can salt large amounts away in tax efficient havens and have a good financial advisor and fund manager you will lose money slowly over many years, end up with no assets and lots of debt, just about the time you retire and see your income reduce by about 2/3.
Could you pay your mortgage on your projected pension?
Do some reasearch then have a long chat to your husband as he is risking the family's future, and that is a big risk.
And find out about how to manage money. Men have a much bigger risk appetite than women and and if you have a family you should be mitigating risk not increasing it.

CoteDAzur · 24/02/2008 17:34

This is the absolute worst moment to be investing in stocks. Markets everywhere have been in turmoil since the beginning of the year. Check out the London Stock Exchange graphs on this page.

As for options, even in the best times the market has seen, it takes a sophisticated investor to trade in, and even understand the advice being given on options. Is your DH a sophisticated investor? Would he understand how options are priced and what happens to that price as time passes for example?

Original poster

PutThatInYourPipeandSmokeIt · 24/02/2008 19:22

He does understand the markets but is overly optimistic and risky. He is also the sort of person that you can't say anything to and he just gets arsy defensive and closes down. It's all a it awkward to say the least. We do have some money (not much) with a financial person who trades on our behalf and he has ongoing money held in stock options as part of his bonus from work.

Blast. I was worried and now I'm even more so. I will insist on another chat. I did mention the endowment failings before as I know about that but his illusions of grandeur made him brush all that aside as irrelevant.

OP posts:

theyoungvisiter · 24/02/2008 19:30

the thing is that by paying off your mortgage you will be saving yourself circa 5-7% interest on whatever you pay off, every year, year on year. By not paying off your mortgage you are being charged that every year on the money, so any gains you make on the stock market are meaningless until you have cleared that shortfall.

If your DH is absolutely confident that he can really achieve this kind of of growth on the stock market (and remember you also need to deduct trading fees, taxes, etc etc) then he should be writing his own book and making the money that way!

IMO (and I'm not a financial trader or anything) this is ONLY worth considering if you have an absolute cast iron way of paying off the mortgage anyway, if his plan fails, ie a very rich parent with a weak heart or a winning lottery ticket.

alfiesbabe · 24/02/2008 19:45

Way too risky. Unless there's a watertight way of knowing you can pay off the capital, then I wouldnt. Interest only is fine for short term, or in specific circumstances, but not if this is your only property.

dittany · 24/02/2008 19:47

This reply has been deleted

Message withdrawn at poster's request.

BreeVanDerCampLGJ · 24/02/2008 19:50

In answer to the thread header...

YES

bozza · 24/02/2008 19:51

I think if you are well off and financially savvy like prufrock and her DH (hope you don't mind this description pru, I think it is fairly reasonable ) then OK yes do it like that. But I think for somebody with average income and savings and just your regular understanding of investments etc it is not such a great idea.

Lulumama · 24/02/2008 19:56

wow ! you describe him as overly optimistic and risky, and has illusions of grandeur.. i would not trust his opinion on what to do with the childrens' piggy banks, never mind investing money in stocks etc

a chat with the both of you with an IFA might help him see sense...

Original poster

PutThatInYourPipeandSmokeIt · 24/02/2008 21:06

ok - I have sat him down and got him to draw the whole thing out. What I had failed to understand is that he has handed absolutely everything over to this financial person and not just the bit that I had in my head. This is very relieving to know. Plus, and it does make sense, that over the long term - 20-30 years, as long as the investments make over 5%, then it's all ok. The minute things don't look good (and the trader is aware of this and will alert as needs be too), he is going to pull the money back in and put it all on the mortgage. I feel better.

OP posts:

theyoungvisiter · 24/02/2008 21:17

Ok, I'm not a financial person but surely if the investments only make 5% then you would be better off using it to pay off the mortgage?

Your mortgage lender will be charging you upwards of 5% for your mortgage (I know recently rates have been lower than this but we have been having a comparatively easy ride over the past few years - in the 90s rates were as high as 10%) so if you ONLY make 5% on your investments you will only be breaking even.

Plus bear in mind that 5% has got to cover not only your profits but also the fees this financial person is charging, plus any taxes liable on your profits - and over a 25 year period the tax situation could change considerably. What if you find you have to pay 40% tax when you come to sell your investments? In that case you will need to make at least 7% in order to break even.

Sorry, but I'd need a lot stronger argument than that to convince me this is a good plan!

Why can't you and your DH repay the mortgage until inflation reduces it to a smaller sum than you can afford to repay, and then plough the excess into stocks?

Lulumama · 24/02/2008 21:19

it still does not sound that great to me, sorry.

MinkVelvet · 24/02/2008 21:20

This reply has been deleted

Message withdrawn at poster's request.

theyoungvisiter · 24/02/2008 21:28

also bear in mind that in times of recession mortgage rates tend to go up and stocks tend to go down.

What if, for eg, mortgage rates rise to 10% (not unlikely - in 1990 the bank of England base rate was 14%). You would still have a very large debt (because you wouldn't have paid anything off) so in that situation would you be able to afford to abandon your stocks and switch to interest and capital? Or would you have to abandon both the stocks and shares AND be unable to repay your mortgage as well?

Prufrock · 24/02/2008 21:36

Why thank you bozza. Seeing as dh still does, and I used to, get paid a lot of money to work within these markets I will accept the compliment gracefully. (Though it's notable that dh - the salesman, is significantly more gung-ho than I - the ex pm/risk monitor am)

Put that- I would be very wary still - having all your investments with one person is still extremely risky - dh and I got seriously stung in the dotcom crash with money we had with a senior manager at Charles Stanley, not his fault, but I was extremely glad the money wasn't essential for our day to day living.

Prufrock · 24/02/2008 21:37

If I were you, I would be asking my dh for a joint meeting with this guy, and ensuring that you were happy with the risk profile your dh has outlined to him. I'm presuming you don't WOH and he does, which is why he has the attitude that it's his money/decisions? Honestly the best thing I ever did for my realtionship with dh after becoming a SAHM was to take full control of our finances. Obv. I still consult dh, and he makes suggestions, but it's my job. It gives me equality, and security - if we ever did split up dh would have to ask me for figures to fill out his divorce disclosures . You have to pitch it to him as an opportunity for you to take a job off him of course.

And if you feel you aren't capable, spend some time on the motley fool/moneysavingexpert forums.

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