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Pay off the mortgage or invest?

Discussion in 'General Business Forum' started by multilingual, Sep 25, 2007.

  1. multilingual

    multilingual UKBF Newcomer Free Member

    Posts: 1,656 Likes: 4
    We are able to draw out some capital from the business in November and I am in two minds what to do with it.

    1) Pay off the mortgage, giving us peace of mind, less outgoings and a better standard of living. (more cash available each month for holidays, etc)

    2) Invest into some Buy-to-let property as a long term investment.

    3) Invest into stocks, shares, bonds, ISAs, etc.

    With option 1) our money is not really working all that well as it is tied up in our home.

    Option 2) looks good on paper, so long as house prices continue to rise.

    Option 3) looks good on paper, so long as the stock markets continue to rise.

    (Past performance is not an indication of future performance and we could lose as well as gain. Bearing in mind the current economic climate, there are risks involved in 2 and 3)

    Part of me wants to be mortgage free, part of me wants to strike out and invest to make the most of what we have got.

    Swings and roundabouts. :rolleyes:

    Any advise?

    Posted: Sep 25, 2007 By: multilingual Member since: Sep 27, 2005
  2. RedEvo

    RedEvo UKBF Legend Free Member

    Posts: 5,991 Likes: 1,525
    Pay off your mortgage.

    Posted: Sep 25, 2007 By: RedEvo Member since: May 12, 2007
  3. RedEvo

    RedEvo UKBF Legend Free Member

    Posts: 5,991 Likes: 1,525
    This might help.

    Posted: Sep 25, 2007 By: RedEvo Member since: May 12, 2007
  4. multilingual

    multilingual UKBF Newcomer Free Member

    Posts: 1,656 Likes: 4
    Thanks D,

    I understand the logic behind that article where you compare interest on debt to interest on savings and investments.

    Our mortgage (which is up for renewal in January) is currently at 4.29%, which will probably rise to around 6% I would imagine in the new year.

    Therefore, I have to work out whether I can get more than 6% by investing it elsewhere.

    Will house prices rise at more than 6% per year? Who knows! Same with investment bonds. They look great when viewed over the last 6 years but...

    It would need to be at least 9 or 10% growth, just to make it worthwhile.

    Posted: Sep 25, 2007 By: multilingual Member since: Sep 27, 2005
  5. ECGH

    ECGH UKBF Newcomer Free Member

    Posts: 28 Likes: 0
    that is a toughy of a question to answer, unless you are planning on having a 'few' propeties in your port folio as buy to let, you dont actually make much money at all, of course as you know in the very long term plan you will,but it depends how many properties you are talking about? there is a base rate rental (rental ceiling price of what people pay to rent)on most properties which are let out, which in turn might not be sufficient to pay any mortgages that you have on them.Then there's the other hidden things like insurance, maintenance, service checks, estate agent fees if acting on your behalf, when the property may be empty, if you have a bad tennant that needs evicting (cost us £1700 to evict one). All the other things that still add up.

    I personally, with the way economics in this country at the moment (think we are heading for a downfall? dont quote me on that though), i would pay off the mortgage with all the reasons you stated. With what you save you could always think about investing in property later on, then again, its a pretty damn good market to buy in at present?

    looking back, i wish i did that instead of buying buy to lets (only bought 3), i think i would consider buying a shop with property to let these days, deffo would go down that route next time.

    i would go for the peace of mind then see how things go?
    looking back at your question, it looks to me that you already deep down know which way you wouldnt mind going and thats the pay the mortgage off, i could be wrong though.

    good luck in any decision you make!
    Posted: Sep 25, 2007 By: ECGH Member since: Aug 21, 2007
  6. RedEvo

    RedEvo UKBF Legend Free Member

    Posts: 5,991 Likes: 1,525
    B&B 6.4% up to 100k

    Posted: Sep 25, 2007 By: RedEvo Member since: May 12, 2007
  7. Gillie

    Gillie UKBF Legend Full Member - Verified Business

    Posts: 13,178 Likes: 1,476
    House prices are going to fall whilst rates will increase ... you do the sums!
    Posted: Sep 25, 2007 By: Gillie Member since: Apr 12, 2006
  8. Faith28

    Faith28 UKBF Ace Full Member

    Posts: 2,111 Likes: 151
    I would minimise any liability like a home mortgage. Of course you're weighing up whether it's worth while to acquire new assets to pay for that liability in the short/medium/long term.

    I guess it depends on one thing....how risk averse are you/not at all?
    Posted: Sep 25, 2007 By: Faith28 Member since: Dec 2, 2005
  9. Comspec

    Comspec UKBF Newcomer Full Member - Verified Business

    Posts: 7,139 Likes: 1,484
    You have worked hard to get to this stage - pay off your mortgage and take your SOL up as you have said.

    Buy to Let is not what it was and the Stock Market is probably due another dinge soon too.
    Posted: Sep 25, 2007 By: Comspec Member since: May 8, 2006
  10. mconridge

    mconridge UKBF Enthusiast Full Member

    Posts: 641 Likes: 71
    Has to be paying off the Mortgage. Wouldn't touch Buy to Let for the time being.

    Investing in the stock market could be worth it but I'd rather clear a mortgage.
    Posted: Sep 25, 2007 By: mconridge Member since: Nov 22, 2006
  11. dal

    dal UKBF Regular Free Member

    Posts: 430 Likes: 23
    Well I'm not in a position to give advice as I'm just a little pup with very little money lol.
    Just sharing my thoughts though, I would deffinitely not buy to let. Option 1 is very nice, I think with option 3 the shares could be really good because they are a little cheaper at the moment and you could make more. Obviously the risk you could loose it all.
    If it was my money that I'd worked a lot of my life for I would probably pay most of the mortgage off and invest a tiny bit in shares. Because when I start to get a few quid in the bank (Very small amounts to you elders lol) I really struggle to stay at work and makes them hard days really hard. It is a pain needing money but it does hold you to work, this is probably showing my immaturity here lol.
    Posted: Sep 25, 2007 By: dal Member since: Jul 26, 2007
  12. openmind

    openmind UKBF Big Shot Full Member - Verified Business

    Posts: 4,739 Likes: 858
    Get rid of the mortgage without a doubt. I only wish I was in the same position as you with the choice ;)
    Posted: Sep 25, 2007 By: openmind Member since: Sep 6, 2005
  13. lockie

    lockie UKBF Newcomer Free Member

    Posts: 1,386 Likes: 313
    I would go for the mortgage and monthly drip feed some of that spare cash into the stock market so you balance out any risk to massive falls than if you invested with a big lump sum.

    This way you get both but on a smaller scale.
    Posted: Sep 25, 2007 By: lockie Member since: May 4, 2007
  14. multilingual

    multilingual UKBF Newcomer Free Member

    Posts: 1,656 Likes: 4
    Thanks everyone for the feedback.

    Some good points mentioned and plenty for me to think about.



    Posted: Sep 25, 2007 By: multilingual Member since: Sep 27, 2005
  15. safesys

    safesys UKBF Newcomer Free Member

    Posts: 354 Likes: 25
    Majority vote for me too - pay off the mortgage, without a doubt!

    Congrats :)


    Posted: Sep 25, 2007 By: safesys Member since: May 23, 2007
  16. Cornish Steve

    Cornish Steve UKBF Newcomer Full Member

    Posts: 14,861 Likes: 2,117
    Is your rate fixed or variable? If it's fixed, it's probably low by historical standards. Rising rates would mean you'll get a better deal investing somewhere else. If it's variable, then maybe there's an argument for paying off your mortgage early if you believe rates will go up. If you believe house prices have reached a low, on the other hand, then investing in a rental property might be a good idea - especially since the market for renters is probably increasing right now.

    In general, I've come to be more of a risk-taker through the years. I now see my home as an asset that can put to good use rather than as a mortgage that's tying me down. If I can put our money to good use (e.g., in getting my own business going), I'll do so. On the other hand, my wife is very conservative financially, so my opinion must be tempered a little because we make major decisions jointly.

    By the way, have you ever read "Rich Dad. Poor Dad"? It's relevant to the discussion.
    Posted: Sep 25, 2007 By: Cornish Steve Member since: Jul 4, 2005
  17. Jon123

    Jon123 UKBF Newcomer Free Member

    Posts: 196 Likes: 9
    I would think outside the UK, Usually where one market is on the decrease another market is on the increase so don't limit yourself to just UK, Property abroad can be very good value for money with high capital appreciation and excellent rental yields,Just look for emerging markets in property and you could really cash in.

    Have a look at this website for property abroad, some really interesting properties.


    Posted: Sep 26, 2007 By: Jon123 Member since: Jan 28, 2006
  18. multilingual

    multilingual UKBF Newcomer Free Member

    Posts: 1,656 Likes: 4
    We are on a fixed rate of 4.29%, which has a tie in period of 2 yrs. This runs out in January and we are then free to remortgage.

    The new rate in January is going to be much higher than 4.29% unless things change, so we have to allow for that in all our calculations.

    For every 1% rise above our present figure will equate to an extra £100 per month on the mortgage.

    As I stated earlier, if the new rate is 6%, then I have to see if it better to save that interest, or make more than 6% by investing.

    Based on popular opinion, and my own gut feel, I am not sure it is worth taking the risk for a couple of grand because it could all go wrong.

    My wife is also cautious, and with two young children we have to balance the risk and make a joint decision.

    As for interest rates, it's a tricky one. The credit crisis would point to an interest rate cut, but we are heading towards Christmas and such a cut may fuel inflation.

    I wouldn't bet the ranch on anything either way.

    Personally though, I would think that interest rates will stay the same, and possible drop a little in the New Year.

    Who knows? :rolleyes:

    I think we may well put this money into the house and then wait until things are more stable. We can always get it back out at a later date.

    Posted: Sep 26, 2007 By: multilingual Member since: Sep 27, 2005
  19. AV Connections

    AV Connections UKBF Newcomer Free Member

    Posts: 91 Likes: 6
    Pay off your mortgage.

    It will effect your life immediately and for the rest of your days too! Should improve your own finances a lot not having repayments every month increasing the quality of your life.

    If the business ever went completely wrong then at least you would still have your home and no repayments to worry about. Of course I hope this is never a concern.
    Posted: Sep 27, 2007 By: AV Connections Member since: Nov 1, 2006