Pay Off Your Mortgage Or Invest, Part Two

[@MeaningfulMoney]

👉 Check out the first video on Overpay or Invest here: kzbin.info/www/bejne/mqunqXuaqbp0mac

[@Raymondjohn2]

Back in the day, when I purchased my first home to live-in; that was Miami in the early 1990s, first mortgages with rates of 8 to 9% and 9% to 10% were typical. People will have to accept the possibility that we won't ever return to 3%. If sellers must sell, home prices will have to decline, and lower evaluations will follow. Pretty sure I'm not alone in my chain of thoughts.

[@bob.weaver72]

If anything, it'll get worse. Very soon, affordable housing will no longer be affordable. So anything anyone want to do, I will advise they do it now because the prices today will look like dips tomorrow. Until the Fed clamps down even further, I think we're going to see hysteria due to rampant inflation. You can't halfway rip the band-aid off.

[@martingiavarini]

Home prices will come down eventually, but for now; get your money (as much as you can) out of the housing market and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes.If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.

[@martingiavarini]

There are advisors in cities around you but I needed services of one who can guide me irrespective of location. Natalie Lynn Fisk comes highly recommended especially in times like this. I am hedging and haven't lost much to the recession. I found her in 2020 when the market was at an all time low. Look her up and thank me later.

[@hermanramos7092]

I am on her site doing my due diligence. She seems proficient. I wrote her an email and scheduled a phone call. Thanks for sharing

[@paulwilliams8122]

Great video, we paid off our mortgage 5 years early and with zero debt the physiological impact has been huge. We now feel free and have more surplus money to invest and enjoy.

[@mypointofview1111]

That's what I'm aiming for. Congratulations

[@guyr7351]

Being debt free is the best feeling, even if you have an ongoing mortgage and no other debt, at least the mortgage is a good debt. By that I mean eventually the house is yours, so you have the equity and even if houses were to crash 30% most would have a Home of some value. Living and knowing that you don’t have to pay out large amounts each month just to service credit cards and other loans is a massive stress reducer and as you say if you are no longer paying £100 + a month into servicing debt it can work for you instead.

[@Michael-4]

The peace of mind factor helps you make better financial decisions. I paid my mortgage off years ago and everyone told me a mortgage is cheap money. The truth is you don't own your home until it's paid for. It can and will be taken away from you if you can't afford the mortgage and if the market collapses you are stuck with the debt left over after it's sold at auction for 60% of what you bought it for. It's happened before, it will happen again.

[@marionexley607]

it feels different walking on the grass in the garden when you're house is paid off 🙂

[@richardcolbourne5927]

Hi, over a year ago ( aged 55) paid off the mortgage with the pension money, could have invested the extra money each month but decided to work less hours per week. Time is more important than money.

[@RealLifeGadgetReviews]

We spent 5 years paying down our mortgage, its now paid off..the freedom is on another level, those 5 years of monthly overpayments now put us in a position to shove that money in investment’s..or at the drop of a hat go on a family holiday with no negative financial implication in terms of cash flow.

[@jboogie7248]

Agreed. Paying off the house is zero risk then you can invest with a clear mind after you own the home. I'm going the same route.

[@mountainwoman1781]

A helpful sequel to your previous video, thank you Pete. Those who suggest you impose financial decisions on your wife should add another factor to the ‘invest vs overpay’ dilemma: the impact of divorce 😜

[@guyr7351]

Very true,my second wife hates debt, has always tried to manage via saving up for things. We moved 5 years ago I had to clear all debts in order to get the mortgage as it takes us 8 years into retirement. She took out a loan for 5 years for new furnishings which has just ended, hated it. I pay the main bills and she is amazed how many DD I have just for all the normal things like phone//tv, tv licence/ energy/ council tax/ etc I only have one credit card with zero interest use it for emergencies or big purchase to pay off over a few months.

[@ItsMe-co4bj]

Having just watched your upload you have absolutely convinced me that mathematically I should be investing my extra surplus money. However.......I will continue to throw as much money as possible at the mortgage until the damn thing is gone. The human mind is a wonderful thing.....👍

[@finallyhere3769]

Paying off a mortgage is a huge mental health lift - even if it isnt the best "pure financial" decision - and that shouldnt be ignored

[@chrisgraythereal]

You forgot another practical consideration: mobility. When the economy is floundering, that's when we start looking round another job, may have to move to another town, and often that's also when house prices are suppressed. If you're in the early days of your mortgage, and don't have a lot of equity, you might simply be unable to sell up and move because you'll still owe money to the bank - then you'll have to sell your investments at a time when they're also worth less than you paid for them. Paying the mortgage down for a while when times are good might be a good way to buy yourself some flexibility in the bad times. Mind you, the fees for early mortgage repayments can be prohibitive if you've got the wrong deal with the wrong lender. Like you said, it all depends on your personal circumstances. Anyway, I just found your channel and like it a lot so far. Keep up the good work, and thanks.

[@bertman94]

You're a good man for that past comment, it's all too common especially now with things getting hard on the less well off.

[@duncanbrown7160]

Brilliant final comment Pete. Too often money and control of it is used for abuse, appreciate you tackling the topic head on. Keep up the great content.

[@markdemariassy8685]

Thumbs up for your final comment about imposing. 👍

[@Andylf87]

Main conclusion to video people need to be a bit nicer in the comments….. you’re doing a great job Pete big fan of your podcast and work on KZbin. You did a good job in the first video of presenting both sides of the argument and if people want to hate then do what you do well and be above it.

[@hoxtondean9855]

9:58 thanks for taking that issue seriously. There is no place for coercion in any aspects of relationships. Discussions, coming to mutual agreements, yes, but coercion, is indeed abuse. Thank you again for taking that seriously.

[@theIdlecrane]

I work as an Architect, and have Clients that own family business that are close to 100 years old that turns over hundreds of millions of dollars a year, and they don't take on any debt, even though interest rates are at record low. So, I assume that they are smarter than me, and I don't really have any debts except mortgage on rental property, but I am still trying to pay those off ASAP. I think there is a point in investing where the investor starts to focus on minimizing risk instead of maximizing return, there is a fundamental difference in how really rich people look at how information is presented to them, and make decisions. I'm not at that level though.

[@NekonataVirino]

The value of peace of mind that comes from knowing whatever happens - stock market goes up / stock market goes down, you lose your job or interest rates change - that you have a place to live is immeasurable. When you are not worried about being on the streets you can take risks (aka opportunities for gain as well as loss) that would be unthinkable if you and your children will be homeless should you get it wrong. I LOVE paying off early and owning my home free and clear.

[@markw6309]

Great video, as always. For me, one of the most important things to consider in the overpay vs invest debate is the flexibility overpaying gives you. Assuming you completely pay the mortgage off, you now have significantly reduced expenses. It may give the opportunity to switch to part time work or take a lower paid, less stressful job. On the other hand if you are invested during a down turn in the market, you have to ride it out and keep finding that money every month, maybe meaning you stay in a job you hate because it pays the bills. This is why this decision is so much more than predicting a number based on rates of return. The investor will nearly always end up with more money. But will they be happier? I'm not so sure...

[@MeaningfulMoney]

Great point - thank you!

[@guyr7351]

Attitude is everything, being stress free is huge I can feel it in myself. I’m 63 have a DB due in 2 years, DC pots decent enough. Full state pension due for me and my wife 3 years. mortgage £670 a month with 11 years left we also have rental income. Credit card is zero % with an amount easily covered with savings. Investing when the market depressed should be seen as an opportunity especially if you think market will bounce back even if it takes 2 years, DC pensions are similar down due to market but funds will recover. Investing at the top end though almost certainly means investment will decrease.

[@marionexley607]

yes that's what I did!

[@robbybroon4904]

Thanks Pete. You mentioned inflation, but I think there is even more to consider around inflation. Esp. with it running hot and likely to run hot for the next few years, using “today pounds” to pay down a debt that has 15-20 years left to run is more expensive in real terms than paying it off in the future, as a £50,000 debt at 2021 GBP value is more than a £50,000 debt in 2041 pounds In summary inflation devalues your debt every year in real terms, so spending £1 today on it when £1 worth of debt will only require the equivalent of 40-60p in 20 years does not make sense to me. I recall when I entered the workforce in year 2000 hearing older people in the office celebrating clearing a mortgage of 25 years, when they’d owed £18,000. And I remember even then thinking, why would it take you 25 years to pay off an £18k mortgage? But £18,000 in 1975 was a lot of money. Much more than it was in 2000.

[@schopesonline]

This is a great point 👌🏾

[@zmunk]

True, but inflation will also devalue your investment principal over time, won’t it? Maybe it ends up being a wash?

[@robbybroon4904]

@@zmunk sorry I don’t understand. If you invest the money in equities (for example) rather than paying down the mortgage, you will more than likely out-perform inflation. If you manage to achieve 8-10% returns pa, you will beat inflation most years.

[@richieahern448]

Agree. Present Value is certainly something to factor in. Something also to factor …. When Interest rates rise, property values drop! High interest rates with poor returns on investments is not something you want. A mortgage free property, appreciating in a hot housing bubble can outpace an investment for many people. Not sure about the UK, but I can attest to it in Canada and have been the beneficiary of it over the past 8 years.

[@u3vs62cja]

I'd love to see Pete cover this in a part 3

[@AHR_James]

I'm putting every penny into overpaying to get that LTV down before our fixed term ends so that we qualify for a cheaper fix at that point. Otherwise, the otherwise inevitable interest rate rise at the end of the fixed term would easily wipe out any gains I may have made via investing. Not to mention of course, a 5% return yearly for the next 10 years is far from guaranteed.

[@pranaykotak5451]

Pete , Could not agree more. I watch your videos and feel you almost speak loud my thought process on your videos ( although I am just my own personal financial planner ) I was flashed your video by u tube just about a month ago. I have learnt all of what you speak by trial and error whether it's ISA , work place pension and most recently starting to over pay my mortgage once again, when the interest rates went rocket high. I wish I had been introduced to your videos atleast 5 years ago . Thanks for the great videos . Continue making them 😊

[@MrRoyck10]

I’m firing on all fronts with both investing and overpayment on the mortgage, I will prioritise overpayment over investments. Thanks for sharing

[@StassBrewing]

It probably doesn't make too much difference and i think you touched on it, any overpaying mortgage amount reduces debt and so protects or buffers against the effects of a rise in interest rates. We are overpaying for this reason. Great video!

[@Kikkoman85]

Cash flow considerations are a big part of why we chose to aggressively pay off the mortgage during our first 5-year term. Now that we have children and recently renewed the mortgage with almost 50% smaller payments, it feels good to know we were able to make that dent in the equity and we have that extra paycheck to paycheck money to help cover anything we might run into.

[@janewhitzend688]

Epic content as ever. Well done for highlighting the financial abuse angle too, huge, extra kudos points for that . A very important issue well said.

[@marionexley607]

LOVE how you put your wife's feelings into the financial equation and that it's just not about maths.

[@stingaling]

This is why you should get an offset mortgage. You an then decide what to do depending on interest rates. With my offset mortgage, when rates are high I offset, when rates are low I invest. Tax is a factor though, as I am offsetting large amounts that can't simply be slipped into an ISA.

[@Afrinaturality]

Good for you standing up for the financial dynamics in your own household!

[@robday3296]

Another great video. My wife overpays the mortage whilst I pay into investments, very similar to your situation. It works very well

[@mattsennett]

Well said Pete. In relationships what seems obvious to one isn't always the same for the other and a compromise is always the best way forward. In this case that balance between overpayment / clearing the mortgage and investing is clearly it 👍🏻

[@Gwinter452]

Wow. Not having a fixed rate mortgage sounds crazy! Thanks for the part 2 video 👍

[@hellowill]

Would be great you made a video on Investing in stocks vs. an investment property: - Stocks you just get the capital gains - Property you get capital gains + rental income, but there's all the hidden cost and maintenance, acquiring tenants etc.

[@MrDuncl]

4% isn't much. My best financial move was fixing my mortgage at 11% just before Black Wednesday. I wonder how many people here remember "Endowment Mortgages" which were pushed heavily in the 1980s but often ended up with the investment not doing well enough to clear the mortgage at the end of the term.

[@omairtariq7740]

In the US capital gains on homes are not taxed upto $500,000 in gains for married people filing taxes jointly. Whereas capital gains on stocks are taxed at 15 %.

[@benfulford3943]

One scenario that you haven't talked about, is that at some point your investments will have grown and the amount of interest you are making will be enough that you can draw it down each month to cover the mortgage repayment. This will in effect make you mortgage free but in practice you won't be. This would allow you to then invest or enjoy the savings on mortgage repayments each month making you even more financially independent! I think this has been an interesting video series and I like that you give the emotional aspect a much large consideration for someone who is inheritantly a logical number based professional.

[@hoffyboy]

I actually wanted to see more details on this very first video... thanks for the follow up

[@snubbii9276]

Overpaying to 1. Mortgage free at retirement 2 when my low fixed rate ends i can keeo payments to less than 30% of income 3. As above but also get a good rate at remortgaging 4. Lucky to split between Overpaying, extra pension and ISA to spread the load and not rely on one method to have comfortable latter years

[@stevojohn]

Loved the bit at the end. Any abuse has no place in any home.

[@MeaningfulMoney]

Absolutely 👊🏻

[@robertsvf]

To me it's simple. My mortgage rate is fixed 2.75%. My average rate of return on investments has been since I got the mortgage 9 years ago is 7% or more. Your decision should be based on comparing those two percentages. If your mortgage rate tops you return rate, then you should devote your cash to paying it off.

[@chqshaitan1]

I have not read all of the comments but anotehr reason for over payment, especially if you manage to do so before you retire, it means that your minimum outgoings will be significantly less, as you will not be paying off the mortgage, and this ultimately means that there is more money left in your pension to grow, assuming you are using flexible drawdown, nevermind the tax saving implications

[@catseybod]

Good stuff as ever, Pete. I had an interest only offset mortgage and invested alongside it (100% equities) - the mathematical "best" choice, then a while after I had enough to pay it off / offset it, I felt it would be nice to be free of it so I did - the emotional "best" choice. Both perfectly reasonable choices for different reasons in line with my different life stages. Cathy B

[@Isclachau]

Clearly better to invest when you look historically rather than overpay but I get some people like the security.

[@hellowill]

Reasons I overpay: - Don't really want to be in debt for such a long period (I'm reducing a 30 year mortgage to 20 years), so I don't have to worry about being employed for so long - (That said I could use my investment returns to just pay it off, but like you say if job market is bad, stock market is likely crashing too) - If mortgage rates increase, I can reduce my extra payments so the amount I'm paying off is roughly the same, making budgeting etc. easier as rates change That said, I'm still investing a decent amount too!

[@aficio698]

Lots of variables not to mention the fluctuations in the markets. The psychology plays a significant role along with personal circumstances. My opportunity to pay off my mortgage came later in life so this was more important than the potential investment return. Great vid as always.

[@james2614mc]

I love your content, thank you. I currently split my savings money 4 ways, 1/4 is overpay, 1/4 is premium bonds, 1/4 is stocks and shares ISA and the last 1/4 is PIP :). A little bit of everything is best for me, I'm 29 and love investing and looking after my money

[@christopherelliott1711]

As I got older my risk appetite changed and the security of knowing our home was ours outweighed the chance of earning more through investments.

[@chrisbaker91]

I think aiming splitting investment and over pay to get a lower ltv e.g 60-70% once you access lowest possible rates and then can focus on investing. Gives more headroom for inflation to eat away the debt

[@funkyhouseman]

Thanks for this video Pete! It's always good to get some other views and a bit of a sense check to avoid self confirmation bias! I've invested fairly well and avoided all debt other than a mortgage. Due to being fortunate with building equity in my first property, I haven't ever overpaid, however I've now moved and have a chunkier mortgage, 400k 5 years @ 1.29%. I think it might be best to overpay looking at the potential higher interest rates on the horizon over the next 5-10 years. Even though I'm at 70% ltv, I fear that if we have a minor property wobble at the end of the fix I could find myself at a poorer ltv and pay a punitive rate. I think that's the danger in the mortgage market overall tbh. I'm rambling!

[@andrewsmith3121]

Great to see and hear emotional intelligence presented in a financial advice video. Very rare these days. Financial abuse is rarely talked about in relationships and that is a shame, as it is one of the largest factors in destroying relationships.

[@MeaningfulMoney]

I agree, Andrew, and I'm glad the video resonated!

[@andreaschauenburg6973]

Thanks for another great video. And thank you for touching on the „imposing your views on your partner/financial abuse“ angle, I think this is really important and not talked about enough!

[@ushasundaram1]

Both Parts 1 and 2 are great videos thank you. I very rarely subscribe to YT channels but I have subscribed to yours. I got on the property ladder and started paying mortgage from Jan 2014, a 25 year mortgage for around just under 150k on a 200k property. Pros for me was that I had a decent job, frugal lifestyle, no children or dependents, and tons of willpower to pay off my mortgage. Cons were that I got on the ladder a couple of months short of turning 44, a 25 year mortgage over my head, and having been in an occupational pension since only 2011 so virtually no pension pot. (Won't qualify for full state pension as I've only lived in UK for 18 years but have contributed NI every single day. For the first 10 years I had precarious short term work and couldn't afford to save much which is why it took me so long to get on the ladder.) Plus as a single woman now nearly 52 I am vulnerable in the job market so I needed to secure a roof over my head. I've been overpaying every year since 2014, scrimping and saving but also putting in as much as I can afford into my workplace occ. pension so its been a balancing act between building up my pension from pre-tax income and saving up for overpayment with my post-tax income after paying monthly bills and mortgage. In 7 years I've reduced my outstanding mortgage from just under 150k to under 25k and the house is worth around 350k. I currently have a 2 year deal, enough savings to overpay this year, (and hopefully open a S&S ISA) and can't wait to get rid of my mortgage by summer of 2023. That way I can make some hard decisions about whether i want to continue working in a highly stressful job in a dreadful work environment or reduce my hours, or even sell and downsize to a smaller, more comfortable property although I like to think this is my forever home. I know interest rates were low and I always had good deals, never paid more than 2% mortgage but the psychological benefits of knowing I could own my home sooner, that it was a fall back if I were to fall ill or lose my job is priceless. My rationalisation was that as long as I had a job and income I would pay off my mortgage as I didn't want to take chances with debt over my head later in life. I just couldn't contemplate getting to 55 with a mortgage still hanging around my head. If I had to go back and do it all over again, I think I still would make the same choice. At this stage, I'd like to start investing - better late than never! Thank you again for your videos.

[@MeaningfulMoney]

Thanks for honouring me with your subscription, Usha!

[@rossmacintosh5652]

Another topic for a video would be to address the question of just how much housing costs a prudent person should take on. Some commentators on Pt.1 & Pt.2 taking the side of not paying extra on their mortgage think of their mortgaged home as a leveraged investment. We know in locations that have had dramatic increases in real estate prices that many buy the most expensive property they think they can 'afford', thinking they'll benefit from leveraging a small down-payment. I believe such people may not be fully understanding the risks vs rewards. While there can be rewards of buying the upper limit of what they think you can afford, the risk of losing their equity if housing prices fall, the negative impact of rising interest rates, or impact of job loss can lead to financial ruin. I think the 'big picture' benefit of keeping one's housing costs relatively modest is not widely understood.

[@benriley7053]

This is very interesting stuff. My Wife is very conservative and recoils from risk rapidly so has always been in the camp of overpayment of the mortgage, whereas I'm more ok with investment etc so we have a blend of both, we overpay every month as a couple and I invest my own money that I have left after all bills etc. It may not be the most efficient but that balance seems to keep both parties happy!

[@davidwebb2318]

This is an interesting subject. Three comments.... 1, If it looks like interest rates will rise then the investor should buy into banks and fianancial services shares. They will then be likely to make a better return. 2, The difference becomes more obvious if you look at the 20 years AFTER the mortgage term. The person who invested instead of paying off their mortgage starts this second 20 year period with a much bigger capital amount to invest and compound over the next period than the person who overpaid on their mortgage. 3, One of the key factors is inflation. If inflation is higher than your mortgage rate then the inflation is working for you. It degrades the value of your debt by more than the amount of interest you are paying. That is why investment always looks good when inflation is on the up but interest rates are lagging behnd. The debt taken on to gear up investments pays for itself just by the value of the capital borrowed being degraded. Very few people spot this but it is one of the reasons economics and investments are cyclical.

[@sandjones580]

I have not heard the term "financial abuse" before and I think it is a really powerful one. Really good video.

[@MeaningfulMoney]

Thank you, Samuel! 🙏🏻👍🏻

[@charlc55]

Thanks Pete. Useful insights. A bit different in South Africa where the interest rates are closer to 7.5% it becomes more favourable to overpay as investment returns don't often exceed this. We've overpaid and successfully saved much more than we would have gained through investments (in my view).

[@MeaningfulMoney]

Interesting Charl - that definitely makes sense. Thanks for being here!

[@blackswanmtg]

Really appreciate the last comment you made. Financial abuse is often overlooked and shouldn't be.

[@MeaningfulMoney]

🙏🏻 - so important.

[@paulh1529]

It’s clear it’s a psychological thing why people just want to be dept free rather than wealthy. The truth is the psychology of investing is far more powerful in so many areas of life. Your example takes a pretty conservative ROR. If you do better than that we all know what happens when things start compounding. Then when you have accumulated a significant wealth your attitude to life and work changes. You don’t need to work anymore, you do things you want to do. I continue to work but knowing that I don’t have to. I could cope with a significant period of time without work, my wealth just wouldn’t continue to grow. It’s not greed, it’s freedom. If you stick with just overpaying your limiting the monthly amount you’re up to your mortgage payment. There are so many other bills and lifestyle choices that you can cover with investing.

[@harryl7946]

Over thinking it: JUST DO IT!

[@jordanholden451]

Great video Pete. At 38 with long time left on mortgage, rather than overpaying mortgage I’m investing in Lifetime ISA. I plan to pay mortgage off on 60th birthday. Hopefully with some left over! 😁😁😁😁

[@robertburwood2600]

Another great pair of informative financial logic. Perhaps an explanation on investment return how you could get 3% dividend plus say 5% growth so that you could get 8,10,12% or more and this is how you get your 6% average. The swings work both ways, but never sell low. I am a we bit unconventional as I see capital gains as capital at risk so I keep trimming off and buy better yielding stocks to spread the risk. Or if I had a mortgage I could use the gain to reduce it. That would speed up the process. You are doing a great job, much appreciated. Bob

[@guyr7351]

Good video, and as you say there is no wrong or right answer other than the comment at the end about taking account of your spouse’s view as well. I had similar situation when recently remortgaged, and extended the term at a lower rate saving £380 a month. The number crunching showed only a marginal difference in what we were paying for shorter term and new deal 4 years longer. The reduced amount for me much more manageable on my reduced salary after being made redundant. What I would say is keep an eye on mortgage deals, especially if your overpaying, the win of lower amount being borrowed, lower interest rate because of equity to loan ratio can make a massive difference. Gone are the days of 25 year mortgage and just see it through with the one company, we re financed with our current lender so wins all round

[@casualgamervids]

Liking these videos. We are only allowed to over pay 10% a year on our mortgage agreement. So we over pay the maximum amount and also put a bit into investment to build up our money that way. Then, when our mortgage is over (a few years early), we can put all our money into the investment. Fingers crossed all goes to plan.

[@caliwish7585]

When I suggested that we should refinance to variable mortgage to save money(and cash some money out), my wife vetoed it. Glad she did. This was before the 2008 finance crisis where people lost their homes because they could no longer keep with the higher payments and no one would refinance your mortgage. Happy wife, Happy finances ;).

[@dinociuffetelli4591]

Imho, this is an absolute no brainer. If you owe money, you don’t have the luxury of deciding whether or not to invest excess money. The priority should overwhelmingly be to eliminate debt as quickly as is practicable. By doing this, you’re also safe guarding against changing future circumstances. I’m all for investing if you’re debt free or if your debt position is low enough to allow you some flexibility to manage both options comfortably.

[@MeaningfulMoney]

Couldn’t agree more, Dino - perfectly expressed, thank you

[@georgeagan]

Great video Pete and love the comment at the end on imposing views. Absolutely spot on! 👍

[@Erginartesia]

WHAT IF you have too much deferred tax $ .. and you were thinking about Roth conversions, but now the question is convert or withdraw and pay off mortgage. If you invest, you are FORCED to pay into this monthly if you want to fairly compare… if you miss any investment payments (especially early) the numbers are off. If you payoff the mortgage very aggressively, and get that mortgage gone FAST. Then you have extra $ to invest from lowering your budget. Then the numbers change a LOT.

[@speedonz]

Mortgaging your own home is the cheapest credit you will ever get. You would be stupid not to take advantage of it to achive a secondary income. Peoples desperation to get rid of debt is the reason so many people 'think' they are hard done by. The key is simply to not borrow more than you can afford and as always live within your means and dont get greedy.

[@neverclevernorwitty7821]

I made a similar comment in Part 1, I personally prefer the Dave Ramsey thought experiment: If you own a house free and clear (either gifted to you or presumably after you've paid off mortgage), would you run to the bank and mortgage the house so you can invest the equity chasing greater returns? Nope? Then you have your answer.

[@MeaningfulMoney]

I like this very much!

[@Petesmotoadventure]

Sound advise. Since using a financial advisor myself it is amazing on how much we have been able to build wealth.

[@greg_216]

I just learned that longer-term fixed-rate mortgages are less common in the UK. My personal inclination would be to pay off a variable-rate mortgage sooner, but at the same time keep a bit more money in savings to protect against a double whammy like a job loss that happens at the same time as a spike in the mortgage rate. It would be terrible to get close to the finish line just to stumble and struggle to hold onto the house.

[@angelalopez2003]

And then there are people like me who suddenly lost their spouse and have to make all the financial decisions alone... it is downright intimidating! I'm too young to retire (I'll be 56 next month) plus, of course, I lost his income. I refinanced my mortgage from 3.85% to 1.99% with a shorter term, and have been paying extra on it. Thankfully, I do have some money in a Thrift Savings Plan; but it's not enough for my future. After watching this video and others like it, as well as trying to get educated about finances, I guess it's time to finally jump into the stock market. I plan to do both as others have stated.

[@MeaningfulMoney]

I’m sorry for your loss, Angela. Tread carefully and take the time to educate yourself on investing, but definitely get started. I wish you well…

[@sgist7824]

Thank you Pete, great points. We overpay a little each January as we have an offset, but there's higher amounts going to SIPP and ISAs.

[@Gemok1980]

I'm currently doing a bit of both. I've got 3 years left of my fixed rate I'm overpaying to my guess at the next LTV band and investing in a LISA & SIPP with the rest.

[@michaelkopysh1429]

Quality content, sound advice and a Dave2D aesthetic. You sir, have a new subscriber.

[@MeaningfulMoney]

I’m grateful, Michael!

[@moneybee]

Always an interesting concept. Great video Pete! 😊

[@elainhayter9144]

Great video 👍😊 I've just gone on a new mortgage deal which has halved the monthly interest and reduced my monthly payment by £45.. however I continue to pay the same amount as I was before..ok not a massive overpayment but every little helps. I also buy premium bonds each month.. maybe in the future I could do some proper investing but for now I like the safeness and accessibility of bonds. Best wishes to you Pete.

[@benhaley9811]

My mum used to buy these and every couple of years we get a £5 cheque in the post, are they any good?? (Premium bonds)

[@paulbarton7886]

thanks for explaining things(in all your video's) in an easy to understand format.

[@MeaningfulMoney]

You’re welcome, Paul. Thanks for watching and commenting! 🙏🏻

[@nazmushaq7328]

What you can also do is invest the cash in the capital markets, and then use it to early repay you mortgage. As long as you earn a return greater than the interest rate, you can repay your mortgage earlier than by overpaying your mortgage each month

[@davidp4456]

Thx. Interesting videos. My own strategy is to pay off the mortgage early AND invest. I pay £400 per month into a stocks and shares ISA. At the turn of my last fixed mortgage deal I withdrew £30k from this account and paid it off against my mortgage balance. Upon renewal for the new deal this gave me the option of (i) shortening the mortgage term and paying the same monthly repayment or (ii) stick to the original term and lower the monthly repayment. I chose (ii) since interest rates had gone super low and in addition to lowering the mortgage balance I was then saving £350 per month on lower repayments which could be re-invested or spent (I now have up to £750 pm to invest!). I am doing the same for the next renewal at the end of my current 5 year fixed rate deal ending in a couple of years, at which time mortgage interest rates will be higher and I will likely opt for (i) and shorten the mortgage term, saving on the extra interest payments. I’m not sure how this works out mathematically, but rather than pay monthly over payments I retain the money in my ISA stocks & shares account covering me for possible emergencies, I get a return on the investment and retain the option of either shortening my repayment term or lowering my monthly payments when I next renew my mortgage deal. Does anyone else do this and done the maths?

[@martinmowbray4304]

IF you get 5 % a year. Also investments go down as well as up. Also we’ve now had our first rise in interest rate. I think we’ll have another two rises next year. I’m actually doing both. Overpayments and investing.

[@kehlew0160]

As this is about wealth creation there is the matter of capital gain of the asset (house) over the 16 or 20 years which you don't seem to factor in. Where I live, housing values are very high already and rose over 20% in the past year and have only gone up over the 25 years .

[@Elinbenfelin]

Also thankyou for that final comment, you have my subscription 👍

[@MeaningfulMoney]

Thank you. Such an important message!

[@FABM27]

Overpay only if pension income is less than pre pension income.

[@grainofgold6986]

Having debt (a mortgage) is an inflation hedge. So if inflation does start to run high the good news is that your mortgage is falling in value (in real terms) which is great. If you have £200k invested (at 5%) and £200k mortgage (costing 2.5%) you are better off and have more flexibility for the myriad of scenarios that could play out over the next 20 years.

[@DirtSweatGears]

I don't know how it is in the UK, but in the USA, mortgage interest is tax deductible and my interest rate is fixed. Because of this, my strategy is to simply invest my tax return. Whether I invest it into property improvements, or in the market, as long as I don't blow it on something dumb, I effectively multiply my money.

[@MeaningfulMoney]

Yeah, mortgage interest is not tax deductible here in the UK, but if it was, that would definitely be a huge factor

[@stevenfreitas8379]

My question atm is buy or rent and invest, as of oct 2022 mortgage rates have gone crazy, help to buy is no longer an option so we need to build crazy deposits on shity salaries :) What a time to be alive lol

[@MeaningfulMoney]

It’s rough, Steven, for sure…

[@annabellaandrewkingdon7972]

I still think the same as the last video. Investment in property using a mortgage is a geared investment which means you gain more than if you had not geared as much. So provided you accept that a home is also an investment then it's better to never reduce the mortgage and invest as much as possible into as big a home as possible all the way through them downsize. It's a tax fee gain. Why pay down the mortgage if you can fix and invest using a geared investment? Obviously it's a risk reward as per any investment but worth considering all the same...

[@BeeBee-ku1ym]

Smash the mortgage. The debt is guaranteed your income isn’t.

[@Bob_too]

A big consideration has to be where you are in Net Equity of your property and savings relative to the IHT limits (£1m for a couple). 40% TAX on IHT is a lot to pay just for the piece of mind paying the mortgage off, only the to pass nearly half of it back to taxes. Covid or accidents can happen at any time so why pay off your mortgage if you have a net equity over £1m. £1m may sound a lot or a little depending on if you live in the North or London. But even in the midlands, many investors have property assets over £1m. Also if your net assets are over £2m then the £1m IHT allowance is eroded £1 for every £2. Much better to Invest and Spend to enjoy via ISA or in use the SIPP if you want to pass it on to your kids…

[@hellowill]

Interesting video, cause I made a similar calc just a few months ago. I setup a google sheet with the 2 scenarios. Then you can easily tweak the inputs (investment return %, mortgage rate %) and see how the scenarios compare. (Scenario 1: paying mortgage quicker with the extra cash you have, then when its paid off invest what would be the mortgage payments + extra cash) (Scenario 2: invest the extra cash you have for the entire mortgage term) Also considered a 3rd scenario where you make increased payments at the start and then investing the extra payments later. (I figured it might be good cause the interest is higher at the start, but it didn't seem to make a difference.) I'd make the google sheet public but needs some work to remove personal info!

[@JeffKumler]

Excellent video. Obviously there are many factors and variables when it comes to investing or paying down your principle. But another factor which was not accounted in your analysis was taxable gains on your investments. I'm not referring to retirement accounts, but shorter term investments that would result in taxable income. In the US, that has a significant impact on my decision. My guaranteed savings of reduced interest payments are also tax free. If I could only pick winners in the stock market this wouldn't be so difficult....

[@MeaningfulMoney]

Thanks Jeff. Tax would not be an issue on the numbers in the example here in the U.K. I do understand that this would make a difference, but hopefully the thought process is useful for you to work out the best route for you

[@Smokey187um1]

Not only does paying off your mortgage give you financial freedom but it gives you security. I understand the investment argument but as there are no jobs for life if you can clear your biggest debt first, you won’t need to worry too much about what job you do if you lose your current one and no longer working in fear of your boss or “how will I pay my mortgage” scenario. The previous generation made the mistake of spending years 40-65 piling up for retirement and sacrificing lifestyle to do so. They now have a set mindset and have nothing and not enough time left to spend it on.

[@antbeckley5577]

Excellent video with pragmatic advice. I wonder if you'd consider modelling the outcome for a 50/50 split.

[@rodgrierson9621]

I’m curious about paying off vs investing from a tax perspective. In Canada, we do not at a capital gain on our principle residence, so if you pay off early the money is tax free. On the other hand, if you invest, depending on what vehicle the investment is placed into, likely there will be tax consequences when you draw money as income from the investment. In Canada there are exceptions to this though. Personally, I like the idea of paying off early. It can never be a bad thing to have no debt.

[@sackville_bagginsess]

Nice ending Pete.

[@bobbymooreok]

Isn't the broader question: 'how much do I want to live off in my retirement?' With that in mind, I personally struggle to see the utility of any property portfolio that, in times of crisis, could see crazy interest rates (15% in early 90's?) with no source of income to replenish it and/or an inability to shift the asset. Then again, one could argue that my pension point could see equal turmoil during the same period....

[@repudiummoney]

We came to similar conclusions too but also explored the individual factors that should guide the decision making. :-))

[@ShelbyPaget]

In our situation we have rentals with a daily amortizing interest only type loan which re-amortizes in real time and increases cash flow per month as we pay down the rental properties. In addition we are still aiming to use our active income to continue to invest with while simultaneously using the rental cashflows to pay down the remaining balances on the units. As the interest only property gets paid down it allows us to borrow up to the value of the asset in cash like a debit account and paydown or invest into other assets or items. What are your thoughts on a situation like this? For example the avg mortgage on our rentals is about $1500/mo while rents are on avg about $2300/mo and the avg loan balances at 3.657% are around $250k. We pay about $5k/mo min towards principle in addition to what the tenants pay as normal. Thoughts?