Paying Off Your Mortgage vs Investing

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Mortgage rates have surged and stayed high in the UK. For those with mortgages they are probably thinking: Should I bother with investment at all or should I just pay off my mortgage rather than invest? In this video, I examine this question, discuss how to structure the decision and show you which factors you need to consider when making it.
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Timestamps
00:00 Introduction
00:29 What's Changed?
02:23 Stock Return
07:38 Pay Off Mortgage
10:26 Invest
14:30 Breakeven
18:48 Conclusion
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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.

[@Pensioncraft]

Thanks to Trading 212 for sponsoring this video. Get One Free Share Worth Up To ‎£⁠100! Create and verify a Trading 212 account, make a minimum deposit of £1 and use our promo code "RAMIN" www.trading212.com/promocodes/RAMIN

[@michaellucas5159]

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[@benjamins3205]

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[@csikydody]

@@benjamins3205 I got 10£ worth of adidas ; it works and it is "UP TO 100£" which 10£ technically is.

[@vascularlab]

What is your opinion on when interest rates will drop in the uk?

[@steviejd5803]

I’ve paid off my mortgage early because I wanted to be free of it, that alone was my best choice. Now I have plenty to invest if I wish, I do a little, I spend a little too much but I’ve found my friends dropping dead around me at 52 and 53, life is short, just enjoy.

[@payneslandscapes490]

I’m sorry about your friend but I like what you did ps I did the same as you

[@MI-ci5hg]

Within 2 years away myself can't wait to be free 😊❤

[@kelleychilton2524]

I paid off my mortgage early nearly 4 years ago and it was the best financial decision of my life. Being debt free is truly freedom, no better feeling. Now I'm able to bank the vast majority of my paycheck and my investment portfolio has grown substantially. I have absolutely no regrets.

[@seanmurray8051]

I paid my first mortgage off in 10 years(a flat) now in a house and back to having a mortgage and have a good chunk to invest. I could pay off the mortgage in full but prefer to invest as plan to sell up and move aboard in a few years anyway. I'm 41 now. Plan on being 'retired' before 50. It was a nice feeling being mortgage free before, but I realise it's only psychological really. Investing to replace earned income, for me, is better. Whatever your outgoings, if your investments can fund it l, then it doesn't really matter.

[@Stripeyperch]

Paying off the mortgage in 2017 is one of the best investment decisions I've ever made.

[@channel4ferrets]

I did both. No mortgage gives a "peace of mind" and now I have more left to invest ;)

[@neilcameron434]

35k salary borrows 300k,tell me the bank so I can short it 😉. Thanks for the video, great information.

[@hTyKn1]

Yeah but once they got their £270k windfall they were ok 😁

[@Mr35000000]

It was taken out with Northern Rock back in 2007. Too late for that Short!

[@Loundsify]

Yeah me and my partner earn a combined 72k and Halifax will lend us roughly £362k which is around 5x our total salaries and we wouldn't dream of borrowing anywhere near that. The lender doing this is absolutely at risk and shorting them is definitely not a bad idea long term.

[@anniealexander9616]

Fannie and Freddie end up with that mortgage. Tax payers pay when the borrower defaults.

[@kelleychilton2524]

@@anniealexander9616 Yes, and US taxpayers had to eat a huge chunk during the 2007/08/09 fiasco. What a rip-off that was and we'll being paying for it for years.

[@hTyKn1]

I overpaid my last mortgage and paid off a 25 year mortgage in 12.5 years. I then retired early which I wouldn't have been able to if I still had that millstone around my neck. I got great satisfaction out of knowing that I was depriving the money lenders out of extra profits! The problem with investing large amounts of money in the stock market for 95% of amateur investors is that they don't have the mental fortitude to not touch their investments. It's a well known fact that most private investors do not get what the market returns because they panic and try to dance in and out of the market usually with disastrous results. Overpaying your mortgage guarantees you savings every month. I had a mortgage where I could borrow back any overpayments which meant I didn't keep a lot of money in savings because it was there if I lost my job and the interest rates on savings back then were pitiful.

[@mahogs9]

A bank will give you a HELOC if you lose your job? And isn’t the interest rate on a mortgage a tax deduction? Did you end up paying more taxes once you no longer had that “millstone”?

[@hTyKn1]

@@mahogs9 I live in the UK so none of that applies

[@GonzoTehGreat]

I did something similar. I actually negotiated for a 20 year repayment period, which was difficult to meet initially until my salary increased, but I continued to pay it off gradually using savings until it was fully repaid after 12 years. Unfortunately, neither government policies nor the last decade of low interest rates rewarded my efforts, but at least I was no longer in debt.

[@seancrowe3353]

​@@mahogs9you can deduct your mortgage interest from your taxes in the US? Wow

[@UJO08]

Index investing is best approach for an average investor.

[@sak079]

Great video. We allocate 50:50 to overpaying mortgage and investing. Nothing beats the feeling of overpaying your mortgage

[@paul_k_7351]

Earning more from a risk free gilt than paying on your mortgage (instead of overpaying) might beat that feeling.

[@sak079]

@Paul K risk free? You still take Mark to market risk and look what gilts did in 2022? Risk free - not a chance.

[@paul_k_7351]

You don’t need to mark to market as a private investor.

[@sak079]

@Paul K of course you do - mark to market doesn't matter if I can 100% guarantee I never need the money back - which few can. Also it bloody hurts logging in to see those loses on a risk free asset class. I'll keep overpaying the mortgage and investing 50:50 thanks.

[@RogerYeahmon]

Not having a mortgage at all feels way better than paying a mortgage

[@notarobot4088]

Great video Ramin, you hit the nail on the head by saying it's about psychology. Been overpaying the mortgage & investing while having an emergency savings fund as well. Fortunate enough to be able to borrow at 0% the balance outstanding on the mortgage before the fix deal came to an end. So effectively saving the 6 or 7% interest amount that would have been due. Looking forward to being mortgage/loan repaid at the end of the year. Then will ramp up pension contributions.

[@DesVids]

I had this decision, yeah on paper I would have made more investing but I have no regrets with paying off my mortgage instead. If I really hate being debt free and king of my castle, I can always re-mortgage. I don't think I will. Also, paying off the mortgage is tax free, investment income is taxable so that closes the gap a bit too.

[@kelleychilton2524]

Yes, good comment. Most of the people who try to justify keeping their mortgage are those folks who are still in debt. I have NEVER heard of someone who was debt free and regreted their decision to payoff their mortgage or other debts. Those debt free folks get it.

[@pixelezio]

Most people do their investing in a sipp/workplace pension which tips the favour even more towards investing due to the tax relief.

[@jake4236]

This is such a good breakdown, thank you Ramin

[@Pensioncraft]

Thanks @Jake

[@Jonnyicey]

A few years ago the comments would be filled with "over paying your mortgage is the worst decision you could ever do" etc because we had such low interest rates for years, now the comments flipped the other way. I paid off my mortgage which had a rate of 1.6% by the end and I slightly regret my decision because I didn't use any of my ISA allowance, in hindsight I wish I had done 50/50 into S&P500 / Mortgage.

[@seanmcshane1988]

I guess the other thing to be mindful of is that as you progress into lower LTV brackets over the life of the mortgage, you will reduce the interest offered and make additional savings over the life of the mortgage that way. Would be curious to know how that changes things, but difficult to quantify unless you take a specific period.

[@andymcall1986]

Good point. I was wondering the same. If we overpay £100 pm then once our renewal comes around in 4 years we'll be under 60% LTV. If we don't, it won't.

[@jasonbutlerfinancialwellbe2412]

Great overview of the issue. My starting point would be to compare using the lump sum to repay the mortgage and then invest the money saved on mortgage payments into investments. The return in the long run will be lower than investing the lump sum, but the mortgage return is certain and there is no ongoing drag on household income if you need to suspend ongoing monthly investing.

[@NbyD]

exactly what I thought. Also you are less likely to panick sell on drawdowns as the money you invest is not needed when your fixed teaser rate runs out.

[@theFijian]

Agreed. The 204k v 1.2M is not a good comparison

[@jmitterii2]

Not paying off a mortgage is using margin to invest... generally not a good idea unless you're time is spent researching and constantly managing your your equity positions. And even then its... a bit of a nightmare. Leverage trading increases your risk. So best stated: 1) Paying off your mortgage or rather focusing on that more than investing is less risky. 2) Focusing on investing, and not paying off your mortgage is more risky. What risk profile do you have? A) what is your net cash balance? Low? then low risk is better. High? This ticks to the more riskier. B) What is your net retirement net total value? (Low?) Then tick low risk. High? Then tick this to riskier. C) What is your income? low? Then tick to low risk. High? Then okay for more riskier. D) What is your age? Young under 50? Tick higher risk box. Older 50 or above ( tick lower risk. E) What are your goals in life: need cash withdrawals sooner or later? Sooner? Tick low risk. Later on 20 plus years, tick higher risk. F) What is your rate? Lower rate tick riskier invest instead. high rate? Then tick to less risk. Answering those can qualify a risk profile. More ticks in risk or low risk will give you an idea what you should do based on your risk profile. That's an objective way to personalize this question as the answer is nuanced and requires a complete specific analysis of your own financial position. Money market isn't really investing. That's saving. And one should first Save first. Pay off as much debt as possible, then focus completely saving. Then invest. 1) Save enough first and foremost for at least 90 day emergency fund. Adding slowly while paying debt off to 6 month savings. 2) Then focus on debt. Get that down as much as possible. Including mortgage. May invest, but keep it low; max out 401K matching contributions and put in about 5% of gross income. 3) Then debts paid off and at least 6 month to 12 months of savings accessible, then you may 100% ramp up investments. Up your 401K and IRA as much as possible to the max levels if possible. Cash investment accounts as much as possible.

[@parkwaydriven92]

Thanks Ramin! In the process of buying a 300k property (at 4.25%) so that example was very useful and I’ve been thinking about what to do going forward. One thing I don’t think you touched on was taxes. I suppose that can add more complexity but I guess if it’s your main home and your investing in an S&S ISA there should be no tax to consider! I think I’ll stick to trying to max out my ISA allowance and using money market funds for the liquidity mostly!

[@mryan3123]

This is a simple question made convoluted by an individual who works in the investment industry. Pay off your mortgage first because: - By eliminating the mortgage debt, you effectively save on the interest payments that would have been made over the life of the loan. - Without a mortgage, you eliminate the risk of foreclosure if you face financial difficulties in the future. - For individuals approaching retirement or already retired, paying off a mortgage can significantly reduce monthly expenses. This can be particularly advantageous when you have a fixed income and want to ensure a comfortable retirement. - Paying off a mortgage simplifies your financial situation. You no longer need to allocate a portion of your income towards monthly mortgage payments. Once you are mortgage free, then you have the option to start saving or investing with the freed up cash flow. There is a reason for the warning at the 5.50 mark, it's a lot riskier to invest in the market than to be mortgage free. If it wasn't risky, then there would be no warning.

[@altun8310]

Any calculation about market returns should take that estimated/historical average and cut it by half for any comparison, which right now makes it more or less equal to mortgage rates. Comparisons assume one big, big premise: someone knows what they are doing with their investments. That investment return %, not matter the number used, is quite theoretical. I would be curious to see disaggregated historical returns: institutional investors (professionals) vs common people. I bet the former is higher and moves the market average up. Investing has lots of human risks: Spending (consuming) your savings instead of investing. Buying high and selling low your stocks, panicking when the market corrects, investment fees/commissions that can sometime decrease returns by 1-2%, and so on. Past returns can't predict future returns because the economic environment changes. What will moving from globalization to de-globalization do? Average returns of the last 20 years or so were impacted by the low (lower than an historical average) interest rate environment. Stocks got fueled by low returns on mortgages. It may be different in the future.

[@muffemod]

13:00 The % annualized returns converge over time, however the total return diverges over time, for instance in a monte carlo simulation. The certainty of what your total return will be gets less likely the longer you project into the future.

[@WobblycogsUk]

We paid off our mortgage early and I'm happy with the decision. At the time the interest rate was very low but we weren't confident enough with out money to make investing realistic choice. In hindsight investing would have been the better route but I'm happy we made the best choice we could at the time. Anyway, if I may make a request for content, it would be great if you could recommend some books or courses people could take to learn more about investing. I feel like I'm struggling to make that next step to properly understanding finance.

[@JohanTetzel]

Just watch more Ramin 😂

[@GonzoTehGreat]

For new investors, I'd recommend *The DIY Investor by Andy Bell* (founder of AJ Bell)

[@Johnsmitheny]

If you’re struggling to start just open a stocks and shares isa with vanguard or similar and invest in a global fund. Then adjust as you learn more.

[@getinthespace7715]

Paying off the mortgage early is the best bet. His mortgage vs investment argument COMPLETELY ignores risk. There are lots of risks out there. Market crash, injury, job loss, death of a spouse. In pretty much all those cases you'll be much better off having wiped out the mortgage. Not owing people money is very freeing. Then you can amass money in investments at an extreme rate.

[@rmcl4112]

@@getinthespace7715🎉🎉🎉🎉 sounds like the best advice here 😂

[@mixerman8]

Great video and in-depth options, so much to think about but my advice would be keep it simple, everyone needs an emergency fund to last 6 months. Pay your mortgage off which I did for peace of mind, then you can take on more risk. All my buy to lets are on interest only all profits have gone into stocks shares ISA which im almost to an amount I can just leave for 20 years in which time it will have snowballed up to either pay the houses off or sell the them, but the choice is there. The next 20 years of the profits will be going into loading up on work pension. So in this case in buy to let mortgages which are different defiantly investing is the best way forward.

[@jchanli2247]

Great video. Watched & liked! I invested a lump sum in stocks & this made me my first million with the help of an awesome Investment Manager who trades for me.

[@Pensioncraft]

Thank you! Cheers! @J Chan Li

[@nataliaaraujo4665]

That's really great. Who trades for you & how can I get in touch with this person to aid me trade my funds also?

[@jchanli2247]

@@nataliaaraujo4665 👍👍 Thanks, she is known as Erlinia Jedraa Barrett. Look her up.

[@bennymcghee9201]

She is really good. My friend in Europe who works with Erlinia Jedraa Barrett referred me to her so I reached out. She trades for me and has tripled my 100k in few months . Cheers🌹🥂

[@mbr7826]

Thanks for the video Ramin

[@Pensioncraft]

My pleasure @M Br

[@onebiteknow]

For me, it’s definitely paying off the mortgage. I am investing through ISA, which HRMC only allows you to hold GBP as the only currency, and because I only invest in US stock, the cost also needs to take the forex exchange difference into account. This will offset 2-3% of my return. Also, like many other first time buyers, we are using residential mortgage and plan to rent out the place afterwards, so we need to pay it off asap to rent it out for more household income.

[@andrewtodd3980]

Pretty sure you can hold US stocks in an ISA. Maybe just not cash?

[@dongmingzhu666]

No point holding individual US stocks. Uncle Sam charges you tax on dividends too. Just buy the S&P500 ETF in GBP

[@raeveth]

Depends on which stocks you're looking at - the advantage of US stocks is there are many more to choose from who have been posting growing dividends for decades, additionally they pay dividends quarterly so you get to reinvest regularly. You will lose 15% of the dividend via tax tho, even in an ISA

[@jont96686]

Endowment mortgages were based on the principle of it being better to invest than repay. That failed and nobody uses them now. Fact is investment returns are unpredictable while repaying has a guaranteed effect.

[@antsly]

If people invest regularly and leave it there even when the markets dip 30%, then an endowment mortgage would work. Most people, cannot do this, largely due to psychology. Paying off a mortgage is a forced savings method

[@stephenbrook65]

True, but many of the problems with endowments were about advisers being incentivised to sell them using vastly inflated return projections to make the required monthly payments seem smaller. Plus the fact that the funds themselves took absurdly high fees. If you wanted to invest rather than overpay your mortgage today, it’s possible to do so more cost effectively - but yes, you still bear responsibility for checking you can ultimately repay the principal.

[@user-vc5qk9tg7u]

investments lol. it's a casino dreamt up by casino masters. "investors", for the large part are gamblers.

[@kelleychilton2524]

You're exactly right. Paying off your mortgage loan early results in a guaranteed rate of return that can be realistically and accurately calculated, with no assumptions and no guesswork. Future investment returns are mere estimates which are notoriously wrong.

[@acxezknightnite1377]

My husband and I have investment properties and we have mortgages on them all (about 50% ltv), but our main home is owned outright. Could we borrow against it and leverage that money to buy another 5 houses? Yes. But I’d rather know the roof over our heads is secure, and it gives my husband and me more options for the future.

[@kevinnadasen3872]

Always good to pay off the mortgage on rental properties.

[@Mr35000000]

@@kevinnadasen3872 I disagree, I keep mortgages on most of my rental properties, as the interest payments (within a limited company) can be used to offset profits.

[@seancrowe3353]

Only within a limited co though. Many people don't have the option of switching their BTL ownership to a ltd co sadly and have lost interest relief

[@richardcoppack5357]

Very helpful information. Personally, as a business owner , my risk is in our company. Therefore, I prefer the certainty of paying off the mortgage. I have an offset mortgage which is a good compromise

[@Pensioncraft]

Thanks for sharing! @Richard Coppack

[@roberts8783]

what about adjusting the return for risk. I.e standard deviation. and tax cash flows

[@Azel247]

I'm considering doing a modified 60/40 portfolio with 60% invested fully in equities and 40% towards pre-paying the mortgage (as opposed to buying bonds). How does this sound?

[@jamiewinstanley9719]

thanks for the video. mortgage up in 8 weeks and very relevant to me as got a chunk to spend thanks

[@Pensioncraft]

Glad it was helpful! @Jamie Winstanley

[@wilsonproperty3320]

One thing to mention, is that the 100 year period of 1.8% return on UK housing, doesn't take into account rental income at all... so I guess if you took into account an average annual yield of 6%, the return would be vastly better, and maybe even better than stocks?

[@danielhilton9697]

I think he's talking about buying your own home, so only including the appreciation on the house seems correct. I'm surprised at only 1% growth in real terms though...

[@farah6258]

I love videos like this.. I'm mentally preparing myself to overpay my mortgage.. I feel stuck in my job because of my commitments. I know I know, I can resign but I just want to live my life and not work.. actually just be able to choose my job (even if low pay) and live my life

[@Zero-Investing]

How do you calculate this formula if it's monthly, say £300 a month. A windfall is different from partial investing or partially paying off the mortgage.

[@mooremoneymakin]

Thanks for this. Think I'll keep calm and carry on investing.

[@Pensioncraft]

You're welcome @mooremoneymakin

[@playingFTSE]

Respect Ramin. Have you changed opinion on Trading 212 a little? I remember asking you about it a couple of years ago and you werent a fan (because of the CFD's if i remember correctly).

[@frederickmorton275]

What people sometimes forget is that when there is no debt of any kind there is so much more cashflow that can be then used for investing even more agressively. In UK where fixed mortgage deals are usually from 2 to 5 years and what happens after that is out of our cintrol, makes perfect sense to pay extra toward paying it off sooner but only when there is no othwr debt and when we have solid emergency fund set.

[@johnny-S]

Back in the late 90's 'endowment' mortgages became popular - this is where the monthly mortgage payments were split between paying the interest amount of the mortage, and the remainder was invested in the stock market. The idea being that the amount invested in stock maket would produce more than enough to clear the balance at the end of the mortgage term. Many of my friends were persuaded to take the endowment option (because the finance companies made a good commision on them!). Sadly none of the people I knew got enough back from the portion that was invested in the stock market to clear their mortgage.

[@deantatlow4021]

Paying off a mortgage before investing can be a sensible decision for several reasons. Considering the impact of taxes on investments, the average returns of retail investors, and the long-term benefits of reducing mortgage principal, it becomes evident that prioritizing mortgage payments can provide financial security, stability, and future savings. It is crucial to evaluate personal circumstances, risk tolerance, and goals to make an informed decision that aligns with individual financial objectives.

[@4n74r4y]

Thanks, ChatGPT!

[@sb_dunk]

​@@4n74r4y lmao

[@ben3989]

I feel like all those words don’t mean anything

[@GonzoTehGreat]

Gobbledeegook...

[@dlc2479]

It's seldom a good idea financially but yes there are emotional benefits for some personalities

[@TheMrDamp]

I think current stock market valuation plays a huge role in this decision. For me in the US, investing in the SP500 now COULD yield 9% per year over the next 10 years, but it’s not likely. In addition our mortgage rates are closer to 7% right now. Mortgage rates could go down in a couple of years but who knows. The key is making the best decision for you with the current information you have. For me it makes paying the mortgage much more attractive.

[@TheSteinbitt]

Don’t you have fixed 30 year rates in the US?

[@TheMrDamp]

@@TheSteinbitt yes we do have 30 year mortgages. There’s no guarantee that rates will fall to refinance into a new 30 year mortgage is my point. It’s likely that they will fall but who knows

[@kelleychilton2524]

@@TheSteinbitt There are 15, 20, and 30-year fixed rates available in the USA. If you pay on a 30-year fixed rate loan and it takes you the entire 360 months to pay it off, then you'll end up paying roughly 2 1/2 times the original loan amount. Your property may or may not appreciate accordingly, depending on the area where it's located. Some cities have actually experienced a depreciation in real estate values, especially those located in depressed neighborhoods in urban areas. In the USA real estate market there is a saying that goes ... there are 3 factors in determining real estate values .... location, location, location.

[@TheSteinbitt]

@@kelleychilton2524 I think location reigns supreme everywhere. It’s the ultimate shortage, it doesn’t scale and doesn’t get cheaper:)

[@talexe]

Fantastic video, but is there not a contradiction between your assumption of 6-9% annualised returns on the stock market and Vanguard’s much more pessimistic forecast? If equities only grow by 4-5% over the next 10 years, are we not possibly already beyond the equilibrium point?

[@avipatable]

I know its not the done thing as you can (could!) make more on investments, but man I am happy I have no mortgage. Ignoring the quantitative data, it really gives me piece of mind. We had to buy outright as I was a contractor (and my mrs and I have been scrimpers since forever, so we could do it). It also means that we can have lodgers for the large construction project nearby (ones that live elsewhere but stay during the week/shift for work and then leave for breaks) without having to worry about what the lenders say. It is OUR house!

[@Pensioncraft]

Yes the psychology of the decision is really important. Some people just love the idea that they own their own house. Thanks, Ramin

[@markb80]

I have also valued certainty, and even though paying off during low rates periods isn't mathematically optimal, am now basically not exposed to high mortgage rates, and can benefit from higher savings rates and more cash to invest. Great video Ramin 👍

[@paulbrown5839]

It's good to get rid of the mortgage when you are a contractor, because then contracting gaps don't stress you.

[@avipatable]

@@paulbrown5839 yes, that too!

[@patrickmoloney2628]

Hi, very interesting video.. I can't ignore the fact that tax was completely ignored on the video though. Clearly no tax paying off your mortgage. However, investments is it assumed that they are within an ISA or what happens when you factor in CGT and dividend tax etc.

[@raeveth]

ISA is tax free but you've probably paid into it after you've been taxed on your salary, or your spouse's part-time job income could all be put into the ISA tax-free or close to tax free. Or you invest in a SIPP, tax free. Or you sell up to your limit in CGT every year...

[@GandalfPassing]

Good video, however I think you could have talked longer about the tax implications of each option. For example, you pay of $10 towards mortgage, you're saving 5% instantly and there is no tax payable. But buying shares that give 9%, then you will need to sacrifice a large percentage in tax to realise the gains. However, the upside to shares is establishing a long period of unrealised gains and thus not needing to pay tax at all until you sell them much later in life.

[@sebluketravis2438]

Fabulous video, and landscape analysis of the two entities. However, the one thing none of these analysts do is account for letting out rooms in a bought place. My cousins best friends father (divorcee) has let out a room (2 for a shorter while) in his 4 bed house for 15 years in an affluent part of the North West - made serious money that way. Built a very simple second shower room and kitchenette with a second entrance for that live in tenant - all done at very decent costs. Is that best of both worlds, maybe?

[@swingyapants]

I’m doing both

[@67eamonn]

I suppose if you invested into a SIPP with associated tax relief this would change the calculations of what brings the best return - mortgage overpayment or investing? Even if the SIPP doesn't have the liquidity of other investment types.

[@kelleychilton2524]

Even then, the rate of return is still based upon an assumption. Paying off your mortgage loan early results in a guaranteed rate of return that is realistic and quantifiable, leaving absolutely no assumptions.

[@shellyperera2010]

​@@kelleychilton2524but you're paying it off with post tax income. If you put that into your pension and left it to grow you could pay off your mortgage with tax free lump sum.

[@raeveth]

This is something I've been considering recently. I think I will split my extra income 25:75 overpaying:investing. I considered that the currently erratic inflation is eroding the value of my mortgage, and the stockmarket has always been the best investment. This way I get the psychological boost of knowing I'm paying off my mortgage 10+ yrs early, but I'm also accruing investments which can be used for emergencies, large purchases, etc

[@beginner828]

Exact my thoughts.. found someone with same logic 😊

[@beginner828]

Exact my thoughts.. found someone with same logic 😊

[@kygo]

Great video as usual... but is it really prudent to look at average returns for the last 123 years? Surely using say he las 30 years would give a more prudent "modern" view of the world, as the world is very different now to 1900?

[@nntpdump]

I am currently looking at gilts: they are currently available to buy a discount to their par value, maturity just before my fixed mortgage rate ends

[@medwayhistory3101]

Inflation is a key variable as well. A Canadian five year mortgage locked in at 1.86 percent until 2025 is an easy decision. Inflation is probably at least four or five times the negotiated 2020 mortgage rate. I think I’ll invest, wait for the mortgage term to mature, see what the renewal rates are two years from now (probably lower than the current 7% in 2023), and perhaps pay off the balance or some sort of hybrid decision. I work with others who prioritized the mortgage and they seem very happy to be debt free as well. Lots of variables and ultimately a personal decision.

[@kelleychilton2524]

Leaving the debt in place increases your overall risk profile. You're also making the assumption that life won't come along and leave you disabled or permanently laid off from your job. Also, if you opt not to pay off your debt obligations early then you must assure that you have sufficient life insurance coverage in place to pay off your total liabilities so that you don't burden your survivors. By leaving the debt in place, rather than paying it off early, you're leaving a lot of loose ends that could potentially come back to haunt you or your loved ones.

[@cagilozansoy7281]

What is a good UK website for ftse news and share reviews ?

[@paul_k_7351]

Ramin this is probably one of the most important videos you’ve done. I’ve been telling people this for years but it’s has often been received with scepticism. And that’s before you consider inflation eroding your debt too. I truly hope a lot of people earn a lot of free money from this, particularly with gilt yields at what they are and how low mortgage rates were only a couple of years ago!

[@emjay11279]

what if we get a japan like stock crash?

[@paul_k_7351]

@@emjay11279 You can diversify to global indices to reduce the risk of that somewhat. But if you are still worried about that you can go 100% into Gilts, they are offering decent yields at the moment and are likely to get better. As long as your Gilt yield is better than the interest on your mortgage you are winning.

[@c.espinoza528]

Kudos, great video.

[@Pensioncraft]

Glad you enjoyed it @C. Espinoza

[@minimad8793]

although made 5 months ago, still worth watching again. I do both at the moment overpay and invest. At least I have the options then of stopping both payments if times change.

[@george6977]

My variable rate mortgage struck me as risky. At one point the morgage rate reached 13% and I increased my mortgage to 35 years. UK Inflation was over 23% in the late 70s. How do people cope in countries with hyper Inflation? When I received a voluntary redundancy windfall I used some of it to pay off my mortgage as that eliminated the risk of losing my home if OPEC quadrupled the oil price again. I realised equities would probably be a better investment but why take the catastrophic black Swan tail risk?

[@kelleychilton2524]

Wise decision. Life has a tendency to come along and smack us up beside our silly fat heads when we can least afford it. Being debt free greatly reduces your overall risk profile. The importance and relevance of this fact cannot be overstated. Numbers crunching is merely academic, it's not a reflection of real, everyday life. Personal finance is more about emotion and less about mathematics. Being debt free gives you options, both financial and otherwise, that you just don't have when you're saddled with debt.

[@elrevesyelderecho]

11:22 well, assuming that they are not in red at the moment.

[@kelleychilton2524]

Yes, too many assumptions. Paying off your mortgage early earns you a guaranteed rate of return, no assumptions necessary.

[@joehenry9546]

I’ve been looking in to this question for years. Short answer pay off your mortgage first. HOWEVER, If you know the market and you find some REALLY good value. Invest conservatively as well. BUT, Mostly pay off your mortgage.

[@fnnv7823]

Promo code doesn't seem to work. Pop up says ' Bonus already applied'.

[@Joe-lb8qn]

I'm surprised that AFAICR you didn't mention investing within a pension especially asa high rate taxpayer where the tax advantages are considerable.

[@jameskirkland3344]

Interested why you didn't subtract inflation and fees from the nominal return on stocks. Also the risk of stocks vs guaranteed return of paying off mortgage

[@mbr7826]

If I could pay off my mortgage in full from next pay check all I used to pay for a mortgage I would invest which would be the most comfortable way of doing it for me

[@bangkokbiker3538]

Hi Ramin, for the long term average of 9% returns, what is a general investment strategy for this return? Are we looomg at indexes or more selective strategy?

[@Greg-ii6nq]

Wait for inflation to be around 9%....

[@blumousey]

The horizon has to be at least 10 years, for 99% certainty of positive return it has to be 20 years I think. So the risk and volatility are high. Ramin uses the ftse developed world ex-UK fund on vanguard. I personally use the ftse global allcap index, as it has a small allocation for emerging markets and smallcaps, which over the long term could boost the overall return, but it's also an extra element of diversification.

[@PAZPERDEE]

Great video, thanks

[@Pensioncraft]

Glad you liked it! @PAZPERDEE

[@roccostiff2444]

Paid my mortgage off had 55 thousand left, saved myself £340 a month put 180 thousand in a Bond for a year at 4.6% £20 thousand in an isa tax free £800 a month better off and mortgage free 🤷‍♂️ rock on happy days and I’m 40 🤘

[@kelleychilton2524]

Good for you, that's fantastic. You're going to be wealthy someday while your contemporaries will still be living paycheck to paycheck. 👍👍

[@RoseandEmma]

thank you

[@Pensioncraft]

You're welcome @Emma&Rose

[@gerry2345]

I like this vid. Good insight.

[@Pensioncraft]

Thanks @GerrysPlace

[@Gjudxdkjyzddhjnr7091]

@pensioncraft where can I find the mathematical formula for calculating the breakeven point for mortgage vs. investing? Would like to run the numbers for my personal circumstances

[@Pensioncraft]

Hi @lewisolliver7091 If you are a Premium member on PensionCraft.com there is a spreadsheet available for you here pensioncraft.com/patreon-post/pay-off-mortgage-or-invest-spreadsheet/ If you're not a Premium member and want to become one you can do that here pensioncraft.com/investor-education/membership/

[@Goady1000]

Not investing but ive been putting my overpsyment into a high interest account now whilst mortgage is 1.79% for 2 more years

[@Bigdogstusks]

It’s all ifs and maybes investing in the casino stock market. The only people who make money are the banks and brokers in fees. I’d go for the guaranteed return and safety paying your house off gives you.

[@CodeCruiser]

Is that 6% return based on index investing? Your sponsor and other surveys show that most retail investors lose money! Does it consider fees? Taxes?

[@mattdedasc]

Good video. I am paying off my mortgage and investing at the same time, in a split ratio. This is because i have a cap on overpayment and still have a fix until end of 2026 at 1.18%. When it resets - higher - I'll have much less capital to pay back and want a negative impact on my nominal mortgage monthly payment. Stocks have downside. Paying off the mortgage doesn't (yes you addressed the opportunity cost)

[@tristanc2271]

Yeah... but what about house appreciation? In the US we have seen housing prices TRIPPLE in the past decade.

[@syedmalik1908]

I can get a 4.03% rate at 60% LTV (£1270 pm payment and £30.8k over 2 years) vs a 4.42% rate at 80% LTV (£1760 pm payment and £42.7k over 2 years). Improving the LTV and unlocking better rates seems a much better option in the current market, although ideally we should do both; invest and overpay.

[@Mr35000000]

Yeah, on those figures I would agree, pay down to 60% and ISA/SIPP the rest.

[@shane_2337]

I think were forgetting that if someone paid off £270k leaving them mortgage free, vs if they put the £270k into the market, if they are mortgage free. Thay have more expendable income and can still invest into the market over those 25 years anyway

[@LVOshelis]

100% I think this video is misleading in that sense, but then again most personal finance YT channels forget this fact. Paying off mortgage has been undervalued here in this video as well as the fact that there would be captitals gain tax to be paid on investments also seems to have slipped. 6% mortgage is a guaranteed rate of return, 9% gains on investment is not.

[@GeorgeAusters]

We bought last year at 2.14% on a 5 year fixed so going to try get it paid off within the 5 years

[@idontcarefuku]

Hi, Do you have a copy of that graph 1871 to 2023 S&P 500 real total return over increasing time intervals - I can't find a copy of that online?

[@jamiekenleyuk]

Why do one can you can hedge your beta by doing both? We have done both for years without any regrets. I'm deffinatly not regretting it atm, even though we're are sat at 1.8%. Or monthly Bill's will still be low when that rate does go up because we only owe 50k on ot now

[@whywouldigivemyrealname5162]

There’s an intangible amount saved when paying off the mortgage early, though. That is the time you save from not being required to work. I’m investing in two separate accounts with the hopes that I’ll have enough to cover my living expenses by about 45. My second account is to hopefully have enough growth to pay the remaining mortgage in a single lump sum. This will cut my living expenses by half and therefore give me a surplus since all of my calculations on cost of living include the mortgage. I don’t love my job, but having no mortgage means I’ll be able to pick any job I do want and avoid the trash work.

[@kennypowers1860]

I pay a little extra to my mortgage but invest a lot into my AVC, my AVC gives a instant 41% tax saving plus the investment gains over the years held. The downside is this is not available till I retire which for me will be 60ish. If I took the cash I invest as a wage to pay off my mortgage only I could clear it quicker yes (but loose 41% in each pound not put in AVC) but in 5 years time my AVC investment pot interest will already have outgrown my mortgage debt and be making me far more compound interest from then on till retirement than I would ever have paid in mortgage interest.. My AVC pot is tax free up to 25% of my pension or the LTA which is 268k, my pot should land somewhere in the middle all going well. I am quite fortunate that my LTV is already 30% and I only have 11 years left. Also I don't get hit with the child tax credit payback as my taxable pay is kept below 50K by putting into AVC.

[@anniealexander9616]

From what ive seen, people who invest before paying debt, tend to spend more and save less. I've always chose to pay down debt first with the exception of company matched 401k. I paid off my last mortgage in less than 10 years. Ive completely paid for 3 homes. My friends who invest more and make minimum payments feel wealthier than myself. They tend to dine out daily, hire people to do their chores, have more subscriptions, tip at an above average rate like 100%, buy excess wants like lots of guns or multiple motorcycles, and visit the salon and spas more often. Paying down debt leaves me feeling broke. So, I mow my own lawn and do my own gardening, I have no subscriptions, I mostly cook at home, I wash my car in my driveway, I cut my own hair or get my daughter, I drive a 2010 Altima with liability insurance, and i make my coffee at home.

[@micah1754]

Do you mind me asking what you do for a living? Paying down 3 homes seeks remarkable to me. New Zealand were I live has one of the highest house price-to-income ratios in the world. Even paying off one home before you die for many people is a real challenge.

[@anniealexander9616]

@@micah1754 I was 19 when I bought my first home. Back then I was working 7 days a week at a bakery. It was a fast pace environment. We supplied Ingles and WalMart. Then I went to work at an injection molding company as quality control and assembly. I worked a lot of overtime and saved. I was able to put a little more than 50% down on my 2nd. The 3rd home I completely financed but combined with home number 2 in a refi. Home 2 and 3 were bought during the housing crash. My friends had money tied up in investments during the crash but lots of debt. The stock market dropped during the crash and affected investments. Being debt free was a great investment because it gave opportunity.

[@michaellucas5159]

What I’m considering doing soon is taking a lump sum at 55 from an earlier pension. Paying off half the mortgage then increasing my current workplace pension AVC’s and benefitting from higher rate tax relief on the money I’m saving on the mortgage. I believe you can do this provided you don’t access any of the pension for income?

[@hTyKn1]

once you take a private pension lump sum I thought you can only pay £4k/year total into any other pensions from then on. Otherwise people would take a lump sum out and pay it into another pension and then get tax relief on it. You know the tax man isn't going to let you get one over on him 🤣

[@michaellucas5159]

@@hTyKn1 I believe if you take a Pension commencement lump sum from a crystallised pension pot but do not draw any further income from it you can avoid the MPAA which for 23/24 has increased to £10k if triggered.. this is what I’m looking to investigate further..

[@shellyperera2010]

You will then have a smaller pot and therefore lower returns. But I must admit I thought of doing this myself. I've decided to leave the pot invested until mortgage is due. We're already maxing out pensions so lower mortgage payments would have to go towards ISAs. If it meant increasing pension payments it does make sense to do that.

[@marcoinvesting5339]

The assumption of paying 5% mortgage interest can never be right with fluctuating rates, so I'd like to know the impact of remortgaging to fix the rate on the decision of playing off mortgage or investing

[@gabehewish7383]

How accurate are those forecasts? Growth stocks only getting 2.3%?

[@kelleychilton2524]

That's the problem with forecasts, they're merely guesses. While paying off a mortgage loan early gives you a guaranteed rate of return, without the guesswork.

[@ernest1520]

Is it wrong to look at mortgage (or any other sort of a loan) repayments as effectively a return on investment?

[@kelleychilton2524]

It would only be appropriate if the asset in question is an appreciating asset. If the asset depreciates in value, then it's a losing proposition any way you slice it.

[@jonahtwhale1779]

Why? Past performance is no guarantee of future performance. That is the disclaimer on every single investment product. Yet every single investment product attempts to lure you by telling you the story of their past performance! Why is this apparent contradiction never challenged?

[@kelleychilton2524]

Yes, while paying off your mortgage early earns you a guaranteed rate of return and once it's paid off your total risk profile is greatly reduced. Not to mention the emotional peace of mind that comes from being debt free, this 'dividend' is often ignored in academic discussions.

[@adamlasry5225]

I got my 2nd mortgage £300k in 2010. Paid it in full in 2022. But I was overpaying and only had a holiday every other 2 years. Didn’t buy cars. Ate at home. Drank beer at home. Sacrificed few things. My wife was pissed off. Not today. She is so happy 😀 I am very delighted and looking to buy a brand new Volvo SUV…

[@zulqi123]

Didn’t you sell your house just before the housing boom in the UK? How do you feel after making such a bad mistake?

[@bobjohn3108]

Pay as much off your mortgage you can in your fixed deal period. Cause if rates are still the same than at least the new monthly wont be a killer to you

[@theFijian]

204k v 1.2M is not a valid comparison. What if you paid off your mortgage and then invested the monthly payment you would have otherwise been paying to service the mortgage?

[@RustyVanDoor]

Before we get to the end I’ll comment that our 210k interest only went from around £400 and would now be £1400 a month, more than happy to see the back of it and be absolutely debt free.

[@ask_why000]

Pay off your primary residence. Period. Use Velocity Banking to pay it down faster, if you want to. Why would anyone invest at a stock market top? Also, if stock market returns are so great... why aren't pensions swimming in money?

[@kelleychilton2524]

Great points 👍👍

[@antsly]

The bank rate can't exceed equity returns; there would be no point in investing in equities

[@iainmrodgers9991]

In the example where you showed a 35 year old paying off the whole mortgage right at the start you showed that he / she would save the total payments. But you didn't seem to show what they could do with the monthly mortgage payments. Did you show what would happen if they invested that money?

[@marcusgarvey7588]

Invest instead of paying off my mortgage. I invest 44% of my income into my workplace pension via salary sacrifice. The returns plus the 40% tax break beat paying off the mortgage big time. I chose my funds. So I invest in the sp 500 and a global tracker fund. I was able to build a 6 figure pot in less than 7 years. Next year my mortgage will be going up when I come off the current fixed rate so I will cut back on pension contributions and divert some money to mortgage repayments, I will have to because my repayments will increase by a lot but happy to have that flexibility to be able to reduce pension contributions

[@Shane-nq3nh]

Hi Ramin, what advise would you give someone who is still on a low interest mortgage, should they wait until they remortgage on a higher rate then begin making more contributions towards their mortgage, or would it be more sensible to make those additional payments whilst in the low interest period?

[@kelleychilton2524]

Pay it off now. Being debt free lowers your overall risk profile. Don't get hung-up on the mathematics, that aspect of personal finance is merely academic. Where will you be when life comes along and smacks you up beside your silly fat head? When you get permanently laid off from work? When you become disabled and no longer have the ability to work? When you get hit by a bus load of nuns taking crippled kids to the orphanage and your survivors have to sell everything you owned because you didn't have enough life insurance coverage to pay off your liabilities? Do you have all of these contingencies covered? NO, of course you don't.

[@anniealexander9616]

I just lost my job Friday. I'm mortgage free. People who are debt free don't have to sell stocks. I have two 401k accounts with fidelity and two after tax brokerage accounts. There are companies hiring in my area, but I think i deserve a little vacation. Dave Ramseys daughter did a video on the middle class. My net worth has me in the upper class. Ive raised children alone without child support. So even though i feel behind on retirement, i think im actually ahead.

[@kelleychilton2524]

You have options that indebted people don't have. As a result of your debt free status, you don't have to panic, you don't have to worry about losing your assets, you don't have to look over your shoulder for a creditor coming after you. You can take your time to find a new job under your own terms. Way to go!! 👍👍

[@Timekhr]

Did I miss it or was the money saved on not having the mortgage payments not taken it to account ? If you invested the full £270,00 in stocks you still have this payment. Where as you could invest this monthly or divert to a pension and gain 20% relief plus returns. Surely this would give a better return ?

[@Timekhr]

Ramin do you have a calculation for this ? Thanks

[@TheBradyFour]

Interesting, however you did not cover the tax element. On stocks you will pay a tax on the gains but the benefit on paying off the Mortage is tax free. And if you then invest the monthly payments you would have made on the Mortage (seeing as you are used to making the payments) you compound the benefit.

[@glasgowlady]

Something that this video does not emphasise is that your earnings on the stockmarket are subject to taxes. In the UK these taxes are very high and always increasing. Therefore, to get a 5% return you may have to earn, say, 9% depending on the tax bracket you are in. The forthcoming Labour government are avowedly anti-investor and will substantially increase taxes even higher to give to asylum seekers and the unemployed.

[@Mr35000000]

You can avoid those taxes by investing in an ISA or SIPP, you can put a combined £80K per person each tax year into these two tax efficient plans each year. If you need more, you could look at Venture Capital Trusts and other tax efficient plans. Labour are not anti investor! Our current government (conservative) have raised taxed 15 times and we now have the highest tax burden in over 70 years.

[@Mr35000000]

Labour also plan to abolish None Dom tax avoidance schemes which will free up billions, something the Torys cannot do for fear of upsetting their donors.

[@philbeckett3254]

Not if you are in an ISA..

[@glasgowlady]

Many people have used up their ISA allowance. The £20k limit has been static for years.

[@Mr35000000]

@@glasgowlady You can also add £60K per tax year to a pension onto of the £20K annual ISA allowance. That give a couple £160K per annum sheltered from Tax. Not too many couple I know are squirrelling £160K per annum away and for those that are then the can look at VCTs or Reits.

[@elrevesyelderecho]

2:50 is missing the inflation rate estimate. Core inflation today is almost 7% so, a mortgage rate at 5;17% is cheap money. What is your inflation rate estimated over the next 2, 5 and 10 years?

[@Loundsify]

Inflation will be at 2% by the start of 2025 but rates will be over 3% according to BoE estimates, so expect mortgages of around 4.5-5.5% in 2025 and onwards I'd say.