The 3 Big Mortgage Mistakes EVERYONE Makes (Real world examples)

In this, you'll see how we saved one client £124,000, why paying off your mortgage may be a big mistake and why high-interest rates are not as bad as you think.
I want to ask that you keep an open mind whilst watching this video.
We all have pre-conditioned views of whether mortgages or debt are good or bad. But these views are often not our own. Instead, they’re typically formed early in life, often from our parents.
Perhaps your parents were big spenders and liked to live on the edge, with large mortgages, and you saw it blow up in their faces. Or, on the other hand, maybe they were big savers and paid off their mortgages as fast as they could, or never had them at all. Perhaps you've even had it drummed into you that all debt is bad.
We see the same thing with stock market investing or pensions. If someone we know has had a bad experience with them, we're likely to assume that they're bad. Or, on the other hand, if someone we know, or see online, has made a load of money betting on high-risk single stocks, we'll assume that’s a great way to make money.
And this is because we put a lot of weight on the stories we hear, from people we know.
But you need to look past these anecdotes and make your own decisions based on data.
Financial Planning
I am a Chartered Wealth Manager and Partner in a financial planning practice based in the UK. If you would like to find out more about our services, please follow this link: go.novawm.com/getintouch
DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice. Any opinions or assessments expressed are James’ own opinions or assessments, which are not affiliated with any third party. Any representations stated as facts or views based on such facts are relevant to circumstances applicable at the time of publication. This information should never be relied solely upon to make decisions, and James accepts no liability for any investment actions undertaken by viewers. Please seek regulated financial advice or an advisor if you require assistance. The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested.
James Shack™ property of James Shackell
Copyright © James Shackell 2021. All rights reserved.
The author asserts their moral right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this channel and any video published on it.
0:00 Intro
1:07 Mental Accounting
5:32 Investing Vs Overpaying Mortgage
9:25 High-Interest Rates

[@JamesShack]

Do you have any questions about mortgages? let me know below!

[@BobBob-uv9fq]

Not that but ,any idea if I’m taking pension pot out(avoid tax)55 yrs

[@The_Couch_Critic]

I'm at the stage of remortgage and in 2 minds to release some equity and reinvest in BTL? It's tempting to get rate of 1.3% for 5 yrs fixed..suggestions?

[@michaelkidd7123]

Do you do remote sessions at all? I think it'd be better to pay to have you make sure I'm on the right track that way rather than just treating you youtube comments lol.

[@JamesShack]

@@The_Couch_Critic hi Nirav, I can’t give any personal recommendations. I imagine finding a propert that works is the harder part!

[@Turtytreeandaturd]

And his annual/disposal tax bill?

[@FennaVa]

My wife and I's monthly payment was $3415 month. We would pay an extra $500 a month towards the principal. We currently just refinanced to get a lower interest rate and to get off of PMI. Our new monthly payment is $2918 a month. We plan on still paying $3700 a month but are now going to do bi-monthly payments.

[@LaurenceMelcher]

Try making the payments quarterly, in addition to adding, a payment each month and watch how fast the payments begin to drop on your amortization chart. I've got one more year after starting about a year ago. The timing of the payments is everything. This is the only thing that they all leave out when doing the videos.

[@ralfbrown-kl1gp]

Instead of extra payments, I suspect you would be better off putting the $782 per month into shares of Apple and Amazon. The video more or less describes how you can get out of being a debt slave When you have cash you have options. Smart people hold on to cash. They don't instantly shove it toward debt. Once it is used to pay on the debt, it is no longer accessible.

[@marcellasilva4015]

One part of this vid that I do like is the idea of not taking on a large debt in the first place. I think there should be a balance between the amount of debt you incur and the amount of cash you can invest. I would rather have a $1000 house payment and $1000 going into stocks than a $2000 house payment and no stocks. If you have cash and you’re confused I will suggest you contact a finance advisor

[@CharlesSlowey]

Thanks for replying, You seem to know much, How did you go about it and can you recommend an advisor like yours?

[@marcellasilva4015]

Sharon Ann Meny is the name , Just search the name. You’d find necessary details to work with to set up an appointment.

[@tonycarboni2002]

I'm pretty sure that the number one mistake regarding a mortgage is getting married and obtaining one.

[@bigwill0236]

🤣🤣🤣

[@fontane007]

Lol

[@jackhusbands8462]

🤣

[@valentine_mckee]

😂

[@andyscottow2250]

🤣🤣🤣🤣🤣🤣

[@GeorgeAusters]

The thing is.. Most people don't use extra money to invest - they just spend it rather than paying off their mortgage early

[@damianleah6744]

I paid my mortgage off at age 39, like other comments, piece of mind is a huge factor (for me anyway). I am now in my early 50s, I find I don’t need to work if I don’t want to. I didn’t want to be forever paying debts off into my 70s. Just my debt averse view.

[@johntheman2006]

I paid ours off at 35, had 19 years left and even at a low interest rate we were still accruing debt from the interest rate at something like £50 per day.

[@edi8656]

This is priceless. I'm mid thirties and bought a project house cash a few years back. Sitting here with minimal outgoings and no pressure to do what I don't want to. Quit my well paying secure but stressful career after buying the house as needed the time more than the money at that point and continue to value time more than money for now too

[@Luke-tb7fv]

Well done mate. Your comment is inspiring for me. For the past few days I'd been tossing and turning regarding pension Vs early repayment of mortgage Vs S&S ISA Vs BTLs! Since my overall aim is peace of mind I think you have just answered my question.

[@MIchaelGuzman737]

Home prices will come down. Look at how much the monthly payment has gone up with the new mortgage rates. Add to that the recession and the fact that mortgage guidelines are getting more difficult. IMO home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes...

[@kashkat987]

I was actually in the market to purchase a home recently but obviously it isn’t a buyers market right now. There was “last minute” price increases, and the demeanor that new home builders and realtors are “if you don’t pay that amount then someone else will”.

[@MatthewVinson]

Soon affordable housing will no longer be affordable so anything you want to do i will advise you 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. The Booms and Busts are the ebb and flow and any assets will be affected by it. If you are in cross roads or need sincere advise on the best moves to take now it will be best you seek an investment advisor for proper guidance.

[@TruckeeFam]

@@MatthewVinson I will be happy getting assistance and glad to get the help of one, just how can one spot a reputable one?

[@DSLRguide]

brillliant video, great to see those real world examples

[@JamesShack]

Glad you enjoyed it

[@edchaudhry9448]

Hey james, great video, well presented and clear, concise points. Gained a subscriber and look forward to more good content!

[@yarnybart5911]

You also have to consider the time to maturity on any mortgage. I did exactly what you outlined, paying off expensive BTL mortgage with a very cheap residential mortgage which was fully flexible, so that I kept under 65% LTV on my BTLs. But a residential mortgage, even a flexible one, has to be repaid at some point. Mine is due in 2025 so I am overpaying each month, but that's because it's an interest only mortgage and in 2025, I don't want to sell the residential property (hich is actually now a second home, my primary residence was purchased mortgage free).

[@pushpanathannanjappan6513]

Brilliant James.. just subscribed after watching a couple of your videos

[@skb817]

Wow, how well explained was that! I can completely resonate with the mental accounting point and some similarities with your client example. This has really cleared it all up for me in terms of mortgage payments, interest/inflation and options if you have excess cash. Great job James!

[@pressiyamu2187]

This is a great wisdom thanks for sharing. I could easily see myself stepping into this mess whilst unaware.

[@adambritain5774]

Interesting bloke. Thanks for the info and taking the time to make the video. Will definitely subscribe.

[@BennyBen9]

Very well put. Thankyou

[@notwothesame]

Interesting video, especially a year on with everything that has happened. Currently inflation above 10% in the UK. Would be good to get your take on the same situation now.

[@arunmenon6513]

Informative as always 🙏

[@AYACOHENSTEIN]

Thank you for this video. It’s very informative.

[@buytolet-landlords]

James, this is a fantastic video. Well done.

[@JamesShack]

Thank you!

[@dantalksmoney3310]

Loving the examples here James! I recently paid off my mortgage in full which is a massive weight off my shoulders but am looking at doing a self build at some point so no doubt I'll be jumping back on the mortgage bandwagon before long!

[@JamesShack]

Good stuff Dan, good luck with it!

[@kimhegethornketsanoi200]

Here in Sweden we have this saying “Lagom”. Which means you do something in balance (kinda). Which I use when it comes to paying off and investing. You can’t avoid the interest rate expenses that are increased- and you should be at least do some adjustment to pay off a little more then usual. However do not forgot the opportunity to invest and get the bigger return in the long term. Aka do some of both. Ideally if you have taken too big loan, you should of course try to minimize the expenses. But of course don’t take huge risk in the beginning

[@PrettyPennyClub]

Very interesting and nicely explained.

[@JamesShack]

Thank you, I'm glad you found it well presented!

[@MarkWebster1]

Your channel is going to blow up. This is genuinely the best personal finance information I have seen on KZbin. Thanks for giving away so much value in your videos.

[@JamesShack]

Thanks Mark! I appreciate the comment!

[@manishrana6]

Really good video ..with case study and example it becomes very easy to understand.

[@JamesShack]

Thanks! I’m glad you enjoyed it.

[@mattsennett]

You are so right James in what you say but for many the psychological benefit of knowing they are mortgage free is worth a great deal too. It was in my case last year due to concerns about future work so paying the mortgage off then investing more each month since is what I have done.

[@RobertGillontheinterweb]

This is really important. No point being a clever clogs that can't sleep at night due to their cleverness

[@robertyeo9070]

100% agree. paying off your mortgage early gives substantial optionality which is essentially valued at zero in any FA or economic model.

[@xz9904]

Well-explained and inspiring video!

[@EnTHuSiAsTx94]

Your videos are always so easy to understand, love that

[@JamesShack]

Anytime!

[@susanlewis1953]

Negative costs of mortgages. No brainer to have one. Investing £500 pcm and overpaying £50 on a 1.49% mortgage (30% LTV) to reduce the terms to 10 years.Thanks Sue

[@christianmcivor6015]

Or, invest that £50 over the full term of the mortgage and you can have over half a million pounds lol

[@anthonyward2433]

@@christianmcivor6015 or possibly zero pounds and a mortgage

[@umutkarakus]

My summary: 1. Borrowing against your own home gets you the lowest rates. If you have a 5-year car loan with a high rate, you can borrow against your own home at a low rate and pay off the car loan. You might complain that the mortgage extends this loan over a long period, e.g 25 years. However, you can pay off the loan early, e.g after the 5 years of the original car loan, so the longer duration is not a concern. The risk is that you have now allowed your home to be repossessed if you fail to keep up payments. 2. Investing spare cash gives a higher return than the interest you save by repaying early. The risk is that many investments are very volatile, e.g stock market. Property investment is much less volatile but you need to save up over a long time, unlike the stock market which you can invest in every month. 3. A 2x increase in the interest rate does not mean a 2x increase in the monthly payment of a repayment mortgage. This can be seen from the approximate equation M = (C + 0.55rCY)/12Y = C/12Y + 0.55rC/12. M is the monthly payment, C is the value of the loan, r is the rate, Y is the duration in years. We see that r is present in only one of the terms. As r gets very large (>= 0.1) the proportional increase becomes more and more true (2x increase in r results in 2x increase in M). For an interest only loan, this does not apply.

[@terryjlee1531]

Fantastic video, very informative and clearly delivered

[@JamesShack]

Glad you enjoyed it!

[@MP-ux1dn]

Thanks for some great content. Your section on High Interest rates slightly confused me: "The cost of borrowing money is not the interest rate you're being charged; it's the difference between the interest rate and inflation." - This only seems to make sense in the scenario where your salary is indexed to inflation. Where your salary is not keeping pace with inflation, then interest rates seem to be a pretty important factor. I might have misunderstood, and would welcome you explaining, please!

[@JamesShack]

That does not change the statement. But yes, if you did not have the Cashflow to continue to service the debt then you’re stuck!

[@Kavanhugh]

6:25 "and [inflation] is expected to peak at just over 5% next year" - this aged well!

[@TheWellnessAbbey]

This is amazing information- thank you.

[@JamesShack]

You’re welcome!

[@Neil-qo4nv]

Thankyou Sir for this very useful informative eye-opening revelation on these matters..... Gonna go through me paperworks re : debts etc and find them solutions. Many Blessings 😎👍

[@JamesShack]

Glad it was of use!

[@omardude39]

Oh how wrong the numbers were... one year later and I've just been offered a mortgage at 6.29% 😱

[@rendorHaevyn]

Of course, the "real" costs of money are purely theoretical until one's salary actually indexes in a timely manner (rather than lagging, as is usual). Good vid.

[@AmirReviews]

Great video. Sound quality of these videos is crisp. Which mic do you use?

[@Laxton_Himself]

One key thing to mention is that it’s fine to say inflation eats away at the interest rate you’re charged, or the debt you owe. But that’s only true if your income rises at an equal amount, which most companies won’t be doing, mine isn’t anyway!

[@JamesShack]

It’s true irrespective of that. But yes, if your income does not rise in line with inflation it will become harder to keep making the interest payments. In fact, it will become harder even if your income does rise with inflation. But that’s why we use longer term fixed rates to make cashflow planning easier!

[@glasgowsports]

Some good points but for most people the uncertainty of life means investing the in the stock market instead of repaying your mortgage is a major risk. The FCA will not allow mortgage advisers to recommend doing so for good reason (I'm a mortgage adviser). There are of course some people wealthy enough to be able to take the risk but for most it's not sensible. A wealthy client close to retirement who can get 40% tax credits on pension contributions and has investment property they could sell if they had to is a fairly unique situation.

[@JamesShack]

Hi Robert, thanks for the comment. As you say, it depends on the client and also ensuring you have the additional safeguards in place (cash flow planning, longer term fixs, investment risk management) to reduce the risk of the strategy.

[@aboveboard4046]

Arbitrage is always a good starter for 10, but for me, paying off the mortgage allowed me to reduce outgoings and to invest in higher return, higher risk investments without the worry of not being able to maintain where I live. So horses for courses, but sound advice to play the game and lower outgoings.

[@blumousey]

Agreed, also when you have a family to support putting some of your money into something 100% secure is a good idea. Market conditions being what they are right now it would actually have been better for me to have overpaid my mortgage rather than invest in anything! Luckily I did do a lot of that, and paid off the cars ages ago. But now the market mania is over the opposite is likely true. Best now to invest every month and let the mortgage be for a few years

[@RichardFoggin]

Sometimes the hardest thing can just be to look at the numbers in the face. My stomach flipped when I saw this video crop up in my feed. I’m in the process of buying a property and I’m terrified that I’m making the wrong decisions…everything I heard reassured me that actually it still is right for me. I’ve done my due diligence and am fortunate to have locked in a lower interest rate before things got a bit crazy

[@Zimpaz]

5 years ago We spent 2 years working like crazy and renting out our spare room to pay off our mortgage before we had kids. Whilst not the financially best thing to do, it gives us a amazing feeling knowing we own our house outright and no matter what happens we have our house. It’s not all about money

[@JamesShack]

Absolutely. The numbers can say all they want, but I cannot put a value on the feeling that people get from being debt free. Which is why this varies so much from person to person.

[@rosiewang5920]

Healthy amount of debt will not do any harm to you. For life to get better, you always need to take some risks here or there. 😄

[@KenSharp]

It's not all about money, but you're watching a video from a professional investor.

[@mangalsingh4036]

Excellant video, very timely.

[@JamesShack]

I’m glad you found it useful!

[@pressiyamu2187]

Wow this is a phenomenal video.

[@TheVinceRoman]

Hi James, Tried to book a one-off session with you but none available this month and January - will you have any more dates and times available by any chance?

[@louisbaig7570]

Great content :)

[@NoName-ql1wk]

Another solid video James.

[@JamesShack]

Thank you!

[@haamctslpm]

THIS CHANNEL IS AMAZING- this is the kind of stuff that they should teach at schools… I’m 22 and starting out my professional career and I have all of this ahead of me and need to be informed! Thank you!!

[@DanFernandesBenficaSaint]

You never get one lesson at school about saving money. If you’re in debt you’re a slave to the system. There’s a reason why the most important subjects are not taught.

[@sirhc8972]

2 superb comments. Spot on

[@Shmuklidooha]

I still make overpayments on my mortgage (1.9%) because in 2 years I'm planning on remortgaging to buy more property. That extra 1.9% I'm saving on interest is better than what I'd get in a savings account and safer in the short term than the stock market. Though I do agree that in the example presented there is one disadvantage for remortgaging the primary residence to reduce the LTV on the BTL properties - If you default on the BTL loans and they get repossessed, you are on the hook for a larger portion of the property. It might be a fringe case, but it might happen.

[@JamesShack]

That is a good point yes. If you need the money in the short term and can get it back out money via remortgaging or and offset mortgage. It can be a useful way to save interest.

[@KenSharp]

@@JamesShack So where does inflation come into it?

[@christianmcivor6015]

You can get 20% on cash which beats your

[@Shmuklidooha]

@@christianmcivor6015 Where, the casino? A 100% equity portfolio averages to 8-11% gains and that's still fairly risky for a short-term investment.

[@christianmcivor6015]

@@Shmuklidooha Anchor protocol on Luna.

[@jasonjones1350]

Brilliant video! Subscribed

[@JamesShack]

Welcome!

[@chopper1lady]

I've done it differently. Borrowed more on my residential to buy a BTL. The profit from that BTL covers both mortgages.

[@rtyrtyrtyus]

Do I have to declare capital gains tax on my Vanguard profits if applicable? I'm new to making money from Vanguard. I understand the allowances etc. I just want to clarify if Vanguard stocks and shares profits are to be reported through capital gains if applicable. Thanks.

[@HappySinghT]

Hello! Fellow Financial Adviser/Planner here. I won't say there wasn't anything in this video that came across as 'new' news to me (in fact I've had these exact conversations!) but I really enjoyed how well they were articulated and presented. Looking forward to viewing your array of videos.

[@JamesShack]

Wow! Means a lot coming from a fellow professional!

[@HappySinghT]

@@JamesShack Praise where praise is due! The cherry on top would be if they counted towards CPD.

[@JamesShack]

@@HappySinghT yes my colleague mentioned that the other day. He often writes articles on particular areas of financial planning for which he has to do research, and yes added that as unstructured CPD 🤷🏼‍♂️. Maybe I can too, I write about 2000 words for each video.

[@MarlonKingShow]

Some nice advice, the issue with investing in stock market in this case is if your isa allowance is already maxed which would be assumed for a higher tax payer.

[@JamesShack]

Pensions, even better for a higher rate tax payer!

[@pinayinuk]

Nice info

[@ihague4568]

It's important to use (or consider) wage inflation instead of CPI when making these calculations / assumptions. For example, CPI may be 6%, but your wages may only be rising at 2%. In this case, a borrowing rate of 3% would be negative in 'real terms' but positive in practical terms (i.e. in terms of your ability to repay the loan). You can only 'inflate away' your debt if borrowing rates < wage inflation. If not, your wages may be inflated away, but your debt isn't. Also, when your wages aren't keeping up with inflation, non-mortgage expenditures start to eat away more of your monthly budget, putting more stain on your ability to service your debts.

[@MidnightIam]

I've got tons of books on real estate investment, this video made it sound interesting enough to read them

[@STORMCLOUDGREY]

Interesting points here. So considering present inflation & likely interest rates rises next year, would it be economically better to take out the lowest available interest loan for say a home improvement or car purchase at present rather than taking a lump sum from a pension a fund?

[@JamesShack]

I can’t say whether that is right for you. It’s a high risk strategy and you need to fix it for 5 years. But in theory, in this environment, piling up on low interest debt and buying inflation protected assets (stocks/property) could be a good bet. The risks being that you don’t fix for long enough and either of those assets crash in the mean time.

[@greennewdealoxford]

After an average annual growth rate of >10%, my diverse ethical pension funds have dropped almost 7% this month (Jan 2022). What should I do?

[@stephen6262]

James great video i could pay off my residential mortgage in feb. But i not sure. I would get hit with a 200 erc charge. I realise that inflation is getting high

[@JamesShack]

Yes, you need to be careful with all the charges. In this example they call lines up nicely, that’s rare tho!

[@georgiangelov2764]

Hi how to reduce the value of my property? I have help to Buy and I want to reduce the value of my property. I'm thinking to install solar panels and battery on credit do you think this will help thank you

[@abbotsford85]

Good luck getting that through compliance. Securing unsecured debt on your residence and losing equity in your home isn't great advice

[@usmanamin7080]

Just a Quick question 🙋🏻‍♂️, which lender lending you 90% LTV on BTL mortgage??

[@jeremys1019]

Interesting video thanks. In terms of overpaying on your mortgage, is this not a sound investment as its investing in an asset that has out performed interest rates? Essentially overpaying is creating more wealth if house prices still outperform?

[@matthewkelly4107]

No, the property value is independent of how much you've paid down the mortgage

[@jeremys1019]

@@matthewkelly4107 of course, but if that asset goes up (property prices) and yet you're buying it at a cheaper price (mortgage interest rate), then its a sound investment and you're making money above interest rate

[@matthewkelly4107]

@@jeremys1019 well it's safe, but you're capped at 1% return or whatever your rate is. Which is below inflation rate so

[@matthewkelly4107]

@@jeremys1019 you're only saving the interest expense on the additional repayments you overpay, hence 1% (or so)

[@michaelgrigg570]

Another great video. Do you have any advice for emergency funds? As in how much, where to store them etc. I'm unsure if putting it in bonds would be the best bet to reduce the impact of inflation whilst reducing the short term risk. A video about this would be fantastic!

[@JamesShack]

Hi Michael I’ll do one on that subject too

[@rochellebrant]

I'm not sure how much a video you can make of this, but I was wondering about how quick to pay off a 4 year student loan? Of course majorly depends on your income - but I'm in a situation where I earn around £32k, soon to be £40k, and I know that my career in Data & Tech is incredibly likely to see a regular increase in salary (I know many people in my field earning £60k and more, well into the 6 figures). I was wondering if I should wait for my salary to increase a lot more to the point that paying off my student loan quickly would be beneficial, or if I should start paying off a bit more at this moment in time (despite not being at the point aforesaid). PS: Thanks for all your videos! I've learned a lot. :)

[@Ugi5]

It all depends on the interest rate that's currently on your student debt, if its bad debt aka very high interest rate, you should try and pay it off as soon as possible, but IF its just a normal debt lets say 3%, you're better off not repaying early and instead investing the money, as that money will generate you more ( take s/p 500 as an example 10% on avrg) so it all pretty much comes down to opportunity cost.

[@ChrisLee-yr7tz]

The general advice on student loans in the UK has always been to delay paying it off. Whilst that makes sense if you're not a high earner and are most likely to stay that way, I personally think it's nuts if you're earning over the repayment threshold. The rate is currently 6.3% and if you're earning only just over the threshold then the debt is snowballing upwards. So really it's a balancing act of trying to predict your earnings. My advice is set it out in excel, model it and look at different earning levels over your career to see how much you end up paying off over time. I think it's awful that the Gov't charges such a high rate. They're basically making higher rate taxing paying graduates pay for all the other graduates.

[@Matt_Tizzard]

James, great content as ever and so important in these current time. Thank you for all you do. Also, I have recently launched my own channel and love how you deliver your content 👍 its inspired me to start up.

[@JamesShack]

Great stuff, good luck with it!

[@FlorjonKoci]

do buy to let mortgages require a min of 25% LTV ? (liked the examples)

[@bradburyrobinson]

Quite a timely video as I was just this week looking into these very scenarios. Although I should say, I'm more towards the £200,000 scenario than the £1,000,000 one.

[@JamesShack]

Good stuff! The thing to bare in mind with smaller mortgages is that the mortgage fees bite much harder!

[@bradburyrobinson]

@@JamesShack - Not at that stage with our own yet but I've seen that previously with my parents' house. Too large a value to pay off outright but too small a value to make moving worthwhile, due to fees, so pretty much stuck with what the current provider offers until they were able to pay it off at a later point.

[@adejuwonodugbesi3102]

@@JamesShack really? does that apply when you have a 60% LTV?

[@ianwynne5483]

Putting your home at risk to finance investments instead of self financing investments is a bad idea.

[@nh8383]

The first guy you mentioned must live in a totally different world to me.. one 900k house,two buy to lets & a 50k car loan 😭

[@Nathan-yv2rg]

I know lol. If I had those sorts of assets I wouldn't be on this KZbin channel....

[@tommytip123]

Good video. One observation that might prevent someone remortgaging the main property is affordability checks? Also in your experience will the bank/building society take exception to effectively gearing up debt on the main property? Just to clarify the buy to let mortgages the affordability is based on rental income whereas the main mortgage needs income proof? Or would the current/increased rental income allow additional borrowing on the main property?

[@JamesShack]

You’re right in that a BTL property affordability is judged on the rentable value of the home and whether it can wash its face. This often allows much higher loan sizes than the normal income base main residence mortgages. In this situation because we dramatically reduced their overall interest payment it meant that a main residence mortgage become even more affordable. The cost of the £450k was £4,500 a year. And yes we freed up £3,000 a month of additional cash flow. Also, when you fix for 5+ years banks care less about income multiples and stress tests - typically they have to show that the mortgage would be affordable if rated went up to 7%, but if your fixed for 5+ years they don’t have the same pressure in that.

[@edi8656]

My partner and I worked our assess off and saved hard in our 20's, we seen an opportunity a little out of town and bought our first home cash. On reflection, best decision of our lives.

[@edi8656]

Also fitted a multifuel stove when we moved in, another great moneymaker I would recommend to minimise paying the obscene energy costs these days

[@MEtter17]

While I realize James lives in the UK, I think these examples are very specific to UK residents. I do not recall the last time I saw an interest only loan on physical property, especially on three different properties simultaneously. Great information about the $1000 loan and inflation and restructure debt, but I do think these are extremely specific nuances, and definitely not common, at least in the US.

[@umutkarakus]

Interest only is standard for buy-to-let mortgages in the U.K. The number of buy-to-let mortgages you have doesn’t matter because lenders are mostly concerned with whether the rental income is enough to comfortably pay off the interest. As for residential mortgages, interest-only is very rare. It is given only if you have large equity: 40-50%+.

[@MEtter17]

@@umutkarakus appreciate this detail. That makes a lot more sense then how I was thinking about it haha.

[@nauxsi]

@@umutkarakus but do they still check payslips?

[@richardclark6113]

As a mortgage broker myself this video is a SHAM. 1) buy to let mortgages are normally 75% LTV and interest only. 2) Getting a larger residential mortgage is also a repayment mortgage which must be paid off before retirement. Therefore a larger debt also means larger payments. 3) The large debt on the car is often a HP agreement where they want a nice car but they plan to keep the car only a few years. 4) The interest rates claimed are also wrong. Most people want to reduce their home mortgage for security reasons plus if they have a spouse they will be wary of increasing their residential mortgage. Buy to let’s get income and have to support the mortgage. They are self sufficient. Rates improve little below 75% anyway. The car finance was a personal decision as for £50k it’s probably a bloody nice car. As someone that has advised hundreds of people I am careful of raising money on peoples main homes as it must be repaid in full before state retirement age.

[@JamesShack]

Hi Richard, thanks for your comment. 1) You can get an LTV of up to 80% on a BTL mortgage. The 90% mortgage came about from a reduction in the value of the property. You can remortgage at 90% LTV however. 2) You can get an interest-only mortgage up to 50% LTV on a residential home. You can even do a split mortgage if you like with half repayment and half interest only. 3) That was not the case here 4) The original rates had been fixed many years before. The new rates I have rounded up/down for ease. Is there something else you see wrong here? Richard - there are plenty of residential mortgages that allow you to go on beyond retirement so long as you have a repayment strategy of either downsizing or paying it off with investments. It's even possible to take mortgages out based on pension income! Sounds mad but there are lenders that will do it. That's why I think working with a financial planner that can give you an overview of the whole picture, debt, property and investments will give more comprehensive advice. To be clear, mortgage availability and rates change all the time so although this was all true when we did this case. It may not be available now. As I said in this video, this strategy is not right for everyone but in this situation, it was the correct thing to do. And it saved him a lot of money.

[@rtyrtyrtyus]

Do you have a good link to see some graphs depicting house price rises vs inflation rise? I can only seem to find house prices adjusted for inflation graphs. I want to be able to compare my general purchasing power of consumer goods vs house price rises over time. I am also assuming that adjusted for inflation means to show real growth taking into account what the house is worth can not buy as much goods in the market if spent on consumer goods, i.e. its purchasing power is lower? I guess this "real growth" only happens when house prices rise more than inflation? Else the house isn't really growing in value?

[@JamesShack]

That’s right. You don’t see many graphs like that because they are me hard to read. It’s easier to look at a graph with inflation factored in.

[@anxsandhu3610]

Really useful video thank you for sharing. What are your thoughts on offset mortgages ? I have had one for last 10 years.

[@JamesShack]

Good when used in the right situation, I’ll do a video on them shortly!

[@SuperActionForceGo]

I love this video because it is so relatable. (*Puts down pot noodle to cry)

[@joeby13]

Do you have any advice for home improvements?

[@uncleskies8163]

Hi James another excellent video. Here's my question with background. My wife and I are lucky to own and live in a property worth £250k, I also own a property worth 150k rented out £695pcm. Both paid off -no mortgage. I'm nearly 50 have 27 years of pension (defined benefit) and I'm nearly at 40% income tax rate. I have s&s ISA and 10k cash. I would like to retire at 55. Should I get a mortgage interest only on my rented house to buy more rental property for cash flow, or accumulate cash to buy property or max out S&S ISA ? Any comments gratefully received.

[@JamesShack]

I can't give any personal recomendations. But how much of your retirement income will be covered by your DB scheme?

[@uncleskies8163]

@@JamesShack thanks James-of course I didn't expect recommendations just considering options-they can't give much detail on this until just before I'm 55, but ball park around I expect around £700 pcm ( around half of full pension at age 67) from DB. I estimate I need £1500 pcm total

[@HK.Builds]

This was a brilliant video especially the part about repayments on mortgage to balance on lower rates of debt.

[@JamesShack]

Thank you! There is often a mental block that comes with having more debt on your own home. But it does make sense financially!

[@guyr7351]

@@JamesShack That's because of the classic warnings "your home is at risk" that are given when loans are secured against your home. We are in a very strange world at present, no-one would have forecast the financial support given during the covid period, although the cost of not supporting you could argue would have meant a potentially bankrupt country with massive unemployment, a housing market crashed with the kniock on to the banks etc etc. Knowing that the mortgage is either covered with investments or actually paid off is a massive stress relief, especially if you have concerns about job security. Anyone who has been unemployed with a mortgage debt knows the worry that can cause.

[@JamesShack]

@@guyr7351 I couldn’t agree more, it’s a big relief. It’s important to balance all areas of your life from a risk perspective. You often find people that are comfortable with risk, with risk jobs, with risky investment portfolios and high debt. You need to bring them all into balance.

[@chrisduffield2747]

Good Video for those with disposable income - not so much for those without. Also at some point someone with that lifestyle will change their car and likely to refinance. That you have just put over a longer term than it was likely over ?

[@JamesShack]

This chap actually had no disposable income, his cash flow was terrible and these mortgages were draining him. Refinancing debt is a great way for anyone to get better Cashflow. Financial Coaching is a big part of financial planning, we’re working on his relationship to money and material things!

[@ADHDNurse79]

I’m been pondering this also to either overpay mortgage monthly or invest. I’m a nurse and currently working 7 days a week as wanted to pay off credit cards which I just did last month. New to investing and I can either now pay the £400-£500 a month on overpaying mortgage (£84,000 2.79% 17 yr mortgage) or into my S&S ISA? We live in south so won’t be moving from our terrace small house as would triple mortgage.

[@JamesShack]

2.79% is quite a high rate. When you get up or over 3% cost of debt then investing becomes less attractive. You could always do a bit of both.

[@ADHDNurse79]

@@JamesShack Thankyou, yes unfortunately got a 5 year fix. At the time it sounded good but not so much now. Would 50/50 be a good idea or actually paying more off the mortgage instead of investing each month due to interest rate?

[@deepaliyadav492]

Thank you for the informative video. A question please - We are living in a property owned by my husband and I am planning to buy a residential property in few years and rent the current one. We ran the numbers and unfortunately there would be very less cash flow after deductions like mortgage, maintenance, agency company fee, etc since my husband is in higher income tax bracket. Do you reckon it would be sensible to form Ltd company or just sell the property rather than renting it?

[@A190xx]

You can apportion the rental income on a jointly owned home to one party - eg the lower tax payer - HMRC Form 17. You would be best to get tax advice before completing it, but this might simplify your position. Ltd Co mortgages are more expensive and can eat up the tax saving.

[@METHVS02]

Handy video. With my mortgage deal due for renewal in 6 months time, my mortgage broker has encouraged me to overpay. However with recent inflation at 10% , in my opinion this is not worth doing. Why give myself short term pain overpaying when my mortgage balance is shrinking by 10% pa . Am I right in this view ?

[@vascularlab]

Great video James. Investing is a scary when there are so many people predicting a market crash!

[@JamesShack]

Everyone is always predicting a market crash, all the time. You get used to it after a while.

[@rex86uk]

Just look at that charts, it crashes but year on year always goes up. When it crashes it’s the best time to buy

[@garethchambers11]

Excellent video, well done. The emotional reward of paying off a mortgage early vs investing may be what some would prefer? The numbers don't make sense financially though. Because by the time my mortgage is paid off at 45 if by savings and overpayments my investments would be back to zero meaning I'd be screwed in retirement for even basic living expenses. (Self employed also so no employer pension contributions to take advantage of)

[@JamesShack]

Hi Gareth, indeed the right choice is often a balance between the two!

[@garethedwards5159]

I paid my mortgage off at the age of 31, knowing that I could have made a much better return investing it all, but one thing not mentioned in James' (otherwise excellent) video is the potential mental 'peace of mind' benefits of being mortgage free, especially working freelance like I do. Contract ending, or redundancy looming? No problem, I'll take a few months off before find work again, go on holiday etc. I'm growing tired of the work that I do, and I'm planning a career change into something more rewarding and with a lot less stress soon. The line of work I want to change to is also much less money, but that's not a concern to me now really, I can afford to go back to college, uni to re-train, and/or take lower paid but more enjoyable work now I'm not a prisoner to my current high earning work. It's a good feeling to know I can quit it at a time of my choosing. None of this would be possible with a big monthly mortgage payment. Another benefit, is that investing (and don't get me wrong, I also invest a lot) is for a benefit at some point in the future, whereas paying off the mortgage young is a guaranteed benefit that you get to enjoy now whilst you still hopefully have good health (depending on how quickly you pay it off). Food for thought, everyone's different, just thought I'd post my personal experience.

[@thomashogan1985]

Very well put and I totally agree

[@theseoldbeats]

Was going to comment something similar. Totally agree. Unfortunately like the chap in the first example, people think nothing of taking out multiple, massive, interest-only mortgages to bet on house prices continuing to rise and basically at the expense of people who can’t afford to get on the housing ladder at all. If anything did happen to the housing market then they’ll be up shit creek without a paddle, especially if they’ve transferred even more debt to their main residence to pay for it all.

[@glostergloster6945]

What is missing from the example given here, of someone with a residential mortgage and BTL mortgages, is there is income tax relief for mortgage interest on the BTL income, there is no tax relief on the residential mortgage. Even if this person is a higher rate tax payer and holds the properties in their own name, there is still a 20% tax credit given on the mortgage interest for BTL vs 0 on residential. Because of this the mortgages arent interchangeable

[@Indi3flow]

Brilliant video with visual examples, though I must admit I finished it by thinking the person in the example would have been better putting the money from the remortgage into stock & shares versus balancing the rentals 😂 (number based only).

[@JamesShack]

That would be an option. If you can handle the risk!

[@guyr7351]

Another good video, although your illustration of how the mortgage payments might rise if rates go to 6% would make a lot of peoples blood go cold. Forget percentages, and cost once offset against inflation, the result is a rise of nearly £500 a month. That is a substantial sum for most people on normal wages to find every month, of course if someone struggles at that level they may be able to re-structure on a new deal / time period to lower the increase but that's another area to be looked at. I am 61 and had a mortgage back in the 80/90's when we had a rate 13/14% that was scary, but of course we then had years of the rate slowly reducing but believe me when in say the pips were squeezed back then, but the mortgage was always seen as the primary debt to be paid.

[@JamesShack]

Yes, when rates rise fast it’s hard, with cash flow being the main challenge. Like you say switching deals, perhaps switching to an interest only mortgage for a time can help alleviate that pain. Split mortgages now make this more if a possibility.

[@takilove3566]

Thank you so much , you sound so much like simon

[@JamesShack]

Simon?

[@joshuuaaaa440]

Watching this even though I can’t get a mortgage to buy any form of property 😂

[@RDR1456]

Hi mate what are your fees please?

[@alanbecken5837]

Good video James. Given interest on BTL mortgage is used to reduce taxable rental income, how does that play into this?

[@JamesShack]

Yes, that needs to be taken into consideration, and that will slight reduce the benefits.

[@BateserJoanne]

Basically , mortgage rates have reached their highest point since 1998, spanning 25 years. Considering inflation trends, there's potential for them to rise even further. Just a year ago, a 28year fixed rate was only 6%. This prompts the question: should I wait for a housing market downturn before buying or shift my focus towards the equity market?

[@Rodxmirixm]

Indeed, I primarily engage in buy-and-hold, but my portfolio has been in the negative for an extended period. To achieve substantial gains, consistency and regular portfolio adjustments are essential.

[@AlexanderDanielley]

I think investing was simpler in the 70s, but it's more complex now. Those consistently profiting today are usually professionals. That's why I've had an advisor for 7 years to steadily grow my retirement portfolio.

[@Jason9o669]

My partner is also thinking about taking a similar approach. Could you please provide more details about the advisor who assists you?

[@AlexanderDanielley]

Her name is Stacey Lee Decker and she' a genius at her field. You can easily confirm her expertise by searching for her online. She possesses extensive knowledge of financial markets.

[@VickyAlvy]

Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.

[@A190xx]

As an adviser, I would add: 1) Rather than move the existing mortgage to interest only, he could have selected part be on repayment (perhaps the original £100K); 2) Interest only loans have been restricted as very people get to the end of their term and want to downsize sufficiently to repay their mortgages, so this is very risky advice; 3) Selling the buy to lets would incur capital gains tax.

[@themomentalist]

Hmm. I agree with paying off the car by taking out more money against his primary residence at 1%, but paying down any of the BTLs goes against the strategy that most property investors use as it reduces your leverage. The small amount of increased interest payments will be offset by the leverage that magnifies the rise of the property value.

[@JamesShack]

How have we reduced leverage ? They have the same amount of debt. Same amount of property exposure. The only difference is that we have cheaper debt. Mental accounting!

[@themomentalist]

@@JamesShack You’ve reduced his leverage in his investment properties and increased it in his residence. Lots of investors prefer to do the opposite (repay the primary residence for security, lever up on the investments to increase potential returns). You might think it’s senseless, but security of primary residence has value that cannot be expressed in monetary terms. Personally, I wouldn’t have bought the flash car, and just have kept things as they are!

[@JamesShack]

@@themomentalist you are right, security of primary residence does have value. But here we’re not exposing them to any more risk, in fact we’re reducing risk by saving them £20k a year and improving their cash flow. So for anyone that is concerned about the security of their home and risk in general. This will make sense to them.

[@themomentalist]

@@JamesShack My point is more that investors tend to buy investment properties in areas where they expect property prices to rise, whereas the factors that go into deciding where to live can be more complicated than that. By reducing leverage in the properties purchased specifically as investments and increasing leverage in the property purchase as a residence, you are working against that strategy. House prices do not increase uniformly across the country, they increase in regions (and even in pockets in specific areas). Your strategy is oversimplified for true investors.

[@JamesShack]

@@themomentalist No! You need to stop considering these properties in isolation, this is a classic case on mental accounting. Where you have the debt does not affect the leverage or returns of your overall position. Yes it affects them on an individual basis. But if you need to step back and consider them as a whole.

[@alwayslearning4964]

Great content. I have watched many hours of KZbin related videos & between yours and several others, I still think I need to hire some professional service’s. How do your fees work and how can I get in touch?

[@JamesShack]

Thanks I'm glad you're found the videos useful. There is a link in the description of my videos that you can use to contact me.

[@MrDee397]

I heard someone say that longer term mortgages are better IF the interest rates are also lower, because basically what you pay in the present moment is less, therefore more money in your pocket to do as you wish (invest the difference etc). Conversely, someone else said that it's better to get a shorter term mortgage so that you pay it off quicker, less money goes on interest etc. I'm buying property at the moment and I'm more inclined to go with the longer term, mostly due to more money that is actually available in my pocket. But my question is there anything else that I'm missing, that the longer term is better than the shorter term mortgage for?

[@JamesShack]

It all depends on whether the return you’ll get elsewhere is greater than the rate on your mortgage.

[@MrDee397]

@@JamesShack Thanks!

[@nathangonmad]

Absolutely fantastic video, very high quality and great to see your workings

[@JamesShack]

Thank you very much!