{"id":52,"date":"2024-11-29T00:07:36","date_gmt":"2024-11-29T00:07:36","guid":{"rendered":"https:\/\/www.daystofi.com\/?p=52"},"modified":"2025-09-18T21:55:18","modified_gmt":"2025-09-18T21:55:18","slug":"mortgage-overpayment-or-invest","status":"publish","type":"post","link":"https:\/\/www.daystofi.com\/index.php\/2024\/11\/29\/mortgage-overpayment-or-invest\/","title":{"rendered":"Mortgage Overpayment or Invest?"},"content":{"rendered":"\n

For some time now, I\u2019ve been pondering whether it\u2019s more beneficial to overpay our mortgage or instead invest that money into a Stocks and Shares ISA (DISCLAIMER)<\/a><\/strong>.<\/p>\n\n\n\n

While digging around the internet, I came across a couple of YouTube videos. The first one<\/a> made me realise that every year we pay \u00a312,700 to our lender, but only about \u00a33,600 goes towards the actual loan. This means \u00a39,100 is spent purely on interest!<\/p>\n\n\n\n

The second video<\/a> offered a different perspective on the matter. I highly recommend watching both.<\/p>\n\n\n\n

After running some calculations and discussing with my wife, we concluded that overpaying the mortgage makes sense. However, I didn\u2019t want to stop investing in our Stocks and Shares ISA altogether. So, I came up with a little mental hack: since we\u2019re already renting out our flat in Poland, we\u2019ll use the rental income to make overpayments on the mortgage.<\/p>\n\n\n\n

At the time of writing this (November 2024), our mortgage has an interest rate of 5.29%, with 22 years remaining and a balance of \u00a3164,537.33. Our monthly payment is \u00a31,058.27.<\/p>\n\n\n\n

I quickly threw together a spreadsheet and discovered that, if we were to invest all our spare cash in the stock market instead of overpaying the mortgage (assuming an average real return of 7% annually), we\u2019d come out about \u00a312,000 better off compared to our current plan. However, investing in the stock market comes with risks, whereas paying off the mortgage gives us a guaranteed outcome: owning our home outright. I think I can live with the \u00a312,000 \u201closs.\u201d Who knows? The stock market might perform well and make up for that difference anyway. Time will tell.<\/p>\n\n\n\n

If we overpay \u00a3200 a month, we could shave roughly six years off the mortgage term, meaning we\u2019d finish paying it off when I\u2019m 61. That\u2019s not ideal for me, though. My plan is to achieve financial freedom by 55, so I\u2019ll need to find a way to trim another six years off the mortgage term.<\/p>\n\n\n\n

I think I\u2019ve got an idea. First, I\u2019ve automated the overpayments, setting up a weekly transfer of \u00a357.70, which totals \u00a33,000 a year. This money will come from the rental income in Poland, cashback from the mobile app I use for shopping, and savings we\u2019re making by me cycling to work. Hopefully, we\u2019ll still manage to stick to our monthly budget. I\u2019ll report back monthly on our progress.<\/p>\n\n\n\n

Unfortunately, even \u00a3250 in monthly overpayments will only reduce the mortgage term by 9 years and 6 months. That sounds much better, but I\u2019ve got a couple of aces up my sleeve. The first is that when our current fixed-rate mortgage ends in three years, I\u2019m hoping we can switch to a new rate of around 4%, based on a significantly smaller remaining balance\u2014hopefully reduced by at least 3 x \u00a33,000 = \u00a39,000.<\/p>\n\n\n\n

My second ace is that I\u2019m counting on both my wife and me getting pay rises in the next three years. Assuming a 4% interest rate on the new mortgage and keeping our current monthly payment of \u00a31,058.27, we should be able to pay off the house right on time for my 55th birthday.<\/p>\n\n\n\n

Feeling optimistic, I\u2019ve already made an extra payment towards the mortgage from our savings. So, after our first automated transfer, our remaining balance as of today stands at \u00a3164,404.63<\/strong>.<\/p>\n\n\n\n

Wish us luck!<\/p>\n","protected":false},"excerpt":{"rendered":"

For some time now, I\u2019ve been pondering whether it\u2019s more beneficial to overpay our mortgage or instead invest that money into a Stocks and Shares ISA (DISCLAIMER). While digging around the internet, I came across a couple of YouTube videos. The first one made me realise that every year we pay \u00a312,700 to our lender, […]<\/p>\n","protected":false},"author":1,"featured_media":53,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[58,5,60,62,3,64],"class_list":["post-52","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-earlymortgagerepayment","tag-financialfreedom","tag-financialplanning","tag-mortgageoverpayment","tag-personalfinance","tag-stocksandsharesisa"],"_links":{"self":[{"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/posts\/52","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/comments?post=52"}],"version-history":[{"count":2,"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/posts\/52\/revisions"}],"predecessor-version":[{"id":79,"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/posts\/52\/revisions\/79"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/media\/53"}],"wp:attachment":[{"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/media?parent=52"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/categories?post=52"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.daystofi.com\/index.php\/wp-json\/wp\/v2\/tags?post=52"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}