View Poll Results: What's the approach to your mortgage?

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  • Forget it until remortgage time

    16 34.04%
  • Overpay

    14 29.79%
  • Invest / save

    3 6.38%
  • Balance overpaying and investing

    3 6.38%
  • Offset

    5 10.64%
  • Mortgage free and luvin' it

    6 12.77%
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Thread: Mortgages: Pay down / Save / Offset?

  1. #101
    Regular Steve C's Avatar
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    Quote Originally Posted by hobbit View Post
    Steve - you are also looking at it the wrong way round. So youíre saying if interest rates were 10% you would pay the mortgage off early?
    No, I'm not saying that.

    The absolute mortgage rate is irrelevant; rather it is the rate relative to the rate of return on investments. So, if mortgage rates were 10%, I would still not be paying off my mortgage if I could invest cash at a 20% return.

    I am aware of the role interest rates can play in influencing both spending habits and property prices (and their role in economic modelling in general), but that has nothing to do with my point.

    In simple terms, I am talking about arbitrage.
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  2. #102
    Quote Originally Posted by Steve C View Post
    No, I'm not saying that.

    The absolute mortgage rate is irrelevant; rather it is the rate relative to the rate of return on investments. So, if mortgage rates were 10%, I would still not be paying off my mortgage if I could invest cash at a 20% return.

    I am aware of the role interest rates can play in influencing both spending habits and property prices (and their role in economic modelling in general), but that has nothing to do with my point.

    In simple terms, I am talking about arbitrage.
    Arbitrage isnít possible in a mature market, thatís a fundamental economic principle

    So what are you saying?

    Risk is related to return. However the average return - irrespective of risk - over a prolonged period of time is equivalent to the average market rate of return

    So these 20% returns you speak of in a 10% ďrisk free return marketĒ donít exist. What exists is the potential for 20% if choosing a high risk strategy but actually the end result is often the market return because investors opt for a diversified portfolio


    Thus if youíre saying that it is readily possible to achieve above market rate of return, that totally flies in the face of the evidence

    If it was possible to achieve above market rate of return, that would be the market rate of return


    You can try and make short term, high risk returns and beat the market but that is not an investment strategy that most people would ever sign off on because the potential for loss is as high as the potential for gain

    Clearly, it happens, but not in our world

    Mortgages are, by definition, above the risk free rate of return and are generally mapped to be approximated to the average return on the market

    If you can beat the market, crack on. However thatís not what average joe can be expected to do. By definition, of average joe can beat the market return then itís not the market return


    Economics is great in that it all hangs together. You canít beat the system because the system reacts quicker than you can

  3. #103
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    You're still missing the point. You can quote all the theories you like but what I am talking about is happening. In the real world. I am living proof.
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  4. #104
    Quote Originally Posted by Steve C View Post
    You're still missing the point. You can quote all the theories you like but what I am talking about is happening. In the real world. I am living proof.
    Of what?

    Thatís what Iím asking.

    If youíre simply saying that you can get better returns from putting money into investments than a mortgage then thatís fundamentally not true as a model because youíre comparing two different types of risks. A return for your bank on a mortgage is largely risk free (at the moment). A 7% return on an investment is not risk free

    If youíre saying you have examples where you have managed to achieve that - great, but thatís simply not the same thing as what Iím saying


    Putting it another way - ďgive me 100k and Iíll come back with either 200k or nothing in 2 yearsĒ is not the same as ďgive me 100k and I can guarantee 200k in 30 yearsĒ


    Thatís what is important to understand here. You can always ďbeat the market rateĒ - but not at the same level of risk

  5. #105
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    2% return based on one asset
    4% return based on a portfolio of similar assets

    Based on your theories, is the above realistic?
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  6. #106
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    We remortgaged when we moved out to Shropshire 5 years ago. Carried our 0.5% above base rate for life with us and a small mortgage. (Compare that to the 15% days! Yes, I remember them too!). Now reduced mortgage by 50% and could pay that off at any time by selling some cars or selling the cottage that we rent out.

    Don't plan on paying it off early, as it is cheap money and happy spending the money on toys and life, while we still have some health.

    Invested money from sale of parent in laws house into some offices, 3 industrial units and a yard for caravan storage. This should allow us to earn enough to live on and pay the mortgage if ever I can't work. Hopefully, we can sell all the properties and cover retirement (and new house to live in).

    What I have not heard anyone say here, (or maybe I missed it), is choosing to not pay your mortgage off early to allow you to invest the funds in a business. Some, like Rich, have invested in property, but no-one has mentioned investing in a business.

    For me, I love working (again). When I was going over to Germany, I was taking it easy. I was working 2 days a month, but not every month. I was burnt out and needed a break.

    Moving out here has allowed me to get back into work. I started again by setting up the photo booths for the kids and I just carried on when I came over here. I started off part time and is now a full time business that is growing nicely and making far more each year than I could have done by investing in houses. I'll probably continue to grow that before selling it on and adding any receipts into the pension fund pot.

    Never really been a saver, don't have any debts or credit cards, but do have a lump sum set aside for pension or health care.

    BTW, state pension was recenlty calculated to be worth the equivalent of a £500k pension fund, so guess that if you want more than that, or if you are not due it for some time, then maybe you need to start saving soon, or now.

    Good luck to all you youngsters out there!
    Last edited by Trevor; 16-01-2018 at 04:50 AM.
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  7. #107
    Quote Originally Posted by Steve C View Post
    2% return based on one asset
    4% return based on a portfolio of similar assets

    Based on your theories, is the above realistic?
    Yes - what’s the beta of the portfolio? It’ll be somewhere around market rate of return id imagine

    If someone said “do you want 4% or pay off your mortgage sooner” then it’s also a no brainer for me. 4% is not worthwhile given the potential savings of reducing debt

    Btw, again by definition, you can’t get 2% off a single asset but 4% off similar assets. Similar assets will give similar returns

    You should have higher return than the diversified portfolio from specific assets

  8. #108
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    Quote Originally Posted by hobbit View Post
    Btw, again by definition, you canít get 2% off a single asset but 4% off similar assets. Similar assets will give similar returns
    Yes you can. That's exactly what I am doing. Practice > theory.
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  9. #109
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    Quote Originally Posted by hobbit View Post
    Um.... no lol

    You canít revalue a debt based on inflation. And actually itís the opposite

    Liabilities increase under inflation, because the value of the underlying currency paying it back has reduced
    I'm not saying you revalue anything, absolutely £300k != £291k. I used a simplified example to demonstrate a side benefit of our present situation. A relative wealth gain, as a result of a double negative. Inflation can erode the value of a mortgage as it erodes everything else in its path.

    I take your point that the only factual least risk way to 'benefit' from a mortgage is to pay it off early. I just side with Steve C that the opportunity cost of doing so, for me personally, seems higher than other avenues I am willing to explore. And, as an oddity of today's economy, having a large mortgage isn't so bad. With the caveat that you can afford to pay it, and you're not 'wasting' the opportunity that is the low-interest rates.
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  10. #110
    Depends how much flexibility you need Olly.

    We have an offset mortgage & no intention of paying it off until it matures in Dec 2020. It gives us a cash fund to draw on at any time. This is more important when you're self-employed of course - it helps smooth out cashflow and protect you against events..

    We get the benefits of overpaying with extra flexibility of being able to draw down that money at any time.

    Not easy to find ultra low risk returns that exceed mortgage rates (ours is base + .75). We are pretty cautious. Our money is spread across offset mortgage, pensions, S&S ISAs and cash savings. As you know we're planning a house build at some point, so want to keep our cash pretty liquid at the moment. After that it will go into a drawdown style pension I think.. I don't plan to be working in 5 years time, so our situation is quite different to yours.

    I really must talk to an IFA at some point...

  11. #111
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    So, after reading all of this, my logic is to overpay some repayment mortgage if I can because the interest rate is low. If I had £1500 a month to fund my mortgage including the over pay, then it's better to do that now as when the interest rates go up, my overpay will reduce if I stick at the £1500 level.

    I am not aware of the high rate of return investments that Steve has access to, so I can't do that. Even if Steve shared this with me, I'm not sure I would risk it.

    I am also increasing my pension contribution a tad, in line with what I won't notice really. All while trying to keep enough for living today!
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  12. #112
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    Quote Originally Posted by Floyd View Post
    So, after reading all of this, my logic is to overpay some repayment mortgage if I can because the interest rate is low. If I had £1500 a month to fund my mortgage including the over pay, then it's better to do that now as when the interest rates go up, my overpay will reduce if I stick at the £1500 level.
    This is what I am doing whilst possible . Same logic, more comes off the balance while interest rates are low.
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  13. #113
    Quote Originally Posted by Brando View Post
    I'm not saying you revalue anything, absolutely £300k != £291k. I used a simplified example to demonstrate a side benefit of our present situation. A relative wealth gain, as a result of a double negative. Inflation can erode the value of a mortgage as it erodes everything else in its path.

    I take your point that the only factual least risk way to 'benefit' from a mortgage is to pay it off early. I just side with Steve C that the opportunity cost of doing so, for me personally, seems higher than other avenues I am willing to explore. And, as an oddity of today's economy, having a large mortgage isn't so bad. With the caveat that you can afford to pay it, and you're not 'wasting' the opportunity that is the low-interest rates.
    No, you've got it completely backwards

    Inflation doesn't "erode" a liability - it increases it.

    If you can't quite 'see' this, just work your example through

    In your example, we would all benefit from being in hyper-inflation.

    So if inflation was 300%, you're saying the mortgage would effectively disappear...

    Incorrect - it's the other way around. The mortgage would triple because inflation reduces the value of currency


    However, this is quite a technical concept and a moot point, so just ignore inflation altogether in your thinking because it's just confusing you. Nobody considers inflation when looking at mortgages.

  14. #114
    Quote Originally Posted by Simon View Post
    This is what I am doing whilst possible . Same logic, more comes off the balance while interest rates are low.
    Indeed. And the balance (if you took it out when interest rates are low) is higher than what it would be if interest rates were higher (because house prices are higher), so you're basically protecting yourself against when rates increase

  15. #115
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    Quote Originally Posted by hobbit View Post
    No, you've got it completely backwards

    Inflation doesn't "erode" a liability - it increases it.

    If you can't quite 'see' this, just work your example through

    In your example, we would all benefit from being in hyper-inflation.

    So if inflation was 300%, you're saying the mortgage would effectively disappear...

    Incorrect - it's the other way around. The mortgage would triple because inflation reduces the value of currency.


    However, this is quite a technical concept and a moot point, so just ignore inflation altogether in your thinking because it's just confusing you. Nobody considers inflation when looking at mortgages.
    Ahhhh, I see where you are coming from... I think you're saying that in my simplified example inflation means £300k would actually be worth £309k at the end of 2017. Because that's how inflation works. Which is true. However, because the mortgage was fixed at 300k in 2016, that's where my theoretical 'gain' comes from. What would have cost you £309k in 2017, you bought for £300k in 2016. The mortgage is fixed at the £value you take the mortgage out at, and inflation is then relative to that fixed value. Which is where my suggested saving comes from.

    So, what have I missed? Specfic to my example, I'm generally curious as this could improve a gap in my knowledge.

    And, I agree, I wouldn't consider inflation when picking a mortgage. My point was this was more of an oddity and side 'benefit' e.g. it's not all bad having a big mortgage under the present circumstance. Admittedly, to really benefit you would need an inflation-linked investment, salary, pension and/or something in a currency that benefits from the weaker pound. That's a whole other massively complex list of assumptions and arguments.

    Edit: Just to add, in the past, when the rate of inflation has increased so have interest rates. To help keep inflation under control. That's why I referred to it as an oddity.
    Last edited by Brando; 15-01-2018 at 03:46 PM.
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  16. #116
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    We went with the 5 year fix at low 1.89% we have also taken off 5 years so instead of the last two years we are starting to pay some of this loan off.
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  17. #117
    Quote Originally Posted by Brando View Post
    Ahhhh, I see where you are coming from... I think you're saying that in my simplified example inflation means £300k would actually be worth £309k at the end of 2017. Because that's how inflation works. Which is true. However, because the mortgage was fixed at 300k in 2016, that's where my theoretical 'gain' comes from. What would have cost you £309k in 2017, you bought for £300k in 2016. The mortgage is fixed at the £value you take the mortgage out at, and inflation is then relative to that fixed value. Which is where my suggested saving comes from.

    So, what have I missed? Specfic to my example, I'm generally curious as this could improve a gap in my knowledge.
    I don't understand a lot of where you're coming from and I think I've confused you further with a couple of comments

    Inflation shouldn't affect anything you're talking about. Inflation is a measure of costs of everyday goods, and has nothing to do with the value of your mortgage. Just remove it from your mind

    If you want to look at restating things in hyperinflated currencies then that's a whole world of pain and i ignored it when i was studying for the ACA and certainly won't be going back there

  18. #118
    Quote Originally Posted by edh View Post
    We have an offset mortgage & no intention of paying it off until it matures in Dec 2020. It gives us ... base + .75


    What happens when it matures? Is that maturity of whole mortgage or just the initial period?

    I've got an offset and I'd have loved that kind of rate - think we're on +1.25 for initial period

  19. #119
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    Quote Originally Posted by hobbit View Post
    I don't understand a lot of where you're coming from and I think I've confused you further with a couple of comments

    Inflation shouldn't affect anything you're talking about. Inflation is a measure of costs of everyday goods, and has nothing to do with the value of your mortgage. Just remove it from your mind

    If you want to look at restating things in hyperinflated currencies then that's a whole world of pain and i ignored it when i was studying for the ACA and certainly won't be going back there
    You're no use to me! Dave must have done the ACA too, he's keeping quiet as I guess he has no desire to do accounting for dummies either. You're right it's moot / not a consideration for any action.
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  20. #120
    Quote Originally Posted by hobbit View Post


    What happens when it matures? Is that maturity of whole mortgage or just the initial period?

    I've got an offset and I'd have loved that kind of rate - think we're on +1.25 for initial period
    Dec 2020 will be the end of paying mortgages for us. (Bear in mind I am old so have been paying mortgages since 1988..) We then pay back the capital from our savings... (btw we got this rate when we switched to this mortgage in 2003)

  21. #121
    Quote Originally Posted by Brando View Post
    You're no use to me! Dave must have done the ACA too, he's keeping quiet as I guess he has no desire to do accounting for dummies either. You're right it's moot / not a consideration for any action.
    Think Dave is CIMA

  22. #122
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    Quote Originally Posted by Floyd View Post
    So, after reading all of this, my logic is to overpay some repayment mortgage if I can because the interest rate is low. If I had £1500 a month to fund my mortgage including the over pay, then it's better to do that now as when the interest rates go up, my overpay will reduce if I stick at the £1500 level.

    I am not aware of the high rate of return investments that Steve has access to, so I can't do that. Even if Steve shared this with me, I'm not sure I would risk it.

    I am also increasing my pension contribution a tad, in line with what I won't notice really. All while trying to keep enough for living today!
    The investments I make are freely available. Well, some of them you can only access via an IFA but there is no mystery to them.

    In any case you should speak with a good IFA and get them to review your financial situation. The difference between your money working hard for you and not working hard for you is massive when compounded over a number of years.

    Let's say Mr Sad pays mortgage interest at 2% and the mandatory repayment is £1,000 per month but he has another £500 a month available which he uses to overpay his mortgage. Doing this saves Mr Sad £5,000 of interest over a period of time.

    Mr Happy has a similar mortgage situation but uses his surplus £500 per month to invest it at a 4% return.
    He makes £10,000 over the same period and then uses half of gain to pay down his mortgage to "catch up" with Mr Sad's mortgage position. Mr Happy then buys a track car with the remaining £5,000.

    The 4% investment obviously carries a risk but it is a low risk; you'd have to be extremely risk averse to not be comfortable with it.

    Be like Mr Happy. 😆
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  23. #123
    You donít need an IFA btw. People keep recommending them but unless youíre paying the IFA by the hour, theyíre not independent anyway - they make their money by selling the products available and earning commission...

    You forgot the tax on the 4% return, and the fact the 2% saving could be 5% in future years... tax free

  24. #124
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    Quote Originally Posted by hobbit View Post
    Think Dave is CIMA
    Yeah, he is. I checked Linkedin :D.
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  25. #125
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    I recommend seeing an IFA, we've used two...

    1) A highly recommended local IFA. Not that location really matters. Too many things pointed towards going to see them, and they appear to understand Cornish benefits better e.g. the local buy to let markets and managing locals wealth. I used them to sense check our plans and goals and see if we were missing any tricks. With the added benefit that they will help SC if something happens to me.

    2) A Mortgage specialists - To sense check products and see if they can do better.

    2) Has so far saved us a bit of cash and paperwork. 1) Provides a level of cover combined with life insurance, a will, and a good solicitor that means SC and Fern are sorted.

    When dealing with both I did a fair amount of research before and after, to do the best I could. Then listened and researched their feedback. I'm not suggesting dig out the yellow pages and go all in on the first IFA you see. But a good one should be able to help. If not, find another or take comfort in the fact you're doing the best you can.

    Neil, if your advice is that an accountant would be better then I've no exp. Being PAYE I don't have a huge need for an accountant. If a side project ever takes off or contracting becomes my life then I'll hunt out an accountant and report back.

    Edit: Neither of the above pushed a product and all of their fees were totally transparent.
    Last edited by Brando; 16-01-2018 at 07:33 AM.
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  26. #126
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    The last few posts show what a nightmare 'finance' is for those of us without the 'finance' brain. One advocates investing and not overpaying...it's great , another advocates overpaying blah blah. Both appear to have worked or be working for both people.
    See an IFA, don't see an IFA. What a minefield.

    I'm not suggesting dig out the yellow pages and go all in on the first IFA you see. But a good one should be able to help. If not, find another or take comfort in the fact you're doing the best you can
    And I, like you, would have thought seeing an IFA would be good but Mr Hobbit is right, the ones on commision presumably want you to go with product that gives them a better rate ? And how do I know a good IFA from a poor one?...by the time a numpty like me has sussed out he was a bad 'un, my money has halved and a better IFA would struggle to get it back...would he/she?
    Last edited by Dave B; 16-01-2018 at 07:05 AM.
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  27. #127
    Quote Originally Posted by Brando View Post
    Neil, if your advice is that an accountant would be better then I've no exp.
    No, they wouldn't necessarily be better. Simply saying that IFAs are rarely independent and, in my opinion, it's worthwhile doing this stuff yourself because it's so fundamental and I've been on the receiving end of 'advice' from IFAs, mortgage brokers etc and can see how totally misleading it is

    "Luckily" I can simply say "MMMMMMMMM sure, thanks for that but no - can you give me this please, thanks"

    I've only used them to save me paperwork, but I pick the product beforehand.

    Quote Originally Posted by Dave B View Post
    And I, like you, would have thought seeing an IFA would be good but Mr Hobbit is right, the ones on commision presumably want you to go with product that gives them a better rate ? And how do I know a good IFA from a poor one?...by the time a numpty like me has sussed out he was a bad 'un, my money has halved and a better IFA would struggle to get it back...would he/she?
    You only know how good or bad they are when there's a downturn... and no, they can't get it back per se if you're going with people who simply pick the products you go for.

    Some IFAs would manage your portfolio (more like wealth management) - but they should be doing that within your 'risk profile' ... but invariably if there's a "general downturn", the people that make their money back have to take more risk in order to correct for that

    A bit like the guy who needs to keep gambling double in order to recuperate his previous loss

    At the moment, you can invest pretty much anywhere and see some kind of positive return. It's when things start to decline that you see how good (or not) the person's advice was...

    If that 4% return suddenly flatlines or goes slightly negative, when mortgage rates are climbing... you'll be wishing you paid off more of the debt because you can't always exit the previous investment without penalty


    IMO this is another example why the rich get richer. If you can afford to lose a ton of money then you just throw your money at someone who is doing lots of risky things - shorting stocks etc - and chances are they will double your money and earn themselves a load of cash too

    The guy who can't afford to lose even a couple of thousand has nowhere to go, and doubling 3k means very little in the grand scheme of things, so it's not worth investing in anything risky


    The 'general' position at the moment is that we are in a bubble and given all economic cycles are just that - a cycle - it's just a case of when it'll go down and by how much

    FTSE and other stock markets at all time high level, property at all time high (propped up by assets secured against property that may be inherited), people are investing in high-end cars... and now even looking at cryptocurrency for gains. Earnings-to-borrowing ratios are once again approaching dangerous levels... the baby boomers are retiring, they'll smash the NHS, draw pensions from pots that are already in a deficit... and energy prices are predicted to be the next big challenge facing us, particularly if we don't get our shit together around fracking

    ... and what's underpinning it? Do you look around and think society as a whole is booming? The average returns from risk-free investments are next to zero and I see more 'issues' with society being dependent upon low-paid immigrant work than anything else.

    The growth in the UK is coming from sustained foreign investment, many of which are for services rather than manufacturing. Chinese, UAE, and emerging markets in Africa are investing to help the economy along and some are doing very well - but what does that mean for the average UK person? Aside from tech services, a lot of what we export is consultancy / science etc and that's not really of much use for mr average


    I can definitely see where wealthy people could make some serious cash but for most of us, where we're just looking to be comfortable and live fairly stress free, I can see some harder times ahead.

  28. #128
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    Quote Originally Posted by hobbit View Post
    You donít need an IFA btw. People keep recommending them but unless youíre paying the IFA by the hour, theyíre not independent anyway - they make their money by selling the products available and earning commission...

    You forgot the tax on the 4% return, and the fact the 2% saving could be 5% in future years... tax free
    Some products are only available via IFAs. So, no, you don't need an IFA but you should certainly talk to one if you want to know what all the options are.

    Commission was outlawed 5 years ago: https://www.fca.org.uk/consumers/trail-commission

    There is no tax on my 4% because it is within an ISA.
    The 2% is fixed for 5 years so its not going to magically rise to 5%.
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  29. #129
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    Quote Originally Posted by hobbit View Post
    If that 4% return suddenly flatlines or goes slightly negative, when mortgage rates are climbing... you'll be wishing you paid off more of the debt because you can't always exit the previous investment without penalty
    My 4% investment can be cashed in within a week with no penalties. So, if mortgage rates > investment rates I will simply cash it in and pay off the mortgage.

    That's unlikely to happen for the next 5 years though as my mortgage is fixed at 1.85%.

    It's even more unlikely to happen because the investment is in the mortgage sector so if mortgage rates increase, my investment return is likely to increase too.

    [Have just checked my investments - they are spread across 88 assets (which further reduces the risk level) and the return varies between 3.68% and 5.26% giving an average return of 4.16%.]
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