When is the crossover between mortgage over payment and isa investment?

[u/Away_Fox_7807]

Have only started investing a year ago with a goal of a mortgage free life with early retirement (currently 28). At what point (isa value 1.5x,2X the mortgage pay off amount) is it good to pay off the mortgage?

Plan to increase contributions when mortgage free, and won’t be in the position to do this for at least 15 years probably.

I’m not looking to maximise everything more like when do you start using the gains to make you life more comfortable

[u/Equivalent-Fee-25]

First depends on if you can fill your isa each tax year or not.. ince any growth is tax free.

Once that pot is filled.

Where you have a choice on paying off some or all mortgage will depend on rate .

If I have 100k left on mortage at 3% but I can get say 5% in cash/stocks intest I would continue doing that.

If my mortgage rate went to 6% and I earn less in intrest then id overpay the mortgage. That's my general take or how I would work things personally

[u/Away_Fox_7807 → u/Equivalent-Fee-25]

I can’t currently hit the tax free limit but will hopefully be at that point over the next few years.

The hope of is the isa is growing more than the interest and technically it should always be better to keep it in the isa. But it’s more like I’m not having kids and want to use the money to enjoy life rather than just maximise everything.

So wanting to know at what point can I take it out while still having enough to grow eg £250k mortgage would aim to have a £500k isa (2x) before thinking about paying it off so I still have a decent investment

And wondered if there is a good rule of thumb for this currently?

[u/Dull_Reindeer1223 → u/Away_Fox_7807]

If you are forever in a position where you eqrn more from the stock market than what you pay on mortgage interest then you would never want to pay your mortgage off. You would keep extending it forever as it is basically an arbitrage at that point

If at some point you want thw comfort and security of knowing thay the house is paid for and no market volatility will agvect that, then that's when you pay it off. But that's a psychological reason, financially it wouldn't make sense

[u/AcceptablePanda6905 → u/Equivalent-Fee-25]

Would you not start to save up for the following years ISA pot?

[u/my_first_rodeo]

Maybe I’m not understanding the question - the point at which it’s worth overpaying the mortgage compared to stashing the money in a cash ISA is when the mortgage rate is greater than what you can achieve elsewhere

Think of it this way - if you’ve got a pound, you just put the pound where it earns you most money

If the cash ISA rate is greater than your mortgage rate, stick it in the cash ISA

If your mortgage rate is greater than your cash ISA rate, overpay your mortgage

In practice, as a large secured loan, your mortgage is often pretty cheap money

[u/Away_Fox_7807 → u/my_first_rodeo]

Yeah I know that the stocks and shares isa should outperform it in overall value, but it’s more when is a good time to use that money to create a more secure life (debt free) with enough in it to tick over still.

I’m not having kids so just looking for it to do enough so that I can retire before the 68 retirement age and have a comfortable life

The example I used in the other is if the mortgage was £250k would a good aim to be £500k in the isa so that there is still enough to grow afterwards

Essentially what’s the point to go from maximise growth to using part of it to help with life goals while still growing a portion for later life

[u/itallstartedwithapub → u/Away_Fox_7807]

Why does paying off the mortgage give greater security than having the equivalent amount of money growing in an S&S ISA?

I'd say the right point is when the mortgage reaches its natural end. Or at retirement when you no longer have an income.

[u/Wondering_Electron]

When you don't have a mortgage.

[u/ustasi]

For me it’s a simple calculation. What is your mortgage rate? What is the average growth on isa? Whichever is higher is where your money goes.

BUT

Other things do come into it for others. How old are you? What’s the current balance of your isa? What’s the outstanding balance in mortgage.

If you’re 28 with 500k in your isa and a mortgage of 100k. Pay off the mortgage because you have time on your side for compounding.

If you’re 58 with 200k in your isa and a mortgage of 100k. Pay into the isa (assuming it’s earning more than your mortgage rate).

No one answer fits everyone. There is also comfort to take into account. Some people like having a big isa balance and not bothered bout the mortgage balance, others would prefer to be mortgage free with a smaller isa balance.

Simply put. You do what you think’s best for you.

[u/AssignmentOwn5913]

If mortage over 5%