Gold & Silver vs Mortgage

[KevAg]

Hi guys, had a quick look in search function and couldn't find a similar topic so here goes..

I'm 32 years of age, a reasonable income and no debt excluding mortgage.

I've just returned from Sunday lunch and got on to the topic of the title of the thread. As a bit of back round information I currently have a mortgage due for renewal at the start of 2020.

If house prices hold firm then I project to be in the ~55% Ltv range once renewal is due. I'm currently stacking but a friend brought up an interesting alternative and I'd like your opinions. With an average 1k of cash to invest each month give or take would you be more inclined to overpay a mortgage , reducing the length of time it's over. Or keep current payments and invest into gold/silver? My own opinion is that if I were to carry on stacking and leave mortgage run it's course then in approx 15 years sell the stack would seem not too bad of a move. Or alternatively overpay on the mortgage without incurring the penalty for overpayment for as long as necessary to end the mortgage asap, and then resume the stacking for the retirement pot. All opinions welcomed on this topic and alternatives to the two listed above would also be greatly appreciated.

Thanks in advance 

Kev

[JunkBond]

Get the mortgage paid off, it feels great not to have one! 👍

[Guybrush]

It entirely depends on your exact situation. I am in a similar position to you but the amount on the mortgage is low.  I cannot throw all my spare income at the mortgage because it would go over the 10% allowed before I hit charges for overpaying.  Because of this I do both.

[KevAg]

2 minutes ago, Guybrush said:

It entirely depends on your exact situation. I am in a similar position to you but the amount on the mortgage is low.  I cannot throw all my spare income at the mortgage because it would go over the 10% allowed before I hit charges for overpaying.  Because of this I do both.

Tough call to make. I suppose by not overpaying on mortgage and going down the metal route then the potential take off of PM could pay off the mortgage sooner than by overpaying at just shy of the 10%. Or as you've mentioned another possibility is to split the investment 50/50. I do enjoy being able to see wealth in the flesh as opposed to watching fictitious numbers slightly reducing month by month. Mortgage free though is also nice.

[Kookaburracollector]

1 minute ago, Guybrush said:

It entirely depends on your exact situation. I am in a similar position to you but the amount on the mortgage is low.  I cannot throw all my spare income at the mortgage because it would go over the 10% allowed before I hit charges for overpaying.  Because of this I do both.

Hi, not sure if this still works, but there used to be a way around the 10% overpayment rule. I was on a fixed rate with a major UK bank and wanted to overpay by more than 10% of monthly payment. I actually decreased the loan term by 4 years, which increases the standard monthly repayment, thus allowing more than 10% to be repaid!! I actually did this twice and now benefitting from it greatly.

But....be careful..you have to be absolutely sure you can afford the revised higher standard monthly repayment as they will not allow you to increase a loan term without a new application.

Just a long shot but worked for me..

As to the original thread..I would probably do half and half... increase overpayment and buy PM’s. I would even split the Precious Metal 50:50 between physical and equities (within an ISA).

[Guybrush]

I guess it all depends on your priorities, like I said the mortgage isnt that high anyway and the rate is very low so I think I can better invest their fiat they have lent me.  I get more interest that I pay them through other means.  I only over pay because if other investments go tits up I am not back to square one with the mortgage no lower.

[5huggy]

Over pay my friend! - cos you get rid of the interest the "*ANKS" charge on a "fractional reserve basis" - - you are depriving them at the same time as empowering yourself!

ALL IMHO!

[5huggy]

There is a known algorithm that points to - - - > double your mortgage payments (due) and you will pay it off in approx 7 YEARS!

[KevAg]

41 minutes ago, Kookaburracollector said:

Hi, not sure if this still works, but there used to be a way around the 10% overpayment rule. I was on a fixed rate with a major UK bank and wanted to overpay by more than 10% of monthly payment. I actually decreased the loan term by 4 years, which increases the standard monthly repayment, thus allowing more than 10% to be repaid!! I actually did this twice and now benefitting from it greatly.

But....be careful..you have to be absolutely sure you can afford the revised higher standard monthly repayment as they will not allow you to increase a loan term without a new application.

Just a long shot but worked for me..

As to the original thread..I would probably do half and half... increase overpayment and buy PM’s. I would even split the Precious Metal 50:50 between physical and equities (within an ISA).

Great post! Out of interest did they allow you to amend the years owing whilst being inside a fixed mortgage? I.e....

Fix for 5years at 3% for e.g 15years

Then in 1st year alter policy to 10 years but remain inside the 5 year fixed interest rate? 

As for paper assets. Although the idea seems ok. I have such little faith in the global economy that I'm not sure how safe it is to have shares. I could be wrong and it could be a good investment but this isn't an area where I have much, if any, knowledge. Are paper shares a long term investment plan or would they require a fair bit of attention to the market and buy/sell at semi decent opportunities?

[h103efa]

48 minutes ago, Kookaburracollector said:

As to the original thread..I would probably do half and half... increase overpayment and buy PM’s. I would even split the Precious Metal 50:50 between physical and equities (within an ISA).

This is exactly what i do!

[Pete]

No-one in normal employment can guarantee remaining in a job for ever as terrible ( I had typed sh*t but some editor changed this ) happens.
With a roof over your head you will not get sick worrying about where you will live.
You cannot guarantee good health either, as even the finest invincible folks can suddenly get a cancer diagnosis or some other unexpected illness.
Some pillock might drive his car into yours and you get badly injured and cannot work.

Unless good insurance will cover the above, then avoid stacking and get your mortgage paid off whilst you can.

[KevAg]

15 minutes ago, 5huggy said:

There is a known algorithm that points to - - - > double your mortgage payments (due) and you will pay it off in approx 7 YEARS!

I've never heard that, but I'll work it out shortly and see if it's there or there about for my situation. I totally agree with not letting the banks gain any interest off me for which they created the mortgage loan out of thin air. As kook said above seems a great way to reduce the loan amount quicker without paying over the 10%. Although job security is relatively safe. I think I'd need to see the aftermath of brexit (if it's actually allowed to go through) before taking those steps. I believe a lot of the hysteria is fake news but time will tell

[KevAg]

5 minutes ago, Pete said:

No-one in normal employment can guarantee remaining in a job for ever as terrible ( I had typed sh*t but some editor changed this ) happens.
With a roof over your head you will not get sick worrying about where you will live.
You cannot guarantee good health either, as even the finest invincible folks can suddenly get a cancer diagnosis or some other unexpected illness.
Some pillock might drive his car into yours and you get badly injured and cannot work.

Unless good insurance will cover the above, then avoid stacking and get your mortgage paid off whilst you can.

Another good view on things to be honest. Your right in many ways. Illness etc. With being only 32 I hadn't put much thought into the illness scenario. Touch wood it would never come to that. But it does happen unfortunately. 

[5huggy]

2 minutes ago, KevAg said:

Another good view on things to be honest. Your right in many ways. Illness etc. With being only 32 I hadn't put much thought into the illness scenario. Touch wood it would never come to that. But it does happen unfortunately. 

With being only 32 I hadn't put much thought into the illness scenario - 

JUST Remember 7 " P's"

PROPER 

PLANNING and

PREPARATION

PREVENTS

PISS

POOR

PERFORMANCE!

[sixgun]

Pay off debts - you never know what might happen to you employment wise and health wise in the future. Get the mortgage gone.

[KevAg]

Seems the majority are in favour of the early repayment. Kookas method of paying over the 10% allowance is probably a little too high risk for myself. So it's most probably going to be a case of paying up to the penalty fee and what's left invest into PM. My stack forecast for this year has now taken a turn for the worst. If silver and gold take off within the next few years then I'd like to think I'd be able to make a modest return on the investment so far.

[vand]

I would overpay the mortgage by at least some amount. The implied return on your money may not be mind-blowing, but it's a guaranteed, risk-free return, and at the core of a well balanced "portfolio" (however you want to define that) should be solid, low risk investments. PMs and other investments are volatile as hell and therefore have an emotional cost which represents risk even if you think you know what you are doing.

Here is a great article putting the arguments for/against:

https://financialmentor.com/investment-advice/pay-off-mortgage-early-or-invest/7478

 

I'm in the happy position that we are looking to pay off my mortgage in full within a month or two. We did it one brick at a time:

 

[Kookaburracollector]

14 hours ago, KevAg said:

Great post! Out of interest did they allow you to amend the years owing whilst being inside a fixed mortgage? I.e....

Fix for 5years at 3% for e.g 15years

Then in 1st year alter policy to 10 years but remain inside the 5 year fixed interest rate? 

As for paper assets. Although the idea seems ok. I have such little faith in the global economy that I'm not sure how safe it is to have shares. I could be wrong and it could be a good investment but this isn't an area where I have much, if any, knowledge. Are paper shares a long term investment plan or would they require a fair bit of attention to the market and buy/sell at semi decent opportunities?

Hi KevAg

I was on a 5yr fixed rate for 5 years, when I decreased the loan term I kept the full 5 years of the fixed rate term...

But remember this...whatever you do keep plenty of liquidity (cash), because if your personal circumstances take a turn for the worse, banks will not lend you money when you need it!!

When I took the action I did, I had at least one years nett salary in cash..just in case..

What ever course of action you decide to take, I would suggest you take the most risk averse option you are comfortable with.

Best of luck..the advice in this thread from all has (IMHO) been excellent.

 

As a side issue here..if you or anyone you know is going to get divorced (happy chap I am) decreasing your loan term increases your outgoings and decreases the amount of your settlement with a partner..I used to see one firm of solicitors use this method all the time to decrease their clients settlement liability...

[vand]

15 hours ago, 5huggy said:

There is a known algorithm that points to - - - > double your mortgage payments (due) and you will pay it off in approx 7 YEARS!

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

Double payments -> 9 years.

But that's assuming they'll let you overpay by that amount - many mortgages have this 10% limit (without incurring additional penalty). 

 

 

[sixgun]

After years of experience i have formed the opinion the banks would like a significant percentage of their customers to fall on hard times. They want to charge them fees and steal all their property.

Everything is going smoothly and then it can all go wrong. It can happen suddenly and unpredictably. The banks will take your home, they are lying in wait to do this. This is the ideal scenario for them.

Pay down your debts as quickly as you can. Make sure you are paying off the principle not paying interest early. If there is a limit to how quickly you can pay off without penalties - then buy bullion sovereigns with the remainder. Decent sovereigns near spot sell easily and quickly. They are like cash. i have seen members sell several £1000's in gold in an afternoon. You can speculate on the rise in gold prices but you have easily saleable coins with no tax implications.

You buy gold to hedge currency depreciation, to hedge financial collapse. The worse calamity is when you lose your home. You might eventually regret you didn't buy more precious metal but it will pale into insignificance if things go wrong and you are wishing you didn't have a mortgage as your home is taken from you.

Remember interest rates are low are the moment. i remember paying something like 16% in interest. It took all my wife's full time salary just to pay the mortgage interest. It is very satisfying to see the principle decreasing and the interest payments falling as well. It is the safest thing to do and being mortgage free is not something i have ever heard those who have been in that position have regretted in hindsight.

 

[HelpingHands]

What happens if you pay the max 10% over and any extra you put into something else. 

Can you then pay a lump off as the fixed term is expiring without penalty?

[cravethatcoin]

This is a great topic. I am in the same boat myself.

I am 1 year into my mortgage, unfortunately I wasn't able to make a overpayment last year as I had to invest a lot into renovation costs. I hope this year to be able to hit the maximum 10%. Haven't purchased any gold/silver since buying the house but I have a very good stack as a base and would prefer to direct any funds towards overpayments. If I am able the reach the 10% this year I will likely save any remaining for next years 10%

[KevAg]

7 hours ago, HelpingHands said:

What happens if you pay the max 10% over and any extra you put into something else. 

Can you then pay a lump off as the fixed term is expiring without penalty?

Good question, will have to check my T's & C's. I'm currently going into the last year of a 5 year fixed deal. The current rate is 4.09%!! Does anybody know the maximum time in advance you can negotiate your new deal? For some reason I'm sure I've heard you can get your new deal sorted approximately 3-6months before current deal expires. I had a quick look yesterday and have seen a few deals around the 1.4% mark. Would be worth reducing terms of time and heavily investing into at that rate

 

Kev

[KevAg]

21 hours ago, Kookaburracollector said:

Hi KevAg

I was on a 5yr fixed rate for 5 years, when I decreased the loan term I kept the full 5 years of the fixed rate term...

But remember this...whatever you do keep plenty of liquidity (cash), because if your personal circumstances take a turn for the worse, banks will not lend you money when you need it!!

When I took the action I did, I had at least one years nett salary in cash..just in case..

What ever course of action you decide to take, I would suggest you take the most risk averse option you are comfortable with.

Best of luck..the advice in this thread from all has (IMHO) been excellent.

 

As a side issue here..if you or anyone you know is going to get divorced (happy chap I am) decreasing your loan term increases your outgoings and decreases the amount of your settlement with a partner..I used to see one firm of solicitors use this method all the time to decrease their clients settlement liability...

Definitely worth looking into. I've been down the divorce route already! Thankfully escaped with the house and a pay off which was amicable. Set me back on my future goals, but with time and focus I'm getting back on track. So the 'happy chappy' part of your post is actually worthwhile knowing. Luckily I didn't have to implement the tactics you mentioned. But for future reference and to anybody else going through a similar experience, I would say that's sound advice.

 

Kev

[KevAg]

8 hours ago, sixgun said:

After years of experience i have formed the opinion the banks would like a significant percentage of their customers to fall on hard times. They want to charge them fees and steal all their property.

Everything is going smoothly and then it can all go wrong. It can happen suddenly and unpredictably. The banks will take your home, they are lying in wait to do this. This is the ideal scenario for them.

Pay down your debts as quickly as you can. Make sure you are paying off the principle not paying interest early. If there is a limit to how quickly you can pay off without penalties - then buy bullion sovereigns with the remainder. Decent sovereigns near spot sell easily and quickly. They are like cash. i have seen members sell several £1000's in gold in an afternoon. You can speculate on the rise in gold prices but you have easily saleable coins with no tax implications.

You buy gold to hedge currency depreciation, to hedge financial collapse. The worse calamity is when you lose your home. You might eventually regret you didn't buy more precious metal but it will pale into insignificance if things go wrong and you are wishing you didn't have a mortgage as your home is taken from you.

Remember interest rates are low are the moment. i remember paying something like 16% in interest. It took all my wife's full time salary just to pay the mortgage interest. It is very satisfying to see the principle decreasing and the interest payments falling as well. It is the safest thing to do and being mortgage free is not something i have ever heard those who have been in that position have regretted in hindsight.

 

Being new to the PM market I've stacked a few numismatic coins. Is there a reason why sovereigns are easy to sell? What is the attraction about them that allows quick sales?

16% is scandalous, I'm sure my parents told me interest rates practically doubled overnight.

Do you honestly believe with the world's current economy that they could put rates up that high? 2007/2008 was obviously bad resulting in low % rates. But to go from just over 1% to 10%+  In today's market wouldn't happen? Or would it!