Plutus wrote:Interest only mortgage approx 150k, 50% LTV, 3% fixed until 2019. Overpaying with lump sums and £300 each month.
After the 5th consecutive year of positive stock market returns, culminating in the World index delivering over 28% in £ terms last year, it is very easy to start thinking that little can go wrong by taking on increasing amounts of risk. Why not gear up? Borrow money to invest in equities at 3%? What could go wrong?
I have an offset tracker mortgage at 1% above BoE base, but at the moment most of it is paid off. Right now I would love to be able to achieve a risk free, tax free return of 3% fixed until 2019. For one thing I would max out my offset account and pay it into the 3% 2019 fix.
That said, a downside I can see to reducing your mortgage is that it may be difficult to access that cash should you want to, unless you have an offset mortgage.
If the stock market crashes within the next couple of years, you might consider yourself (and me?) a genius if you chose to reduce your mortgage instead of piling yet more money into stocks. On the other hand if markets go up another 50% from here, you will no doubt be kicking yourself and wishing you never listened to me.
Only you can decide how much risk you want to take and how to spread those risks, but the market will at some point go into reverse.