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Originally Posted by teatree  Still Growing - in the UK we used to have tax relief on mortgage interest, but it got abolished in 1997, as the govt thought it caused people to speculate on housing un-necessarily and carry too much debt.
So be warned, it could get abolished your end too.
Many people advance the idea that you would be better off putting money into tax-free vehicles that allow stocks and shares (in the UK, ISAs and Pensions, in the US, 401ks).
But they neglect the safety and risk side of things. When you pay off your mortgage quickly you are guaranteed to become richer. There is no risk - after all, you have to pay off the debt at some point, and the longer you leave it, the more interest you pay. Investing in stocks by contrast is hugely risky. On paper you might make more than 3% per annum return, but in practice, you might make zero, or even a negative return. The Dow Jones was 11773 in Jan 2000, but is below 10,000 now. This isn't a new phenomenon. The Dow Jones for instance was flat from 1937 to 1950, and then flat again from 1966 to 1982, and the 1950 to 1966 rise was very shallow indeed (you'd have been better off sticking your money in a deposit account). The go-go period from 1983 to 2000 was as rare as the period from 1914-1929.
IMO you should always go for the risk-free returns first - which means paying down debt including mortgage debt. Once you have your shellter all paid for, then you can afford to start taking other risks - it won't matter then if you make some losses, as you will have had your basics all sorted out. |
I agree that the stock market has more risks over the short term. Historically if you diversify and have the time you should average more than 4% in gains in most stock markets (Lets say 30 years like a typical mortgage).
Since the UK (as you say) no longer allows for tax deductions on home ownership or morgage interest it does make it a little more appealing to pay off the house. What has the UK stock market averaged over the past 30 years in increases vs what was your sister's home interest at?
Just curious.
Also, there is no correct answer. I'm replying to you because I might start paying more to pay down my mortgage. Currently I do pay an additional 10% per month and that alone will reduce many years off the mortgage. Maybe I'll increase it to 30% additional. I am however looking to start moving money out of CDs and into the stock market soon. I think it still has a way to go down and of course I'll invest into company with great debt equity ratio.