Should You Pay Off Your Mortgage or Invest? (A 50-year historical backtest)

A look into the past to assess how often investing has beaten paying off your mortgage.

Graphs from the video

Financial Planning

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00:00 The Problem with Averages
02:24 Tom & His Question
04:07 Historical Market Data
05:24 How the Test Works
07:13 ISA Results
09:24 Different Mortgage Sizes
09:47 Pension Results
12:28 Pension +1
13:34 Different Time Periods
14:27 60% Stocks 40% Bonds
16:31 Key Considerations
19:26 Why this was not for Tom

[JamesShack]

It's great to see a wide range of opinions in the comments.

Please remember that what feels right for you may not be right for someone else. There is no single right answer for everyone.

[despoticmusic]

I’ve paid off two mortgages very early (15 and 10 years on 25 year loans) in my lifetime - both with overpayment since day 1. My outlook on life and work changes completely when I’m mortgage free. 🎉

[ChrisRobinsonish]

What a brilliant video. So well put together and thought out - every time I thought of a 'what if' at the start of the video, you ended up covering it off later in the video. Very comprehensive and great information, thanks - you've gained a new subscriber!

[AshJun]

Great content. I love the data and analysis. So much more granular and powerful than 99% of financial content out there.

[chrismunt]

Amazing content. No.1 financial YouTube channel!

Would be nice to see some content for newer investors on the UK medium salary.

[TheWelshBloke]

What a well rounded video. I hope people didn’t stop watching half way through.

[j]

Phenomenal analysis! So many YouTubers skim the surface and repeat one another’s simplistic ideas. Finally someone who “gets” data and can do quality analysis! Thank you.

[AnthonyBuonanno]

James you are brilliant - thorough, super clear, realistic and engaging. Thanks for another great video.

[imgiwhl]

Very good analysis indeed! I particularly like your comment in the last part about zooming-out to really look at the total risks the investor is willing to expose himself/herself to, namely job security, health condition, personal stress during the periods of market fall, especially when they are prolonged periods of time.

[jamesdaw]

These are the videos I come for! As someone with my own model for back testing - I love these.

[wlegna]

Best video I've seen on the subject! Thank you! It would be interesting to see the numbers for 50% paying off mortgage, 50% investing in stocks.

[belle]

The hypothetical analysis you did with your client in the last part is a key differentiator in your content and is the value add that financial advisers don’t often demonstrate. The numbers say one thing, but if someone hasn’t considered their human responses to a crisis, the data can obfuscate the real risk. Great video.

[anthonyuzum]

Excellent video again James. I personally use a repayment mortgage but I save extra in my pension & LISA to have the option to pay off the mortgage early in the future.

The best bit for me was understanding the risk in other parts of one’s life. I have chosen to be aggressive with my career & investing (100% stocks & lev BTL). Perhaps I need to consider a slightly more conservative approach in one of them. Thanks again, these videos make a huge difference to our collective decision making process.

[thomascowan]

I'm 27, I'm a newly qualified Financial Planner, I personally put much more into overpaying my mortgage than I do into investing. I know that I would very likely be better off allocating more to investments given historical return models, but I also know I'm naturally conservative as a person. For me, the peace of mind of being 40-45 with my mortgage paid off, vs having a much healthier private pension but my mortgage still hanging over me, is a no brainer. I still invest in my retirement plan and for me it's the right balance. It's always helpful to look at these kind of models though, great video James!

[markcarter]

My first mortgage was taken out in 1987 and was an endowment type. These relied on an investment vehicle to pay off the mortgage when it matured in 25 years time at the end of the mortgage period. Many of us remember the scandal of endowment miss selling when the FCA had to step in and sanction the industry. My endowment tanked and paid out about half the required amount when it matured, thank you Canada Life. Luckily I have already paid off the mortgage some 18 years earlier and was not relying on the endowment. So fantastic concept but relies on managing the investments effectively.

[badlittleking]

I appreciate the time and attention to detail you put into this. Thank you!

[XayedAli]

This is one of the best videos I've ever watched on financial planning

[adm]

Excellent video, excellent channel. I just discovered it. Thanks for your work James and for sharing your knowledge with us all.

[terryjlee]

Great video. There are some people in the comments saying they will pay of their mortgage and others calling that out as not being right. However I will also be paying off my mortgage as a priority.

At the end of the day it comes down to personal preference and no amount of internet advice that is generalised should impact that. The first step is to educate yourself, make sure you know what decisions you need to make and when.

Then do some self reflection and understand your personal circumstances but also what type of person you are. Then know and accept that if you choose to pay off your mortgage, most likely you’re not making the most financially sound decision but if it’s right for you for other reasons and you’re doing it with both eyes open.

Then overall you need to step back and give yourself a massive pat on the back, because at the end of the day you have created a situation in your life where you can choose to make these choices, as opposed to most who don’t have the spare cash to do such things.

To be clear, I focus on my mortgage after maxing out my investment ISA but again that’s not for everyone.

[charlieglenister]

Love the content James! Its implicitly touched on throughout your videos but would love to see a video on the optimal path to building wealth for people currently in their 20's / 30's, particularly with a focus on retiring early amd not necessarily waiting for your pension to kick in