The 3 Big Mortgage Mistakes EVERYONE Makes (Real world examples)

In this, you'll see how we saved one client £124,000, why paying off your mortgage may be a big mistake and why high-interest rates are not as bad as you think.

I want to ask that you keep an open mind whilst watching this video.

We all have pre-conditioned views of whether mortgages or debt are good or bad. But these views are often not our own. Instead, they’re typically formed early in life, often from our parents.

Perhaps your parents were big spenders and liked to live on the edge, with large mortgages, and you saw it blow up in their faces. Or, on the other hand, maybe they were big savers and paid off their mortgages as fast as they could, or never had them at all. Perhaps you've even had it drummed into you that all debt is bad.

We see the same thing with stock market investing or pensions. If someone we know has had a bad experience with them, we're likely to assume that they're bad. Or, on the other hand, if someone we know, or see online, has made a load of money betting on high-risk single stocks, we'll assume that’s a great way to make money.

And this is because we put a lot of weight on the stories we hear, from people we know.

But you need to look past these anecdotes and make your own decisions based on data.

Financial Planning

DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice. Any opinions or assessments expressed are James’ own opinions or assessments, which are not affiliated with any third party. Any representations stated as facts or views based on such facts are relevant to circumstances applicable at the time of publication. This information should never be relied solely upon to make decisions, and James accepts no liability for any investment actions undertaken by viewers. Please seek regulated financial advice or an advisor if you require assistance. The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested.

James Shack™ property of James Shackell
Copyright © James Shackell 2021. All rights reserved.
The author asserts their moral right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this channel and any video published on it.

0:00 Intro
1:07 Mental Accounting
5:32 Investing Vs Overpaying Mortgage
9:25 High-Interest Rates

[JamesShack]

Do you have any questions about mortgages? let me know below!

[FennaVa]

My wife and I's monthly payment was $3415 month. We would pay an extra $500 a month towards the principal. We currently just refinanced to get a lower interest rate and to get off of PMI. Our new monthly payment is $2918 a month. We plan on still paying $3700 a month but are now going to do bi-monthly payments.

[tonycarboni]

I'm pretty sure that the number one mistake regarding a mortgage is getting married and obtaining one.

[MIchaelGuzman]

Home prices will come down. Look at how much the monthly payment has gone up with the new mortgage rates. Add to that the recession and the fact that mortgage guidelines are getting more difficult. IMO home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes...

[garethedwards]

I paid my mortgage off at the age of 31, knowing that I could have made a much better return investing it all, but one thing not mentioned in James' (otherwise excellent) video is the potential mental 'peace of mind' benefits of being mortgage free, especially working freelance like I do. Contract ending, or redundancy looming? No problem, I'll take a few months off before find work again, go on holiday etc. I'm growing tired of the work that I do, and I'm planning a career change into something more rewarding and with a lot less stress soon. The line of work I want to change to is also much less money, but that's not a concern to me now really, I can afford to go back to college, uni to re-train, and/or take lower paid but more enjoyable work now I'm not a prisoner to my current high earning work. It's a good feeling to know I can quit it at a time of my choosing. None of this would be possible with a big monthly mortgage payment. Another benefit, is that investing (and don't get me wrong, I also invest a lot) is for a benefit at some point in the future, whereas paying off the mortgage young is a guaranteed benefit that you get to enjoy now whilst you still hopefully have good health (depending on how quickly you pay it off). Food for thought, everyone's different, just thought I'd post my personal experience.

[damianleah]

I paid my mortgage off at age 39, like other comments, piece of mind is a huge factor (for me anyway). I am now in my early 50s, I find I don’t need to work if I don’t want to. I didn’t want to be forever paying debts off into my 70s. Just my debt averse view.

[GeorgeAusters]

The thing is.. Most people don't use extra money to invest - they just spend it rather than paying off their mortgage early

[notwothesame]

Interesting video, especially a year on with everything that has happened. Currently inflation above 10% in the UK. Would be good to get your take on the same situation now.

[dantalksmoney]

Loving the examples here James! I recently paid off my mortgage in full which is a massive weight off my shoulders but am looking at doing a self build at some point so no doubt I'll be jumping back on the mortgage bandwagon before long!

[mattsennett]

You are so right James in what you say but for many the psychological benefit of knowing they are mortgage free is worth a great deal too. It was in my case last year due to concerns about future work so paying the mortgage off then investing more each month since is what I have done.

[susanlewis]

Negative costs of mortgages. No brainer to have one. Investing £500 pcm and overpaying £50 on a 1.49% mortgage (30% LTV) to reduce the terms to 10 years.Thanks Sue

[aboveboard]

Arbitrage is always a good starter for 10, but for me, paying off the mortgage allowed me to reduce outgoings and to invest in higher return, higher risk investments without the worry of not being able to maintain where I live. So horses for courses, but sound advice to play the game and lower outgoings.

[MP-uxdn]

Thanks for some great content. Your section on High Interest rates slightly confused me:

"The cost of borrowing money is not the interest rate you're being charged; it's the difference between the interest rate and inflation." - This only seems to make sense in the scenario where your salary is indexed to inflation. Where your salary is not keeping pace with inflation, then interest rates seem to be a pretty important factor. I might have misunderstood, and would welcome you explaining, please!

[haamctslpm]

THIS CHANNEL IS AMAZING- this is the kind of stuff that they should teach at schools… I’m 22 and starting out my professional career and I have all of this ahead of me and need to be informed! Thank you!!

[yarnybart]

You also have to consider the time to maturity on any mortgage. I did exactly what you outlined, paying off expensive BTL mortgage with a very cheap residential mortgage which was fully flexible, so that I kept under 65% LTV on my BTLs. But a residential mortgage, even a flexible one, has to be repaid at some point. Mine is due in 2025 so I am overpaying each month, but that's because it's an interest only mortgage and in 2025, I don't want to sell the residential property (hich is actually now a second home, my primary residence was purchased mortgage free).

[ihague]

It's important to use (or consider) wage inflation instead of CPI when making these calculations / assumptions. For example, CPI may be 6%, but your wages may only be rising at 2%. In this case, a borrowing rate of 3% would be negative in 'real terms' but positive in practical terms (i.e. in terms of your ability to repay the loan). You can only 'inflate away' your debt if borrowing rates < wage inflation. If not, your wages may be inflated away, but your debt isn't. Also, when your wages aren't keeping up with inflation, non-mortgage expenditures start to eat away more of your monthly budget, putting more stain on your ability to service your debts.

[DSLRguide]

brillliant video, great to see those real world examples

[MarkWebster]

Your channel is going to blow up. This is genuinely the best personal finance information I have seen on YouTube. Thanks for giving away so much value in your videos.

[umutkarakus]

My summary:
1. Borrowing against your own home gets you the lowest rates.
If you have a 5-year car loan with a high rate, you can borrow against your own home at a low rate and pay off the car loan. You might complain that the mortgage extends this loan over a long period, e.g 25 years. However, you can pay off the loan early, e.g after the 5 years of the original car loan, so the longer duration is not a concern.
The risk is that you have now allowed your home to be repossessed if you fail to keep up payments.
2. Investing spare cash gives a higher return than the interest you save by repaying early.
The risk is that many investments are very volatile, e.g stock market. Property investment is much less volatile but you need to save up over a long time, unlike the stock market which you can invest in every month.
3. A 2x increase in the interest rate does not mean a 2x increase in the monthly payment of a repayment mortgage.
This can be seen from the approximate equation M = (C + 0.55rCY)/12Y = C/12Y + 0.55rC/12.
M is the monthly payment, C is the value of the loan, r is the rate, Y is the duration in years.
We see that r is present in only one of the terms. As r gets very large (>= 0.1) the proportional increase becomes more and more true (2x increase in r results in 2x increase in M).
For an interest only loan, this does not apply.

[Shmuklidooha]

I still make overpayments on my mortgage (1.9%) because in 2 years I'm planning on remortgaging to buy more property. That extra 1.9% I'm saving on interest is better than what I'd get in a savings account and safer in the short term than the stock market.

Though I do agree that in the example presented there is one disadvantage for remortgaging the primary residence to reduce the LTV on the BTL properties - If you default on the BTL loans and they get repossessed, you are on the hook for a larger portion of the property. It might be a fringe case, but it might happen.