# Investing in Stockmarket instead of Paying Mortgage Off - Mortgage < €135,466



## ronaldo (10 Nov 2006)

From reading other posts, I see that alot of people are asking should they remortgage their house to invest in stocks and shares. My analysis is below. Please comment...

First of all, if you have a variable rate mortgage and the LTV is below 80%, it would probably save you money if you switched to NIB's new LTV mortgage where the price structure is as follows:

A margin of 0.50% applied to first portion of the loan up to 50% LTV 
A margin of 0.60% applied to next portion of the loan up to 60% LTV 
A margin of 0.80% applied to final portion of the loan up to 80% LTV

Secondly, I wouldn't recommend investing using your mortgage money at all if your LTV is over 50%. Therefore, the only time I'd even consider investing is if my entire mortgage fell into the first of the three categories above. This means that, at current ECB rate of 3.25%, you would need to make 3.75% net to cover your interest. You wouldn't need to factor in inflation because the value of the capital of your loan is being eroded by inflation at the same time as the values of your shares are being eroded by inflation so they cancel each other out.

The above is the most beneficial way of *borrowing extra money* to invest using your mortgage. However, there is a more efficient means if you simply want to invest your mortgage money monthly instead of paying of the capital. 

Lets say your home was mortgaged enough to use up your full TRS allowance - €2,540 for a single person or €5,080 for a married couple.

This would mean that, for example, if your mortgage was at a level that the interest would match these limits, it may be worth converting it to interest only and investing what would have been your mortgage money into a fund such as Quinn Life.

This means that if your mortgaged at NIB's current rate of 3.75% on their new LTV product, it may be worthwhile converting to interest only when your mortgage is at €67,733 for a single person or €135,466 for a married couple.

This means that the interest on the loan is costing 3.75% before TRS is deducted - only 3% after TRS is deducted. Therefore, any return in excess of 3% would be profit. *This will not work if you remortgage your home to buy shares as TRS would not be applicable.*

This 0.75% may not seem too much of a difference. However, for example, if you had a newborn baby and wanted to save your married couples TRS allownce of €5,080 per year until the baby was 18, the difference in charges alone would be almost €9,000 (or €500 a year on average).

*Summary*
In order to invest in the stockmarket using borrowed money in the most efficient way possible, my advice would be to transfer your mortgage to the cheapest company available (currently NIB at 3.75% for LTV < 60%) and get your mortgage down to the upper limit needed to qualify for your full TRS limit of €2,540 for a single person or €5,080 for a married couple. This means, at a mortgage rate of 3.75%, get your mortgage down to €67,733 for a single person or €135,466 for a married couple. Then convert it to interest only and invest the money you would have been using to further pay of this capital in the stockmarket. As you will be investing on a monthly basis, it would probably be best to do it via an index tracker such as any of Quinn Life's products. The borrowings are effectively costing you 3% and anything the index tracker makes in excess of this (after tax of course) is profit.


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## whathome (10 Nov 2006)

ronaldo said:


> Then convert it to interest only and invest the money you would have been using to further pay of this capital in the stockmarket. As you will be investing on a monthly basis, it would probably be best to do it via an index tracker such as any of Quinn Life's products.


 
Sounds like a self administered endowment mortgage.

http://en.wikipedia.org/wiki/Endowment_mortgage


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## ronaldo (10 Nov 2006)

Yeah, something along those lines. However, I don't really like using the word endowment to describe this as it is a far more financially viable method of investing than the endowment mortgages that thousands have grown to hate so much. 

Endowment mortgages in general provided middlemen and mortgage companies with large commissions - the products themselves were provided by insurance companies. The charges tended to be 'front-loaded' – most of them were expected up front - and so you got little, if anything, back if during the first few years you stopped paying the premiums (which were mostly for covering the charges, not building up the endowment).

Also, on average, around half of the total payout on an endowment comes on the very last day. This is called the ‘terminal bonus’, which is not guaranteed. If you stopped paying your premiums or cashed in your endowment, you lost this.

With the method of investing above, you can choose an index tracker that doesn't pay commissions to middlemen (thus the charges are low), your investment is growing and earning a return from day one and your are not tied into a specific time-period in the investment.


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## Daddy (10 Nov 2006)

I find a lot of your postings Ronaldo to be of great interest.


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## oysterman (11 Nov 2006)

Yorky said:


> could you please explain how you calclated this?


20% relief on 3.75% is 0.75% so 3.75% gross ends up at 3% net.


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## ClubMan (12 Nov 2006)

SPC100 said:


> That is the way I see it. I think dirt is 21%


No - _DIRT _is 20%.


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## ClubMan (12 Nov 2006)

Has anybody factored in the additional cost of increased mortgage protection life assurance cover required for a mortgage top-up assuming you started out with a decreasing term policy in the first place and thus need additional cover for the new mortgage amount?


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## baby_tooth (12 Nov 2006)

fair point ronaldo, not for the faint hearted, and you have to be careful on calculating you net income on investments, for further maximisation of tax investing benefits, there is some firms out there with the old bes system as well as some of the modern equivalents.

there is german gov bonds available that offer 2% coupon plus inflation and is tax relief availabl on it,

and there is also tax advantages of using mutual funds trading as opposed to eft's. as well as tax benefits of derivatives, if you can set it up right you can make money selling straddles to the market, needs about 50k to make it viable, but your income is tax free and ya can make a nice few quids.

i'm not totaly accurate with all tax situations for all these financial instruments but am sure more uptodate info is out there..

can ya let me know if theres other ways of investing with reduced tax liabilites without going near property.


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## ClubMan (12 Nov 2006)

baby_tooth said:


> can ya let me know if theres other ways of investing with reduced tax liabilites without going near property.


Pensions?


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## ronaldo (14 Nov 2006)

SPC100 said:


> From LABrokers.
> 
> 133,000 Term life assurance over 30 years with conversion option mail non smoker, 29 years old = 156 per year
> 
> ...


 
To analyse this a little further, the repayments on a €133k mortgage would be €622 over 30 years or €416 interest only - a €206 monthly difference.

Therefore, assuming 8% net growth, the value of investing this €206 monthly would be as €49,500 after 12 years.

By paying off your mortgage, i.e. paying the €622 per month, the value of your mortgage after 12 years would be €96,640. This means that you would have paid off €36,360 of your mortgage.

This means that, you have an extra €49,500 - €36,360 = €13,140 by investing instead of paying of your mortgage. Of course, if the assumed 8% growth fails to materialise, the profit will be reduced to the following:

7% Growth - €9,927
6% Growth - €6,931
5% Growth - €4,173
4% Growth - €1,633
If the growth was below this, you'd lose out. However, history would suggest that, over a 12 year timeframe, the returns on the stockmarket should be amongst the higher of the above figures. 

Note: You also need to detuct €56 * 12 = €672 from the above figures to compensate for the additional premiums on the insurance. However, as SPC100 mentioned, you do get the added benefit of extra insurance, i.e. if the worst were to happen at the end of the 12 year period, your estate gets the money to pay off the mortgage as well as the additional €49,500 (assuming 8% growth).


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