Should i make overpayments on my mortgage or invest the money

I'm having trouble deciding whether to make overpayments on my residential property or investing the money somewhere else.

At the moment my mortgage is approximately £136k and I'm paying interest only of £460 per month. I save between £500 to £1000 per month depending on my income. The interest rate on my mortgage is 4.64% last time I looked. This rate is fixed until December 2016.

Any suggestions.

Every time you make an overpayment the capital amount reduces so your payments are lower the next month. The way I see it is if you can find an investment which returns greater than 4.64% there's no point in investing the money. I would be inclined to make overpayments to my mortgage which would eventually reduce the capital amount I have to repay. This of the reduction in monthly payments as a form of passive income your are receiving. If by making £500 overpayments you reduce your monthly payments by £1 it is worth it.

@XenMoney 4.64% seems very high for a mortgage in the UK. Bearing in mind the Bank of England rates are at an all time low perhaps you could find a better rate. As you've fixed the rate there may be exit charges but sometimes the savings you can make switching the mortgage to a cheaper product provider may be worth it. I have seen mortgages for as little as 1.99% (HSBC) so you could slash your mortgage payments in half providing you have good credit history. Might be worth considering.

Also I would follow the advice given here. Always have plenty of money in your emergency fund, maximise your retirement account, save a little for the small luxuries in life and put the remainder towards paying off your mortgage aggressively.

There are investment vehicles where you get more than 4.64% but you have to put your capital at risk. You might consider P2P lending or the stock market. The stock market is at record highs at the moment so it's probably not the best time to invest. Hope this helps and good luck paying off the debt.

Cool example. So if a payment of £11,000 was made the PE would be 11. Bearing in mind PE ratios of 10 or less are desirable when buying stock this could be quite relevant in paying off this mortgage quicker.

If the mortgage is interest only you need to get started on your repayment vehicle. After the end of the term you will have to pay the £136k to the bank. After retirement and emergency fund this should be your priority. I don't think there are any safe investment strategies which pay more than 4.64% so you're better off making overpayments.

Definitely agree about finding a cheaper mortgage! 4.64% seems high. Shop around, look at comparison sites and improve your credit score. Reducing your mortgage from 4.64% to 1.99% would reduce your monthly mortgage by £230!

I see the analogy you are trying to make. I should be more concerned about lowering my debt compared to increasing my savings. Thanks.

I do have an emergency fund and I am fully contributed into my retirement plan. I the overwhelming majority of people in this forum believe it is better to make overpayments. I will now be giving this some serious thought. Thanks

I am with Santander at the moment and their mortgage rates are bloody high. I will shop around. I've been lazy but after seeing the savings I could make I need to do some calculations in terms of exit fees and money saved to make a decision. Thanks for the heads up.