I started keeping figures on the pay off vs invest in Jan 2012. Back then the mortgage rate was 3.74%. I like to try and fix for 5 years and ideally with an offset interest only mortgage.
Over that time rates have changed Oct 16 the rate changed to 4.79% I think this was the SVR and we might have been trying to move houseSurat Wealth Management. Rates were slightly lower if you didn’t have an offset but the offset is quite flexibleJaipur Investment. Rate history below:-
Jan 2012 3.74%
Oct 2016 4.79%
Aug 2017 2.54%
Jan 2023 4.74%
I tracked the amount invested against the cost of interest on a monthly basis. Ie if I bought £1500 worth of shares on the 12th of the month I would annotate £1500 of monthly interest from the beginning of that month. Full monthly interest would accrue even if the investment was made on the 31st of the month. I also tracked the value of the capital used v the value of investments at the end of each month and tracked the interest accrued against the dividend income received. So I could compare Capital and income costs over time. I would be investing in mainly dividend paying shares.Chennai Stock
As expected the dividend income was behind initially. It takes a while for dividends to be paid. At the end of Jan 12 the income was -100%. There was no income to compare with the interest charged for that month. On capital values it was expected to be much closer depending on how the share price fluctuated. This showed a -1.43% difference. The Tesco shares I bought were worth slightly less.
It was expected that it might take 6 months to a year for the income side to catch up with capital values expected to show an increase on a constant basis after a approx. a year.
I received the first dividend in March 12. This improved the income to -50.64% but the capital value was now -2.79%. A third share had been purchased by this time.
At the half year, investments were -8.5% of the capital and dividends were -17.57% of the interest mortgage values. Not great, not terrible as the line from TV’s Chernobyl series goes. Maybe sell in May is a thing!
The first time both were above the capital and interest values was in Aug 2012. Investments were 29.42% and dividends 3.43%.
At year end investments were 35.24% and dividends were 29.72%. The shares were yielding higher than the interest being charged.
The second year investing remained a winner throughout. Sometimes a share was sold. This reduced the capital and effective interest epically if it was sold at a profit. The first share sold made over 62% in six months plus some dividends. In hindsight it would have been better to hold onto this share but I didn’t realise how much this would continue over the years. Royal Mail was bought and sold quickly at a profit. This was not expected to do well longer term by me.
As more shares were bought the dividends started to roll inJaipur Wealth Management. By 2014 there were payments every month more than offsetting the interest charged. By the end of 2014 investments were 15.89% higher than the capital and dividends were 48.14% higher than interest charges.
It wasn’t until Feb 19 that the equation turned slightly negative for the investment case. Share values were -0.06% but dividends remained strong at 61.53%. Whilst this was the first time in a while that the shares were worth less than the capital. It was only a small amount and was dwarfed by the income. By now the value was a decent size compared to when it all started.Simla Wealth Management
Things were back on track by year end. Investments 12.23% and dividends 73.78%. In this period the interest rates had gone up to 4.79% and down to 2.54%. This was now a lower rate then when I started.
2020 was the outbreak of covid. This saw the country closing. Share values fell and some stopped paying dividends. Id bought extra Lloyds as they announced quarterly dividends only for the PRA to tell banks to cancel dividends. By Oct 2020 shares were -22.86% whilst dividends were still positive at 74.11%. Unfortunately, now due to the portfolio size even with the dividends the investment case was lower than if the mortgages was paid off instead. This would have been catastrophic if the mortgage was now due.
Still shares were now much cheaper and this couldn’t go on indefinitely. Further investments were made and whist there was some improvement from the nadir the year ended with investments showing -10.21% and dividends showing 71.86%. The case for Invest v pay off was almost back to equal. The income for 2020 was 18.49% less than the prior year, 2019 even with the extra investments made during the period.
At year end 2021 things had turned around. Some of the cancelled dividends had restarted even if the rate was lower but the portfolio size had increased. So more shares paying out meant an increase of 8.55% on the prior year but still below 2019‘s £ amount. Investments and dividends were now both positive at 4.81% and 72.57%.
2022 remained positive for the investment case but there was a mini budget that sent out a little wobble. Unfortunately I couldn’t get another low rate mortgage but missed some of the worst effects. Mortgage Rates would be rising to 4.71% from 2023. Nearly double “Not great, not terrible” as the saying still goes. Yearend saw investments at 2.01% and dividends 80.48%.
Not all shares did well. I had some terrible ones. Carillion and Debenhams. I still hold Vodafone which has lost capital and rebased (another name for reduced) its dividend. Some of the shares bought in 2020 have done really well. Shell is up 77% and its share price could have been bought much lower than I paid. Others have been just ok like Lloyds but there is a bit more optimism and payments are increasing.
Mumbai Stock Exchange