Could you explain the difference in the following two scenarios to me.
A) Steven has a house worth €600k, a €500k mortgage and €100k in shares.
B) Brendan has a house worth €600k, a €500k mortgage and €100k in shares.
Would your advice to them be different because, in the past, Steven topped up his mortgage but Brendan already had a €500k mortgage?
Brendan your point is that nobody should invest in shares whilst carrying a mortgage, correct?
My argument is that this is not the only option for the following reasons. .
1. People have different financial situations determined by size of mortgage, income, age and a host of different variables.
2. Carrying debt today in the low interest rate environment is cheap.
3. In majority of scenarios the lump sum or additional free cash flow is not enough to clear the mortgage. Fixed rates mean mortgage monthly payments remain the same despite overpayment.
4. Costs associated with break fees and switching to get best mortgage rates are not considered in your example.
5. Tax benefits of AVCs to get stock market exposure.
6. Risk - historical performance is not a guarantee of future performance but stock market over the last 10 years has returned well.
7. It's common practice to have a portfolio of assets with different risk profiles.
I'm not disagreeing that reducing debt is a good strategyI. I'm saying it's not a sequential process and people can follow a balanced approach based on their own financial circumstances.
To your question above we'd need to know a lot more about Steven and Brendan's financi situation can you ask them to fill out a money makeover?