DON'T Pay Your Mortgage Off Early!!!

Sloppy_Saver

I agree with the previous poster in that investing in any residential property at the moment would be a risky proposition. I used the "buy to let" example to show that if, at the time the chap started to pay down his mortgage (I'm assuming it took a few years, so was prior to the recent boom) he instead invested his money in several properties he'd be in a better financial position right now.

My own views are coloured by the example provided by my parents. They moved house several times, always moving up the ladder. My father had pensions and investments and savings. They had financial "bumps in the road" such as redundancy, etc. but could always use the savings or cash-in a more fluid investment to get to the other side (replacing the investment funds when they were back on their feet). They paid off the mortgage about 3 years ago, downsized their house and retired. They now live very nicely thankyou off their pensions and investments - still managing to save money from it all. They're not financial moguls and they weren't highly paid executives (Dad, labourer and Mum, part time shop assistant), they just invested a prudent amount in good LONG-TERM investments and got on with their lives.

The key is Long-Term. They started investing early, didn't have much money but compound interest over the years helped them out. If they had spent 10 years in a dogged attempt to pay off the mortgage before moving on to other investments they would not have had the same amount of time for their investments to grow and so would not have been as comfortable now.

Tim_L

For 40% taxpayers, unless you have a family history of dying very young, pensions are a decent option to consider in my opinion. You will probably need the money in retirement, it's locked away so that it can't affect means tested benefits if unemployment strikes, you get tax relief, and you can also get additional working families tax credit as your taxable income is decreased. But obviously this is one to get professional advice on.

I suppose the other point would be that with two decent incomes there should be enough disposable cash to construct a reasonably diverse investment portfolio to spread risk. You'd be maxing out cash ISAs (6K per year for a couple) I'd hope.

I'd echo Sloppy (and parents!) and Al Mac really. It's about achieving balance and thinking long term. The "pay off your mortgage in X years" movement is a sort of touchy feely instant fix sort of thinking. Makes great reality TV and connects to the part of everyone that doesn't want to trudge out of the house every morning to earn a living to pay the mortgage, but you do need to be very careful about buying into this as a cornerstone of financial planning.

What it does provide, which is important, is a set of clear goals and a target to justify often considerable sacrifices. And hence the idea of replacing "mortgage free" with "mortgage neutral".

EdInvestor

Personally I'd keep my mortgage for ever if I could.

You can.It's called equity release.You don't even have to pay it off.

Sloppy_Saver

Al_Mac wrote:

Sloppy a much better post, less of a rant Your parents did right, as did mine.

After planning. If you have a little extra, cutting your mortgage, isn't such a bad thing.

BTL, wish we'd done it 10 years ago, wouldn't touch it, around here, with a barge pole. Very large estates, village size in some cases, with row upon row of for sale and to let signs.

Aw, but a good rant (whether from me or another poster) is a good thing - it livens up our debate!

I agree with doing mortgage overpayments, especially if you're out of your comfort zone. Just not to the exclusion of everything else.

Tim_L

Ed, there is no correlation whatsoever between equity release, which is borrowing of last resort for the desperate (especially those people who are asset rich and cash poor which is a significant danger later in life for anyone making a priority of paying off their mortgage early), and maintaining a standard mortgage in perpetuity with balancing savings and investments. Equity release schemes are extraordinarily poor value.

This is a serious and important subject, and I'd hoped for a sensible discussion rather than glib and ill-informed one liners.

WISHIWASRICH_2

We want to get rid of our mortgage so that in our 50's,when our kids are gone, we have lots of disposable income so we can have a great time! Don't want to be paying large sums of money to the bank forever....want to spend some of our money having fun;) Holidays, meals out, enjoying ourselves

Sloppy_Saver

WISHIWASRICH wrote:

We want to get rid of our mortgage so that in our 50's,when our kids are gone, we have lots of disposable income so we can have a great time! Don't want to be paying large sums of money to the bank forever....want to spend some of our money having fun;) Holidays, meals out, enjoying ourselves

I'm assuming the disposable income will come from your wages. What fun will you have when you retire and spend the last 30 years of your life in poverty?

Why not live now rather than wait until you are in your 50's by investing a litttle, overpaying a little and spending a little. Better than doing the 8/10 or12 year drudge that the "POYM" guys suggest.

Tim_L

The point is that the optimum situation to arrive at in your 50s is that you have a pot of savings at least equal and opposite to your mortgage. This nets off against the mortgage payments so your disposable income is as much as it would be if you had no mortgage, but you have a large pot of cash as well. This gives ultimate freedom, as the parents of previous posters have demonstrated.

This leads onto a gripe I have with MSE in general. As a site it promotes a very penny pinching and risk averse view of money: people tie themselves in absolute knots to squeeze the last 0.25% out of a savings rate, where in fact there are much better options available. This board is quite the reverse: it's really promoting a massively risky investment strategy as if it were the most natural thing in the world. At some point, if you actually want to become rich (as the moniker suggests!), you have to invest rather than save. There are risks involved in this, but they can be mitigated to some extent by diversification. But to pretend that these investment options don't exist is mad.

This is probably going to come across as boasting, but it's meant by way of an example. I have always been extremely prudent with saving regular amounts and keeping a lid on spending. The result is that in my mid 40s I have savings and investments which are about three times the amount of my mortgage (which is a reasonably significant one). Having reached a point of relative security I'm now able to take portions of this cash and take riskier investment options, which in turn has generated excellent returns. At any point I want I could pay the mortgage off, and indeed I can do pretty much anything I want to do when I want to do it, including telling my boss where to shove it if I fancied so doing.

So if not on exactly off my back, the monkey is tamed, and working hard for me. I can't help feeling that this is ideal.

cupid_s

But if my DH and I pay my mortgage off asap then everything after then that we would have spent on the mortgage could go into a pension pot meaning another 10k or so per year into a pension compared to what we could afford if we had a mortgage.

WillowFae

Sloppy_Saver wrote:

If everyone thinks the mortgage is a milestone, then why not rent and get rid of it completely?

But then you don't have the security of a roof over your head. I'd love the idea of being mortgage free because it means that if anything happened to one of us and we couldn't work we would still have a home. If you are renting and that happens then tough - you can't afford the rent, you don't have a home.