Should I pay off my mortgage?

Watson

kingstreet wrote: »

You'll have early repayment penalties to pay on some of those sub-accounts...

Ah, I didn't know that. Thanks.

SG27

You won't achieve that sort of interest rate investing risk free. So paying off the mortgage is the best option. You need to find out what early repayment charges will be though.

Watson

Thanks. I've been told that the Halifax will provide a redemption figure over the phone, so I'll ring them in the morning.

Edited to add:

...or even tonight, since their phone help lines are open until 8pm. Well, as several people here said, there will be penalty payments amounting to around £1500 payable, but only until the end of November. So it looks as though I'm not going to be mortgage-free for a few weeks yet.

Thanks to everyone for the thoughts and advice.

jamesd

Plenty of more productive alternatives to paying it off. Maybe you want to retire early or earlier than you otherwise could?

The average return of the main UK stock market over the last hundred years has been around 5% plus inflation, around 9% total. So lets compare, assuming you end up with say a 5% average mortgage rate, about 1% after inflation.

Stick the mortgage repayments into a regular savings calculator to see how much you save in real (after inflation) terms by saving having to pay them. £309 monthly payment, 7 years duration and 1% after inflation interest rate. Value in today's money: £26,874.44. But there's also the £50,000 current mortgage balance. After inflation the value in today's money of that drops to £37,995. Add the two and you get £64,869. If the whole mortgage really is interest only, with no repayment parts at all.

Now move on to the lump sum part and put in £50,000 for 7 years at 5% annually. Answer: £70,901.80.

And there's your answer to why you shouldn't be paying off the mortgage unless you can't stand investment risk. It unnecessarily makes you poorer than you need to be by perhaps £6,000.

But you do have alternatives. For example, you could switch to an offset mortgage. Then you can put the money in an offset account and borrow from it at the mortgage interest rate whenever you like. Perhaps when you can get better investment or interest rates elsewhere than the mortgage rate.

ktk

I was in a similar situation, and looked at the pros and cons. In the end the I decided that it was too difficult finding a secure rate above 4%, so paid off the mortgage. Halifax gave me a figure over the phone, and I made a transfer from my bank account. The only problem was that there was a daily cap of £25k on my bank account, so had to do it on two lots!
It was a great feeling to be mortgage free!
Good luck!

getmore4less

if you had a house mortgage free would you take one out to make alternative investments.

ThemeOne

Speaking as someone who cleared their mortgage 13 years ago I'd say definitely clear it if you can. Once you're mortgage free you're no longer a wage slave. That's how I felt, any how.

Watson

Thanks for the further replies. Jamesd, I'm very grateful for your detailed advice, but I'm afraid that reading your post simply made me realise that for me, as far as matters financial go, the simpler is very definitely the better.

So I plan to follow the excellent examples of ktk and ThemeOne. The mortgage is going to disappear, completely and forever, and good riddance.

ktk

Wel done Watson. Just make the money you free up work for you!

Kx

jamesd

getmore4less wrote: »

if you had a house mortgage free would you take one out to make alternative investments.

I had the cash to buy a property for cash and used a mortgage instead. The money is invested to further my ability to pay the bills if I became long term unemployed or to further my early retirement goals. The effect of compounding means that it's far easier to do with the mortgage than without.

Since I also used an interest only mortgage, I'll end up getting tax relief on my capital repayment when I make that with money from a pension lump sum. That's another good reason for not repaying.