Pay off Mortgage or Invest

Flick216

I will soon be in a position to be able to pay off my £56k mortgage. The problem is, my mortgage tracks at 0.9% above base rate so I got a really good deal. Is it worth me using my capital to pay this off or am I better investing it?

I have posted in the investments forum to see how I can better place my money but initially stated that I wasn't going to. However, it looks at if interest rates may rise soon and surely that mortgage payment is better off in my bank each month?

I will still have substantial capital to invest once I have paid it off but I would like to be able to live off my earnings rather than use my capital.

longtermplanner

Looking at your previous posts, you got in a mess with credit cards and had to have an IVA? In that case I would err on the very simple side and pay off the mortgage. Yes, you can make more money by investing it with your mortgage as such a low rate. But you won't make a lot more money, not without takmking risks with your capital. And is it really worth it? For someone who has had quite a few financial 'downs', don't underestimate the pleasure you will get every time you walk through your own front door and know it is all yours.

This money was an inheritance? What would your relative have wanted you to do? Of course this isn't binding on you, it's now your money you can use it as you like. But you have to feel comfortable with the route you take and this may be something you would like to take into account.

Imma_Number

How long is the remaining term on the mortgage?
If it's less than 5yrs then that's a bit short for investing and so perhaps should look towards savings accounts.

Calfuray

From a purely financial standpoint, the best thing to do would be to put your money into savings, as long as you can get an account that has a higher interest rate, after tax, than your mortgage rate. Since your mortgage is 1.4% all together, it should be quite easy to do this.

What you actually want to do, is a personal choice. Obviously I'm going to be biased as I'm on the Mortgage-Free board, but I would always pay off the mortgage first. Then I could feel safe putting money into investments knowing I don't have the pressure of a minimum amount they have to be worth when I do eventually want to pay the mortgage off.

Right now, I pay a small monthly sum in investments to get me started while I'm young.
A benefit to this would be pound-cost-averaging. That is, say you want to invest in shares. If you buy a lump sum, you could be buying at the lowest point in the market, in which case hurray, you bought them as cheap as could be. The danger is though, they could be at the highest point of the market, and so your money doesn't go as far, instead of buying 20 shares for example, right now your money only gets 15. Pound-cost-averaging is, as you drip-feed a small monthly investment in, the price of the shares you buy is an average of the yearly price, you're not buying them at the lowest, but also not at the highest.

So personally, I would pay mortgage off, book a nice holiday and start to fund investments monthly after a lot of research.

Good luck with whatever you decide to do!

Flick216

There is another 17 years to run.

And yes, longtermplanner, I did get into a right mess! I don't want to do the same and I worry that having the money easily accessible will tempt me.

I would love the idea of coming home and knowing that the house is mine - free and clear!

I do want to be comfortable with my decisions but I want to know I am making them for the right reasons and not just because I have been pressured into it. (My brothers can be a bit suffocating sometimes - as older brothers can be! Although they have not had to bring up two children single handed for the last 13 years!)