Why pay off mortgage?

planteria

inflationbuster wrote: »

It's nice to be 100% debt free!

no doubt. and there has to be a straightforward appeal in that. but at the same time, with rates so low, if the maths say 'better to invest' then it is wise to do so. the challenge is to invest and make it work for you.. you either need to take risk, or have something lower risk that is very solid. a friend of mine is investing his ISA with our friendly society and locking in far more than his mortgage rate. so far, i haven't gone that route...ive been overpaying my mortgage & investing my ISA allowance more riskily, but i'm tempted to follow his lead.

Thrugelmir

planteria wrote: »

the challenge is to invest and make it work for you.. you either need to take risk, or have something lower risk that is very solid.

Unless the rate is guaranteed and the capital protected. Then risk of some kind can be applied across the board.

inflationbuster

planteria wrote: »

but at the same time, with rates so low, if the maths say 'better to invest' then it is wise to do so.

Don't disagree.

I was paying 1.25% on a Santander offset mortgage so in hindsight l could have continued trading or left my money in the offset earning interest.

At the time though l thought well i've got enough money to continue trading so why not pay the mortgage as l couldn't then later lose the money in the markets if the worst happened.

dawyldthing

ToriP wrote: »

Interesting thought that. Almost akin to why pay off student loans early.

Unless you earn £15k you don't pay a bean off. I pay some off if I've had a crazy month at work, otherwise I don't pay much off at all. In 5 years since leaving uni I think I've paid off around £150, which doesn't touch the interest. No poin in rushing to pay it back.

Whereas with a mortgage if I lost my job tomorrow and had £15k in the bank I wouldn't get help financially overall, whereas if I didn't have much money they would help a bit

planteria

Thrugelmir wrote: »

Unless the rate is guaranteed and the capital protected. Then risk of some kind can be applied across the board.

agreed. the fund i am referring to has paid a bonus every year since 1840 though, and currently sits consistently above 2.5%/yr:)

planteria

inflationbuster wrote: »

At the time though l thought well i've got enough money to continue trading so why not pay the mortgage as l couldn't then later lose the money in the markets if the worst happened.

sounds wise to me.. once it's cleared, it's cleared, and then you concentrate on investing.

as above, the maths tells the story. but at the same time, with rates low, many people can overpay as a result, and use the same monthly payments to clear more of their mortgage, more quickly, than they would have been able to had rates remained higher.

TheTracker

I'm in two minds. I respect the adage that one shouldn't borrow money to invest, and investing while you have a mortgage is doing just that. On the other hand, the maths says mortgage rates are extremely low and below safe estimates of portfolio return, so as long as you are able to suffer heavy equity loss without home security impact and as long as your investments remain relatively liquid it should be safe to defer mortgage overpayment. Personally the cash part of my portfolio is sufficient to pay off my mortgage and the cash is earning almost exactly the rate of interest of my mortgage, so I only make minimum payments, expecting to pay it off once interests rise 1-1.5%.

Gadfium

The way that I look at is it that I owe just under £60K on my mortgage.I am paying 1.49% on £50K of that, and 3.19% on £10K. I have that covered in cash and investments (so I could clear it all off tomorrow if I wanted), and the higher rate amount will be paid off this year.

I can get a higher rate of return on my investments than 3.19%. Why pay off the mortgage when the money can work harder for me?

Secondly, I am not in the position where I have anywhere near enough cash and investments to do what I want to do in life. So I have started to plough most of the mortgage overpayment money into pension AVCs. That will give me a much better return than paying the mortgage debt.

bowlhead99

Going back to the original post, something I didn't mention in my earlier one:

You have a business partner and both of you are investing or at least considering investing in markets as you have free personal cashflow. Is there a way that you could each utilise £10k within the business to make a useful additional return over the coming years?

Depending on the nature of the business, spending £20k on additional space, marketing, equipment, consultancy or staffing may realistically generate ongoing returns in excess of 3% on that £20k after tax, one would presume.

If you use £10k to buy shares in National Grid or Unilever you are just paying that money to the old owner of the shares, the company does not benefit and you are at the mercy of the directors' policies and the fickle nature of markets to deliver an ongoing return.

Whereas if you wisely allocate £20k of cash among business projects under your control - whether structured as a loan to the business or as just equity/partnership interest - you may elicit significantly higher returns than a national utilities business such as NG.

This would of course not be a risk free approach to beating your net mortgage rate and the investment would be somewhat illiquid. However, if there is long term benefit available, which you can access and I can't (because I don't have the capital or risk capacity to start a business, so I am restricted to the public stockmarkets), then you would be wise to consider it.

Just a thought.

veryintrigued

Another vote for paying off the mortgage.

I think I have something Germanic in my blood regarding the aversion to the word 'debt'.

There is something very satisfying (and ultimately helpful) when applying for current accounts etc and are able to tick the 'home owner - owned outright' box.

I felt it also gave me a different view on the possibility of complete career changes too.

Good luck