Why pay off mortgage?

Radiantsoul

NickHStamford wrote: »

He said "why would you pay off your mortgage?"

There is a lot to do with risk(excepting the risk of sudden inflation), but quite a lot of people are just uncomfortable with the idea of being in debt.

black_taxi_2

Nick I swapped mortgage payments for investment/savings

NickHStamford

black_taxi wrote: »

Nick I swapped mortgage payments for investment/savings

If you have the self-discipline for that, good on you. I think a lot would be tempted to spend, perhaps frivolously, without the must-pay commitment of a mortgage.

planteria

great thread. that is true. i am not in the position to do it, but clearing the mortgage for good and then focusing on monthly investment makes a lot of sense to me.

royg_2

I posed myself a similar question about 3.5 years back regarding continuing to push on paying off mortgage with goal of paying off completely.

I had bought my current house back in 2006 with a mortgage of over £100k. I spent the next few years paying in chunks of spare cash and got it down to about £50k by mid 2011 and had goal of trying to pay down completely. I realise now I was doing this without really considering if it was the best long term option.

A combination of continuing low interest rates and the Euro crisis causing share prices to fall prompted me to gradually reassess this plan and I took the bold (and probably in many eyes risky) to shift my mortgage to a long fix (3.99% which was a good bit higher than my discounted variable) and at same time more than double the mortgage and use the money to invest in some high yielding shares and fixed income bank preference shares (mainly NWBD and LLPC).

I was lucky in that by the time it took to arrange the stock market had fallen further and I was able to buy with an average 9% yield. the idea was the income would cover the mortgage interest on the entire mortgage and perhaps I would get some capital gain to boot.

With the recovery since then the stocks have made very good capital gains to the point they now cover the whole mortgage.

My point here is that whilst it was psychologically good to feel my mortgage balance going down, by instead assessing the other options and taking a bit of a risk (which will not suit all) I have effectively paid off the entire original £50k mortgage through the capital gain and interest alone in 3.5 years. If I had not been open to considering other options than continuing to pay down mortgage aggressively I would have missed this chance.

Markets seem fairly full priced at moment but there may be better opportunities ahead so I would urge you to at least keep eyes open to other options but the warnings around investments potentially losing money should also be needed and you have to be willing and able accept that risk if you invest.

Bazofts_Revenge

I've enjoyed reading this thread and I've ridden the waves of both scenarios. I saved like crazy keeping track of my Smart interest only Mortgage balance v savings (over paying) + redundancy entitlement. Once my savings + redundancy entitlement were worth more than my mortgage I took redundancy at the first opportunity. I then became a carer for my wife (long term critical illness) and we scrimped by. When my wife passed away I returned to the workforce. Now back in employment I found I had lots of spare cash each month and a £56000 mortgage facility at base rate + 0.5%. It seemed crazy to have that sat there so I've used that plus savings since to produce what is now an £81000 portfolio on which I have paid £1674 in interest but been paid £6234 in dividends. I've also withdrawn about £15000 to buy some things, Car, New Boiler, Solar Power etc. I do see it as a game and do spend an unhealthy amount of time monitoring it and reading forums such as this.

kidmugsy

One way to take advantage of currently low mortgage rates is to transfer to a cheap five or ten year fix. The £10k might prove handy for helping to get a low LTV. If it's not required for that then there have been plenty of good suggestions made on this thread. You could even buy £10k of gold sovereigns and stick them in a safety deposit. Or have a little punt on Premium Bonds. There's oodles of choices.

Thrugelmir

Bazofts_Revenge wrote: »

I've enjoyed reading this thread and I've ridden the waves of both scenarios. I saved like crazy keeping track of my Smart interest only Mortgage balance v savings (over paying) + redundancy entitlement. Once my savings + redundancy entitlement were worth more than my mortgage I took redundancy at the first opportunity. I then became a carer for my wife (long term critical illness) and we scrimped by. When my wife passed away I returned to the workforce. Now back in employment I found I had lots of spare cash each month and a £56000 mortgage facility at base rate + 0.5%. It seemed crazy to have that sat there so I've used that plus savings since to produce what is now an £81000 portfolio on which I have paid £1674 in interest but been paid £6234 in dividends. I've also withdrawn about £15000 to buy some things, Car, New Boiler, Solar Power etc. I do see it as a game and do spend an unhealthy amount of time monitoring it and reading forums such as this.

An interest rate which is unobtainable now. Luck plays a large part in any decision. Only hindsight says whether it was right or wrong.

redpete

I see overpaying the mortgage as effectively diversifying investments to put some into cash. With a 2.89% interest-only mortgage I'd have to work quite hard to earn more than that in the interest-paying current accounts around at the moment. Whilst the sums at the moment (and over the last few years) are that investments in funds & shares beat cash I treat it as a bit of risk control to 'lock in' some capital by overpaying now rather than relying entirely on selling investments to cover the mortgage when it matures.

No_Santander

When debt financing cost is low enough, it would make sense to keep running it for sure.

Difference between residential mortgage and company finance is that once you get older and retire you can't roll it on any more. So one way or another you are bounded to repay.

I think your business partner did make a good point. Careful calculation is needed to figure out your alternative options.