Pay off mortgage or not?

nightowl1970

I'm likely to be taking redundancy soon. My pay-off, combined with a recent inheritance, is enough to pay off our mortgage which has £94k outstanding. This would leave £15k in savings between my wife and me. We are both in our 40s and have two children under 10. My wife doesn't work at present but is qualified in childcare so could start making some financial contribution at short notice. I work in publishing and would hope to either get some shifts or full-time work not long after taking redundancy. I've worked out that after the mortgage, the costs of utilities, food, kids activities etc come to around £600 a month. To me the thought of clearing the mortgage seemed like an immediate no-brainer but I'd appreciate others' thoughts. One colleague who invests in property suggested paying off part of the mortgage and buying another property on a buy to let basis. My thought on that was that at least if I cleared the mortgage no-one could take the house away if things didn't turn out well employment-wise in the future.

Petal88

Personally I would hold off paying anything off until I actually had job lined up. Hoping that you get one doesn't mean you will, and if you're unlucky it can take much longer than you thought to find something new. With a wife and kids to support I just would be far too risk averse to get rid of my windfall and assume there was a new job waiting round the corner.

Having said that - and pardon my pessimism above - if you do get a job soon then why can't the paying off wait until then just to be on the safe side?

Petal88

Oh and don't forget about your pension!

nightowl1970

Petal88 wrote: »

Oh and don't forget about your pension!

£100k in pension at the moment.

HappyMJ

nightowl1970 wrote: »

I'm likely to be taking redundancy soon. My pay-off, combined with a recent inheritance, is enough to pay off our mortgage which has £94k outstanding. This would leave £15k in savings between my wife and me. We are both in our 40s and have two children under 10. My wife doesn't work at present but is qualified in childcare so could start making some financial contribution at short notice. I work in publishing and would hope to either get some shifts or full-time work not long after taking redundancy. I've worked out that after the mortgage, the costs of utilities, food, kids activities etc come to around £600 a month. To me the thought of clearing the mortgage seemed like an immediate no-brainer but I'd appreciate others' thoughts. One colleague who invests in property suggested paying off part of the mortgage and buying another property on a buy to let basis. My thought on that was that at least if I cleared the mortgage no-one could take the house away if things didn't turn out well employment-wise in the future.

I wouldn't recommend anyone get into the BTL property business especially with just the one property. To make it a success you need to have a diversified income. If your tenants don't pay the rent you have no income and still need to pay the mortgage. If you had let's say 5 different properties and one tenant doesn't pay the rent then you should still be able to meet the mortgage repayments from the other 4 properties.

I would pay off some of the mortgage and put as much as you can into high interest current accounts that earn more than you are paying out in interest. You can get up to 6% in interest on some accounts and 3% on the majority of the cash. Spread it between you and open joint accounts and you can earn more in interest than you are paying out in interest on your mortgage.

You've got to strict with yourself. You can't go spending it. You've got to try and live on the interest and supplement that with at the very least some part time work and you could live the rest of your life without needing to work full time ever again.

mrsp1987

My initial response was to pay off the mortgage. However Petal makes a great point. What happens if you don't get a job for 6, 12 maybe even 18 months? It may not be likely but it's better to be prepared for all eventualities.
Once you've got a job then I would say pay off the mortgage. I wouldn't get involved with the BTL thing as Happy said - unless you have a portfolio you're at risk if you just have the one.
Seems like I'm rehashing other people's points but to me they're good advice.
So, get another job, pay off mortgage and then you'll have the extra disposable income each month.

nightowl1970

Thanks for all the advice. I think I'm probably tempted to hold fire for a little bit rather than immediately slapping everything on the mortgage. Still tempted by the BTL thing, but might wait until finding new work and getting rid of my own mortgage.