Pay off mortgage or invest...

Type_45

Hello...

I have a great mortgage. 0.75% above BoE base rate: (1% at present). My mortgage is about £145K and my house is valued at £375K (so £230K equity). I am in the process of house hunting, however. And I am moving to a cheaper city.

I therefore have a couple of options:

1) Use my £230 equity to buy my new property and have no mortgage at all.

2) Keep all, or part of my mortgage and free up cheap (1% interest) funds. I have confirmed with my mortgage provider that I can do this.



What say the good people of MSE?

jimjames

I thought it was a no brainer for me and kept the mortgage so I could invest

ricky_v

I would certainly use the borrowed money to put in FSCS backed accounts paying an interest rate higher than 1%, and there's plenty knocking about.

As for using it to invest, that depends on your risk appetite.

username12345678

My final mortgage payment is at the end of this month.

I overpaid as hard as i reasonably even though I knew it wasn't the optimal choice - having no debt was more important than the potential investment returns forgone.

If we get a sustained downturn in equities then i'd certainly look at a re-mortgage to invest but I suspect the interest rates would be nothing like today's.

enthusiasticsaver

At that rate then yes it would make sense to keep some equity back and invest it so long as you realise the risks of losing capital.

atush

Invest the money in your pension.

That way it is boosted by TR, giving you a higher/easier upside

Type_45

@username123: That's where I'm coming from too, at the moment... that not having a mortgage has a huge worth in itself. Not everything has a £ sign attached to it. Things can have value without a £ sign.


That being said, I will never ever be able to borrow 10s of 1000s of pounds at 1% ever again. My bank must be rubbing its hands for me to pay this mortgage off.

What would I do with the money?....

Invest? I don't think I have the risk appetite for it... when stock markets next tank it will worry me. I already have about £20K invested in VLS60 in my ISA and I have not used this year's ISA allowance yet, so that's where I'd invest probably.

Buy stock for my business? I buy and sell things online, but not on a huge scale. I already have a few grand for doing this.

chockydavid1983

Financially, it makes much more sense to use the money to invest in S&S ISA and/ or pension.
If psychologically though, you'd feel better paying off the mortgage then do that.
I have been investing for a few years now instead of overpaying and see no reason to stop.

Eco_Miser

chockydavid1983 wrote: »

Financially, it makes much more sense to use the money to invest in S&S ISA and/ or pension.

However, borrowing to invest - which this becomes - is generally considered risky.

chockydavid1983

This is true but my current mortgage rate is 1.99% and over the long term stock markets should return more than this. Also, there are risks both ways of course, in the end you have to go with the probabilities.

Type_45

Eco_Miser wrote: »

However, borrowing to invest - which this becomes - is generally considered risky.

True. But we are talking 1% interest rates here, and it's interest-only.

For example: £20K, to top up my ISA for the year, is £17 per month.