Pay off mortgage?

pandhandj

Hi there, i believe this question to be "an oldy, but a goody" and just wondered what advice would be now, with respect to the current housing market and the NRK debacle.

Should I pay my mortgage off now? I have inherited enough to pay it all off. It's not a big mortgage by current standards, but it is big to us!

We dont have much savings at the moment, but on the other hand, the mortgage is our only debt.

So? pay it off or put the money away somewhere (safe?).

I should also point out that we were activley looking to move ealier in the year, but stopped looking a few months ago, just to see how things with the market go. (family home, not investment).

Any advice welcomed,

pandhandj

pinkshoes

Can you earn more money investing the money somewhere than amount in interest being paid on the mortgage?

i.e. if you owe £100k on your mortgage, costing you £X/month in interest, then can you make more than £X/month investing this £100k elsewhere?

If yes, then invest elsewhere, if no, then pay off mortgage!

carpetbelly

if you're financially savvy and good at the above then invest if it works out better...

If you're a bit lazy (I know I can be!) then personally I'd want to pay off the mortgage then know what money I put aside each month is mine and being saved.

personal choice tbh, I know my choice would be get rid of the debt and then save, save, save... but that might not be the best choice but would be the best in my head (the weird place my head is anyway).

pandhandj

thanks’ for your input guys! I am considering this option. However, I don’t feel confident enough in my own ability to invest the money myself. Therefore i would be looking at paying someone to do it for me, which isn’t exactly MSE-ish of me.

Although I do prefer to do my own research on any given subject, I think i may have to bite the bullet on this one and go and speak to a financial advisor. The only problem being that i instinctively distrust anyone who stands to make money off of me. Sceptical I know, but that’s just the way i am.

pandhandj

SquatNow

For god sake don't take a chance playing the markets, just pay off your mortgage. Very few "safe" investments offer better returns than paying off your mortgage. Virtually none in fact.

Generali

The problem with investing rather than paying off the mortgage is the tax you pay on income/capital gains is a big drag on your returns.

david29dpo

If you cant afford to lose it, dont invest it. Pay off the mortgage and enjoy.

Jonbvn

Tax is the real killer, when you are comparing investment/savings rates to mortgage rates.

My approach is to max out ISA's (cash & S&S) for me an my OH each year. The rest we overpay into the mortgage, given that our rainy day fund is full-up.

Obviuously, an important issue to consider is whether there are any penalties (ERC's) for paying-off the mortgage.

IveSeenTheLight

Jonbvn wrote: »

Obviuously, an important issue to consider is whether there are any penalties (ERC's) for paying-off the mortgage.

Very true. ERC's are an important thing to consider.
I previously didn't bother checking the penalties as I wrongly assumed they would not be worth encroaching.
However I have worked out that my ERC's are 2% of the overpaid amount, meaning that approx 4 months interest of the overpaid amount is the charge.
This means if you are still tied in for more than 4 months you actually save money by incurring the ERC.

robp

Personally I'd set aside some as a rainy day fund using ISA allowances and a good savings account.

Then I would pay off a chunk of the mortgage using the remainder.

That way you see the benefit of paying off some mortgage (lower repayments) and have some security in having your savings.

You could do the maths, but unless you are confident in your investment ability, keep it simple.

Jonbvn

IveSeenTheLight wrote: »

Very true. ERC's are an important thing to consider.
I previously didn't bother checking the penalties as I wrongly assumed they would not be worth encroaching.
However I have worked out that my ERC's are 2% of the overpaid amount, meaning that approx 4 months interest of the overpaid amount is the charge.
This means if you are still tied in for more than 4 months you actually save money by incurring the ERC.

Yoy calculations are basically correct, assuming a mortgage rate of 6%. However, where there is an ERC of 2%, I think you may be better off saving the money until the end of the ERC period, and then paying it off the mortgage (with no ERC). Note that you would have to achieve 4%+ after tax on your savings, which is achievable with ISA's, and index linked saving certs.