Are people here aware that it is not usually financially sound to repay your mortgage early?

letitbe90

Trina90 wrote: »

We aren't necessarily trying to pay it off early but we are overpaying. My main reasoning is because we want children and I want to be a stay at home mum for a few years, if we can manage on one income. In order to do this, we need a lower monthly payment, which we will when our fixed rate ends, thanks to all our overpayments.

No matter if overpaying or not, it still is more beneficial to invest the overpay amount, as it will outperform any interest saved. It also allows for emergency withdrawals should it come to it. If it came to it, it is also the fastest way to pay off a home, you could end up becoming mortgage free years earlier if you do an invest strategy instead of overpayment. Even for the risk averse there are plenty of bond options which still beat out the interest payable.

There is literally no financial benefit to paying off mortgage vs investing that amount for 99.9% if people, only a psychological benefit.

hugheskevi

For me, mortgage over-payments are part of a priority-order of what to do with available funds. My priority list is:

• Meet minimum payments on 0% credit cards
• Maintain cash buffer such that I can pay 0% credit cards without any further borrowing if necessary
• Highest interest accounts available to keep a minimum of 3 months of gross salary in cash (both my wife's salary and my salary)
• Pension contributions to remove higher-rate tax liability, up to Annual Allowance
• ISA contributions for myself and wife, up to annual limit
• Mortgage overpayments
• Reduction of 0% credit card balances (I use these to boost available capital, at no cost)

Over the last 10 years I've worked my way through this list such that in 2019/20 I will only be adding about £6,000 to a pension (on top of normal workplace Defined Benefit arrangement) as I think I have sufficient saved in a pension. ISA contributions should be maxed at £40,000 across wife and I.

Mortgage over-payments have been a very low priority, but I've still managed to whittle my mortgage away with some over-payments over the years to under £50,000 whilst following the priority order above. The fixed-interest period ends in April 2020 so I will probably repay it then, perhaps reducing ISA contributions slightly if necessary, just to avoid the hassle of having a relatively small balance.

That will leave about £80,000 of 0% credit card debt, which will be the next thing to tackle.

Clearly it would be a higher expected value to invest in unwrapped or VCT investments instead of repaying mortgage or credit cards. I currently have built-up around £360K of pension (excl DB) and ISA investments and with that already invested I don't feel the need to chase maximum value. My end destination is to be debt free for peace-of-mind and to manage risk/volatilty, so I place repaying debts as a higher priority than unwrapped investments, VCTs or BTL - especially as all of these are a greater hassle to manage than ISAs and pensions.

Ramouth

For us paying off the mortgage is about security. While I am aware investing the money would have earned us a little more money you really can’t put a value on the peace of mind you get from knowing that you own your home and nobody can take it away from you. We had the experience of being evicted from a rental property with less than 24hrs notice because a landlord went bust (we had forwarded the letters warning us of the eviction without reading them as they were addressed with our landlords name) and never want to go through anything like that again.

Zola.

We do both - overpay on the mortgage by a little every month and invest heavier into pension and S&S ISAs.

You cant lose if you do both, in my opinion!

zzzt

Zola. wrote: »

We do both - overpay on the mortgage by a little every month and invest heavier into pension and S&S ISAs.

You cant lose if you do both, in my opinion!

That is actually what I'm doing, but technically you are losing... losing out on the greater returns if you invested it all and didn't overpay anything.

For me personally, I overpay a little bit every month just for peace of mind. I view it as shortening my mortgage term in a safer way, for example, when I last remortgaged, I could have chosen to pay, e.g. £750 per month over 14 years (which I can afford easily on my salary), but instead I purposefully chose to pay a smaller amount over 20 years, and then I immediately set up a monthly overpayment.

What this means is if I did lose my job, I wouldn't be required to payout out £750 every month, I could stop overpaying and lower my monthly outgoings whenever I wanted to.

kaycastle

I do it for the unknowns in life but I also do both. Pension is 20%, over payments £300 a month, and £850 of savings every month. I know part of it is psychological but its not all down to that and I think you'll find paying off mortgage is part of a wider plan for most people on this forum from what I've seen It makes a lot of sense in terms of planning for unknowns - redundancy, illness, length of maternity leave (what if I feel like not going back when I eventually have kids?).

It makes a lot of sense getting the LTV down so the payments are lower - and you have to overpay gradually because of limits on that. I'm in the south-east so I have a mortgage of over 200k!

To me anything can happen when you're older - if I have no mortgage, there is a lot less savings/investments required to supplement my income. And also if I got made redundant in later life - from what I've seen and heard from people a lot older than me its a lot harder to find another job. And certainly will be in my field. Its also the stress factor as well, I'm in a highly paid job but my one comes with a lot of stress. To me as soon as I pay off my mortgage, I can do part time and focus on savings/pension.

dano17439

We also do everything. We have no debts, and we over pay 3 times our contracted monthly payment, have about £1,000 per month going into pension pots and any spare money we have at the end of the month goes into short term savings.


The biggest draw for me is that the mortgage overpayment is locked away. It would be so easy to put that money elsewhere, but then easier to draw it out and go to Barbados 3 times a year.


I can wai until we are mortgage free to do that!

dano17439

kaycastle wrote: »

I'm in a highly paid job but my one comes with a lot of stress. To me as soon as I pay off my mortgage, I can do part time and focus on savings/pension.

Same boat as me and my wife. Its all about life choices, and if that choice is to work part time for minimum wage and no stress, and actually do something that I enjoy, and not have to worry about money or paying bills, then this is the dream

Exodi

This is also on the assumption that everyone would be disciplined enough to sit on 10s or even 100s of thousands of pounds in savings. I think a lot of people with such significant money in the bank may be tempted to 'treat themselves' to a new car or a holiday more often than they would have.

julicorn

Overpaying our mortgage for us is primarily a way of saving up equity to move into a larger home in the near-ish future. We are looking to move in around 4-5 years time, and investing in S&S for that amount of time would be too risky for me.