Do I save or do I pay off my mortgage ??

MissProcrastinator

I am in need of some expert advice. I have money in stocks and shares ISA's which is increasing in price, but it is just there and I never dare touch it (especially under the current volatile times).

I have a mortgage but interest only.

The money I have in stocks and shares could pay off my mortgage, however, I have no dependents (and never will) therefore putting the money into bricks and mortar seems like a waste. I appreciate that in 15 years time, when my 25 years mortgage comes to an end, the bank will ask me to pay off the house or sell it and leave. 

The house I live is not in bad 'nic' but I know that many people, by now would have been through the house and updated things, especially the kitchen and bathroom. This work wouldn't be cheap (probably about £20,000) and I'm loathed to use my money for this. It will add value to the house, if/when I sell it, but not enough to break even. 

In my mind I am constantly flitting between paying off all/some of the mortgage, changing to a repayment mortgage, having the house updated, and doing nothing. When I moved in 10 years ago, I hadn't planned being here alone. I thought that I would have moved in with someone else or they would have moved in with me, and we would have shared the decision, but at 45 years old, I have realised that may not happen.

Hoping for some sensible advice (that is not clouded by emotions)

tacpot12

Hi, I'm sure you will find someone to share your home with. You might need to let more people know that you are interested in this, so they can help you find someone. 

I've never been a fan of Interest-only mortgages. Many people think they will be happy to move out when the mortgage ends, but in practice people become settled, and having to move comes as a major shock at a time when their health might be starting to deteriorate. They also forget the problems of finding somewhere to rent that that they can afford with a landlord that meets their repair responsibilities. Rents will continue to go up, and eviction is always a possibility.  Once a mortgage is paid, you can be sure that you have a home for the rest of your life.  I would recommend that you plan on buying your home, and staying in it. I think there is scope for stock markets to continue to recover following the pandemic, so I think remaining invested for another 12 months could be sensible. Converting the mortgage to a repayment mortgage would not cost much, and it will mean that even if you don't sell your investments for a few years, you will not have to sell as many as if you don't convert, so I would ask your mortgage company about converting to a repayment mortgage asap. The only reason not to do this is if your income is so tight that you really can't afford the extra expense.

If I were you, I would sell enough to clear the mortgage once the FTSE 100 reaches 7000 regardless of the trajectory of the stock market. Your security in owning your own home is so much more important than a bit of extra profit.   

tacpot12

I would not suggest that you update the kitchen or bathroom until you have decided you are staying and until you are sure you can clear the mortgage. I would only update the kitchen and bathroom if you want to. Don't worry about what other people would have done. My partner would much rather go to Maldives than have a new kitchen, something I am very happy about. 

Thrugelmir

You'll always need somewhere to live. Outright ownership is generally better than renting. As gives you both security of tenure and there's the financial cost of increasing rent to pay. The danger with investments is that values are volatile. Paper gains can be lost before you've even blinked. Perhaps you need to think ahead and plan for retirement. Home, pension , savings where do you need to get to achieve your personal goals. . 

steampowered

What interest rate are you paying on your mortgage? If you are on an "interest only" mortgage, it is likely that you are vastly overpaying. 

The first thing I would do is switch onto a repayment mortgage at a competitive rate.  You might find that you could be clearing the capital, rather than just paying interest, for about the same monthly payment.

You want to pay off the mortgage before you retire. A repayment mortgage with a 15 year term takes you age 60, which is about right.

If you think you are going be living in this house for a few years, I would get the work done. Your quality of life is worth investing in. 

DireEmblem

Pay off the mortgage.  I think they say the three biggest expenses in life are buying property, weddings and cars.

Once you've paid off your mortgage, you'll have less outgoings.  You could choose to contribute more to build up your pension/ISA, or work less.

The only things in life that are guaranteed are taxes and death.  The markets might collapse, you might not have enough to pay off your mortgage in the end.  You are in a position right to guarantee that your mortgage is paid off.

MX5huggy

With out some numbers on the situation we’re just guessing. How much is the mortgage what’s the rate, how much do you have in the ISA’s how much do you earn, how’s the pension saving going etc.

If you owe £50k on a mortgage at 1% with £100k saved earning a salary of £50k pa and 20years of DB pension already the advice is very different to. £200k mortgage at 6% with £30k savings and a salary of £20k with just 4 years of bear minimum DC pension.

Steve182

MissProcrastinator said:

When I moved in 10 years ago, I hadn't planned being here alone. I thought that I would have moved in with someone else or they would have moved in with me, and we would have shared the decision, but at 45 years old, I have realised that may not happen.

Hoping for some sensible advice (that is not clouded by emotions)

I found I really had to go out of my way to meet suitable prospective partners, especially as I approached middle age.

I moved into my current house as a bachelor many years ago having separated from a long term partner.  For a few years very little happened in terms of finding a partner because I just relied on chance and didn't create any opportunities.  Then I joined a dating website and was married 2 years later. I'm still very happily married now, 10 years further on. I understand there are a lot more lonely men on dating sites than lonely women so statistically it's easier for women to find a partner online, if you have not already tried that approach.

Sorry that's probably not the best financial advice!

Nebulous2

It sounds like you have put your life on hold (waiting for that partner?) and have deferred a lot of decisions. These then become harder to make the longer you leave them.

They aren't binary decisions though, there is a scale. You don't need to whole-heartedly commit. 

For instance; as an interest only mortgage payer you don't need to raid your nest egg, you can pay off smaller lumps. Next time you have a spare £500 pay it into the mortgage instead of an ISA. 

You don't need to spend £20k on your house. Pick the place that you spend time, think how it could be improved and do up one room. 

Most people do these things gradually, as they can afford them, without thinking. You can afford them, but struggle with the decision. Break it down into small steps, make a start and build on that. 

jimjames

I probably wouldn't pay off the mortgage but would switch to repayment. Personally I've put spare money into S&S ISA rather than overpaying mortgage and that has paid off very well. I could pay the mortgage off many times over now but instead have kept it and kept the investments.

tacpot12 said:

If I were you, I would sell enough to clear the mortgage once the FTSE 100 reaches 7000 regardless of the trajectory of the stock market. Your security in owning your own home is so much more important than a bit of extra profit.   

Any particular reason you've picked a random number of a random index to clear the mortgage? Most people would/should have a balanced portfolio that bears no correlation to the value of the FTSE100.

vacheron

I'd also choose not to repay the mortgage in full IF your interest rate is reasonable. 

If it is not, then you might want to consider switching to a repayment mortgage and using just enough of your ISA reserves to get the most beneficial LTV ratio. Also taking the mortgage over a longer term will give you lower minimum monthly repayments, but with the option to overpay if you wished.

I also agree that if you are personally happy with your house the way it is, then by having the funds in a more liquid form than bricks and mortar means that you have the freedom to make (or not make) these decisions in the future to sult yourself.

I would certainly not improve just to sell unless the rooms in question are almost derelict and you replace them with the cheapest "functional" modern replacements that broadly match the market value of the home because any future buyers will almost certainly want to put their mark on the property, and what you like will very rarely exactly match theirs so, as you have noted, you will rarely recoup your total expenditure.