What to consider before paying off the mortgage?

subjecttocontract

I took my first mortgage in 1972 and always had at least one mortgage until 2016. At one point I had 10 mortgages & owed £500,000. It never did me any harm. I was always of the opinion it was better to use someone else's money than my own. It worked out ok for me because the housing market was always moving upwards and onwards and for most of my time interest rates were 8 - 11% with inflation & the resulting pay rises, it made loans more affordable very quickly.

However, non of us know what will happen in the future, even the experts get it wrong quite often. I'd probably use your savings as deposit(s) on one of more other properties & build up a portfolio.

Beddie

Hopingforthesimplelife said:

phillw said:

hanb2 said:

Whilst I understand the tax benefits of maxing pensions, to be mortgage free in late 30's and then being able to put that additional money towards pension and anything else for later on seems to make more sense to me 

Being mortgage free is not necessarily a good thing from a money saving perspective, because you might let it influence your purchasing decisions.

You probably should look at buying a bigger house.

Interested in this train of thought.

is this more from a human physiological point of view that if we allow ourselves to be “too comfortable”, it will affect our behaviour and not continuing to push as hard as we might otherwise would (or in different circumstances, would have to)? Ie rather than pushing for promotion at work, or changing for a better job, we allow ourselves to settle, go part time or other outcome that might make us happier, but less wealthy?

I think so, hence all the people retiring or going part-time in their 50s, once the kids have left home and the mortgage is paid off, or very small. I am one of those who certainly isn't working very hard, because I just don't need to.

thegreenone

May I throw a spanner in the works? A thoughtful one.  

You said you are planning a family in the near'ish future.  If you paid off your mortgage, can you live on one salary alone?

If you can, save the whole of the other salary for the next year or so, until you decide to try for children.  That will be your buffer. 

Is your current house big enough for, say 2 children? If you don't have to move again - big tick.

I heard on the news today that one lady is paying £2000 a month for nursery for 2 children. This should go down by the time you are in this situation.

I saw that your company has good maternity benefits but it's worth a think/research into how much you would get and everything would cost.  I'm guessing you wouldn't be eligible for Child Benefit (but don't forget to fill out in the online forms to keep up with NI payments).

I wouldn't add more than you are currently doing to your pensions until any children are out of childcare costs.

Sorry, I've gone a bit off-plan!

Adyinvestment

I would let the bank take the inflation hit on your debt.

Use the cash to make more cash

strawb_shortcake

We had the opportunity to be mortgage free in 2019, this would have only freed up £450 a month. We decided against it for several reasons, 

- It would take a huge amount of time and discipline to build up substantial savings.

- Paying the mortgage off would have been a knee jerk reaction without due consideration of what we actually wanted to achieve in the mid to long term. 

- Our mortgage was relatively cheap, and did not feel like a burden.

- we were mortgage neutral due to a CI payout, this meant we saved £100 a month in premiums, plus circa £200 on tobacco for my other half, so financially better off from that alone.

We did however overpay the mortgage, rather than 25 years to go we are now down to 13 years. 

We also have quite substantial savings, which allows us to afford to pay for the jobs my OH can no longer do. We also have the funds to facilitate a move to our next home without stretching us further than I'm happy with. 

I appreciate our circumstances are completely different, my OH didn't work before the CI event and is extremely unlikely to earn much in future. If we were both earning good money now then our choices would have been different 

hanb2

thegreenone said:

May I throw a spanner in the works? A thoughtful one.  

You said you are planning a family in the near'ish future.  If you paid off your mortgage, can you live on one salary alone?

If you can, save the whole of the other salary for the next year or so, until you decide to try for children.  That will be your buffer. 

Is your current house big enough for, say 2 children? If you don't have to move again - big tick.

I heard on the news today that one lady is paying £2000 a month for nursery for 2 children. This should go down by the time you are in this situation.

I saw that your company has good maternity benefits but it's worth a think/research into how much you would get and everything would cost.  I'm guessing you wouldn't be eligible for Child Benefit (but don't forget to fill out in the online forms to keep up with NI payments).

I wouldn't add more than you are currently doing to your pensions until any children are out of childcare costs.

Sorry, I've gone a bit off-plan!

No, this is an interesting one! If we do decide to have a family, I would get 6 months full pay, 3 months half pay and then 3 months stat (I *think* this is good!). We’re in a 3 bed house so could definitely stay put but would probably look to move a few years down the line. We could afford to live here on one salary without the mortgage, we’d struggle with the mortgage and a child! 

We live relatively close to a city centre so our 3 bed terrace is worth 390k currently and could upsize but move further from town in the future without it being a much more money. Our house has gone up 120k in the 6 years we’ve been here (silly!). 

I knew this was the right place to come to ‘talk things through’

SpeedSouth

I took my mortgage out in 2011 and overpaid heavily for the first 5 years or so.  At that point I didn't have a very good pension/ISA provision. 

Waking up to that fact meant I stopped the overpayments and prioritised the pensions and ISAs.  I regret the overpaying now as had I been loading pensions/ISAs instead, I'd be ahead of where I am now.  Of course that is all hindsight given what markets have done in that time.

My mortgage is low at 45k and we are above neutral now with ISAs and cash pots, but the pensions have gone from 16k in 2016 to 380k today, but even that is a fair bit less than I'd like it to be at this age already.

At 41 I'm probably/hopefully overstuffing the pensions but if I do get there I'll be grateful I did.  

We've already got the kids and they do get a lot more expensive as they grow.

Dh6

subjecttocontract said:

I took my first mortgage in 1972 and always had at least one mortgage until 2016. At one point I had 10 mortgages & owed £500,000. It never did me any harm. I was always of the opinion it was better to use someone else's money than my own. It worked out ok for me because the housing market was always moving upwards and onwards and for most of my time interest rates were 8 - 11% with inflation & the resulting pay rises, it made loans more affordable very quickly.

However, non of us know what will happen in the future, even the experts get it wrong quite often. I'd probably use your savings as deposit(s) on one of more other properties & build up a portfolio.

Each to their own but I think those days may have gone. 

I paid off my mortgage in my early 30’s. In hindsight I’d have been better investing and keeping the mortgage on but the peace of mind and with being a small business owner I wouldn’t change anything for the peace of mind it gives us.

DH

Lomcevak

Separating out hindsight from forward planning is important - e.g. you would have done extremely well over the last 25 years by leveraging yourself to the hilt on housing and putting all your investments into a S&P500 tracker, but at any point that would have been a pretty terrible plan to follow for most people due to the risk.

The advantage of becoming mortgage free (or near-free) is that it puts you in a financially-secure place (as long as you live within your means afterwards and don't put it at risk again) and you can have a high confidence of successfully getting there. It might not be the best plan in absolute terms, but is a pretty solid one.

Again, some things likely outweigh mortgage overpayments (e.g. pensions) but there is also a lot to be said for removing a lot of the downside risk to your financial circumstances.

Albermarle

The advantage of becoming mortgage free (or near-free) is that it puts you in a financially-secure place

In this mortgage vs saving/investing/pensions debate ( a regular feature on this forum ), one critical part is your perceived job security. If there is a question over this, then overpaying the mortgage becomes the clear priority as you want to keep a roof over your head. If job security looks good ( even better if two secure jobs are involved) you can then balance the financial priorities better.

If we do decide to have a family, I would get 6 months full pay, 3 months half pay and then 3 months stat (I *think* this is good!). We’re in a 3 bed house so could definitely stay put but would probably look to move a few years down the line

Just a general point in that you/your partner, and your priorities, can change once children are on the scene.

Although you may not think it now, you might start getting a bit edgy about them going to the local school, if it is not very nice for example. Ditto you maybe become more aware of the type of area you live in, people smoking things in the local park etc You may not be such a keen gardener, but a big garden is great for kids. Suddenly that rather boring suburb seems more desirable than living in the town/city !