Option to pay off mortgage: is it a good idea?

pred02

Hi,

Currently living in a 2 bedroom flat with a 5 year fixed (<2%) due to expire in August. Have about £150k left on the mortgage. We were due to purchase a house however it has fallen through in March. For the purchase of the house we saved about the amount that is remaining for the mortgage. We are not relisting our flat until at least September, but may actually also decide to go live abroad for a while.

Is it worth repaying the full mortgage and being mortgage free until we either purchase the house? I figured can put some of that money in the market, but would not be tax free. By paying off the mortgage we would also get extra 1k savings and the 150k in bank account is just being eaten away by inflation.

Just wanted to sense check to see if this is a good idea. Also, if I was to pay off the remaining balance do I just call HSBC and give my bank details, do I need a solicitor, mortgage advisor?

Thanks

Cornish_mum

Hi I would personally pay off the mortgage at the end of the fix, given current interest rates and your situation. 

If you want to invest in the market in my opinion you need to commit for ~ 10 years preferably longer. Looking at al your finances in the round may be very helpful (income and outgoings), including your tax situation if you do move overseas. 

For example, I invest within my pension and ISA allowance with a plan to not touch my ISA for ~12 years and my pension for 15-17 years. I expect these funds to go through at least one substantial market dip (30-40% loss in value), during this period. But anticipate that I will make a gain above the rate of inflation over the long term. I allocate money between pensions and ISA to minimise tax now and in the future and ensure flexibility in case of changes in the rules.

Separately I hold cash (in various fixed rate accounts and bonds) for lumpy big expenses in next 5 years, which I spend and top up from income. 

We were very lucky to fix our mortgage at  a very low rate at just the right time, so I keep that going alongside our cash savings (but may change our strategy when we come off our fix). Both my mortgage and cash are losing value because of inflation but we prefer the liquidity/security of cash and accept the cost of this security is inflationary loss but I prefer this to have to the risk of having to sell shares during a market dip or delaying spending (holidays/ house renovations/kids expenses).

Our goal isn’t to maximise the profit from our capital but to maximise the enjoyment of our capital & we are both very risk adverse. 

Good luck with your decision making 

CM