Pay off Mortgage or continue to invest.

Crafted

Okay so here goes me and my partner earn a combined income of £90k per year. We currently have £136k left on our mortgage. We currently overpay by £800 a month so our payment to mortgage is £1250 a month and our interest rate is 1.34% and that deal ends December 2026.

We will both at that time will have ball park figure £50k in our investments (vanguard isas) each and if we continue with the overpayments it will bring the balance to £100k.

My question is, will it be a smart choice to wipe out our investments and clear the mortgage completely then start putting that money which we would have been putting towards the mortgage to our investments instead for 23 years which would be in my case £900 per month. OR alternatively continue to overpay but accept a higher interest rate in 2026? (lets say optimistically that would be 5%) then continue to overpay as we currently are.

What is the better option?

Not sure if it matters but I have a defined salary pension which would give me £15k per year for life from 60 Years old and a private pot worth around £2500 a year and an inheritance of £100k-£150k (Not nice to think about but gotta factor these things in, it will happen at some point)

Farway

On a personal and not financial level I say pay off the mortgage, you then owe nothing substantial and the feeling of freedom it gives cannot be costed

Albermarle

On the main Savings and Investments board ( this is the ISA board) and Pensions board, this is a frequent topic.

From a financial point of view you should not be overpaying the mortgage with such a low interest rate, unless maybe your job was insecure.
What you do with the money instead is more debatable.
You could add to your private pension ( gaining tax relief) but locking the money away.
You could add more to the Vanguard ISA
You could feed it into a savings account , paying 4 or 5% .

For the last two you could then use the money saved to pay off a big chunk of the mortgage when the interest rate jumps up. The savings account would give you more security, as an investment account may drop at the wrong time.
Firstly though check your mortgage for any repayment restrictions/penalties.

A16XJD

Short answer: 

At 1.34% it's not optimal to be overpaying the mortgage to any extent

Secondly, it's too early to be making decisions around what you do with the built up lump sum in 2026. Really need to see what the mortgage rates are at that time.

Just build up the savings & decide nearer the time

Ocelot

I think I'd put the money in a fixed rate savings account for 2-3 years, and get a return much higher than your mortgage rate, then see which rate is higher when it matures, the mortgage or savings rate.