Pay off mortgage or invest?

brucethefish

Hi

Probably an age old question! I have been saving like mad as my fixed rate ends in September 25, and have about £17k saved, and will have about £33k by then

I was planning on about £8k as part of a new car, £20k on mortgage, but now not too sure

House is worth approx £165, and will owe £100k by next september

Hoenir

Paying down the mortgage will provide you with a guaranteed return. When investing there's always a question of what if ?  Becoming mortgage free is worth aspiring too. Lifts away one of life's biggest financial worries. 

brucethefish

Yeah that’s it, if I pay off I’ll owe approx 50% which doesn’t feel all that much relatively 

Plus I work crazy hours self employed, feels like a future gift to myself and I’ll be able to slow down 😂

dunstonh

Probably an age old question!

It is an FAQ.

If you ask in the mortgage section or mortgage free wannabe section, then often you get told to pay the mortgage off as quickly as possible.

If you ask in the investment section, you are often told to use investments when interest rates are low

If you ask in the pension section, you are often told to use pensions, especially if a higher rate taxpayer.

In most periods, investments return more than mortgage interest rates.   And pensions are the most tax efficient wrapper (providing the money is needed post age 57).   

However, its not as simple as that in the real world.  You have to consider all areas of your planning.   When you cook a dinner, you use a range of ingredients and financial planning is a bit like that.  You don't go all out on potatoes.    You have to repay your mortgage.  You have to save for retirement.  You have to save for a rainy day.  You may have medium term savings needs and you have factor all those things into what you do.

If you pile in with the mortgage and do little or nothing with your pensions, then when you get to retirement, you don't have enough money and may then have to use equity release at interest rates bigger than your mortgage to make up for the fact you didn't save enough.

So, in summary, its all about balancing your objectives and usually that means doing a bit of everything at levels appropriate for you and your needs.

brucethefish

Totally confused, no kids and never will so if I have to release equity I’m not too concerned (rather spend it at some point!)

im 43 and have a LISA so could possibly use that, then I have the whole amount potentially available to pay mortgages off in time (I have a buy to let too)

Zopa_Trooper

I made a point of paying off everything as soon as I could. That was over 20 years ago. I may have made more by investing, who knows, but not owing anybody anything has made this a wonderful relaxing couple of decades.
also, if your mortgage is £500 a month and you pay it off, that's £500 you've got to invest each month if that takes your fancy.

Bostonerimus1

It's not either or. I did a bit of both and now I have a nice invested nest egg and no mortgage to worry about.

eskbanker

brucethefish said:

Totally confused, no kids and never will so if I have to release equity I’m not too concerned (rather spend it at some point!)

im 43 and have a LISA so could possibly use that, then I have the whole amount potentially available to pay mortgages off in time (I have a buy to let too)

Not clear what you mean by 'using' the LISA here, i.e. use it for what - saving, paying off mortgage, or something else?  As a property owner, any access to its contents before you reach 60 will be penalised by a punitive 25% withdrawal charge....

GazzaBloom

I debated this dilemma and decided to follow Dave Ramsey's baby steps. Once 15% being paid into pensions we smashed into the mortgage hard until it was gone then diverted all that overpayment into pension salary sacrifice. I have no regrets and retire at the end of this year age 57.

Having been made redundant twice over my working life, at age 33 and age 50, living in a rural area, it's not a nice feeling having the weight of a mortgage and being the sole earner with the rug being pulled from under your feet. After the second time I decided that was enough and did something about it. Luckily we were on a 1% above base rate tracker mortgage with no penalties for overpayment, so could significantly over pay during the low interest period and it was paid off before the post covid inflation/interest rate rises started.

The future is uncertain and you never know what is around the corner. Having the security of a roof over your families heads, that you own is a fundamental pillar in Maslow's hierarchy of needs and once achieved allows you to move up a rung and gives some nice warm, secure feelings.

Ivkoto

This could give an idea 💡, which way to take.

https://youtu.be/RM9iPrRWGi0?si=xuxuWu04QbN5sr7i

JohnWinder

Invest for sure.

Perhaps you could demonstrate the benefit with some assumed figures for the mortgage rate, investment return rate and whatever else seems relevant. I don't see 'invest for sure' where I'm sitting. In god we trust, others bring data.