Pay off or invest

Verylucky2022

In 2021 my wife and I fixed for five years at the ideal point and got an interest rate of 1.18% through our IFA. In the summer of 2022 after an illness some critical illness policies paid out for me and we received around £215000. At the time we had around £190000 remaining on our mortgage and were/are tied in with hefty fees until next year at least. We paid off minor debts sorted some remaining things around the house and set a lump as an emergency fund. 
Our IFA encouraged us to invest what we had left, around £175000 into an investment fund with them and to carry on working and paying the mortgage etc as we had been doing. I was wary to follow this advice so ring fenced enough to pay the mortgage until the end of the fixed rate and put the rest, £140000 in a fixed rate bond earning 4.75%.
So far we have been living within our means and largely saving what we would have been paying towards our mortgage every month and not squandering/frittering this new found wealth as our IFA was worried we might do. We have earnings of currently around £80000 a year and I put around 20% into my private pension with a hope of retiring at 55 which s around 28 years away. 
Sorry for the long explanation but it is a unique situation. My question is should we look at remortgaging again in the future and investing long term or clear our mortgage as a priority within the next couple of years? The recent rate hikes were alarming and I have recently seen suggestions that around 4% for a mortgage will be the new norm. I am also slightly cynical of our IFA and his motives for his investment advice even though he has helped us a lot in the past. Since we have shown the willpower to save and would like to feel debt free this feels the way to go but I am worried I might be missing something. Due to my health we are more in a mindset of "living our best life" while we can so obviously cash on hand really plays toward this. 
Thank you for any advice!

stu12345_2

some answers to ponder over imo
https://www.unbiased.co.uk/discover/mortgages-property/ownership-improvements/should-i-pay-off-my-mortgage-or-invest#the-pros-and-cons-of-investing-your-spare-cash

in general your mortgage will be more expensive than what you get back in investments
unless you get very low mortgage and buy shares in stock market after a huge crash.


I agree 4% will be the norm for mortgage rates, unless we get a worldwide crash again like as in. 2008.

but you own a fixed bond, but in variable bonds, the value of them drops if you sold when Interest rates rise cos the savings rate in normal bank savings accounts become more attractive than variable bind investments

but that link answers more than just general answers imo, eg what's more important to you, your health , employment  situation, your worries, peace of mind

Floss

Personally, I would pay money off the mortgage when the bond matures. Whatever is still outstanding will quickly reduce if you pay the same monthly amount.  

Then you will be able to increase your savings & pension contributions with the money you're not paying on your mortgage.

Andyjflet

Another pay off the mortgage advocate here, what is the exit fee currently? I'd be inclined to pay it off as soon as financially viable and do away with another "stress" just one less thing to worry about, rates etc etc This is more of a mindset action for me than a financial one. Mortgage free in your twenties gives you huge scope for investing your salaries and building pensions going forward. 

Andyjflet

Another thought, if you do pay off the mortgage and don't like the debt free feeling, you can always re mortgage and take out more debt. But I dont think you will. 

fatbelly

I've gone with and against professional advice in the past. I've had professional advice go wrong (put your pension with Equitable Life) and my own decisions go wrong (many times)

I always feel better about my own mistakes as I went into them understanding the logic for what I did.

So if your gut is saying to clear the mortgage, do that

Singlespeeder

Not trying to Hijack .. I've asked Q's in a similar vein ... and seem to get told not to clear the mortgage.
I completely appreciate the pure mathematical reason not to but it's such a small amount (in the grand scheme of things) and folks seem to a) ignore the MASSIVE relief of being mortgage free would likely outweigh the tiny cost savings and b) ignore the fact you're then whatever you've been paying to to your mortgage better off each month.

For me ... I have about £67k left on our mortgage. The current rate is a low 1.75% and ends in June '26.
I have the savings to clear it now, in a 4.75% savings account.

Obviously it makes pure financial sense to leave them in the 4.75% and pay off the Mortgage in June '26

But that means keeping the mortgage for nearly 2 more years.
The early redemption fee is about £2000, essentially the interest I would pay if I ran it to 2026, so in reality I'm not really much worse off.
The interest I'd gain on keeping the 67,000 in a 4.75% is about £6,000 over the 2 years.
So from that point, yes it's saving £4000 to not pay off early ... but paying off early would stop the repayments at £700 pcm ... which will be £16,800 !
To me that looks like a no-brainer. Pay off now and be mortgage free & £10,000 better off.
Presumably my maths is massively wrong.

Verylucky2022

Andyjflet said:

Another pay off the mortgage advocate here, what is the exit fee currently? I'd be inclined to pay it off as soon as financially viable and do away with another "stress" just one less thing to worry about, rates etc etc This is more of a mindset action for me than a financial one. Mortgage free in your twenties gives you huge scope for investing your salaries and building pensions going forward. 

Currently 5% of the remaining outstanding so around £9000 which works out around £4000 more than the interest I would save over the next two and a half years so really not worthwhile.

Floss

Singlespeeder said:

For me ... I have about £67k left on our mortgage. The current rate is a low 1.75% and ends in June '26.
I have the savings to clear it now, in a 4.75% savings account.

Obviously it makes pure financial sense to leave them in the 4.75% and pay off the Mortgage in June '26

But that means keeping the mortgage for nearly 2 more years.
The early redemption fee is about £2000, essentially the interest I would pay if I ran it to 2026, so in reality I'm not really much worse off.
The interest I'd gain on keeping the 67,000 in a 4.75% is about £6,000 over the 2 years.
So from that point, yes it's saving £4000 to not pay off early ... but paying off early would stop the repayments at £700 pcm ... which will be £16,800 !
To me that looks like a no-brainer. Pay off now and be mortgage free & £10,000 better off.
Presumably my maths is massively wrong.

£700 repayments off a £67k balance by June 2026 would leave a balance in the region of £54k. Your £67k in the bank would have become £73k, and if you repaid it then, you would have roughly £20k left.

If you cleared it now, it would cost you £69k, and you would benefit by £700/m. If you add that up until June 2026 it's £15,400 plus any interest you gain on saving it.

Andyjflet

Again, people are purely looking at the numbers when actually there is a peace of mind and new dimension to savour not owing anybody anything. 

TheAble

Floss said:

Singlespeeder said:

For me ... I have about £67k left on our mortgage. The current rate is a low 1.75% and ends in June '26.
I have the savings to clear it now, in a 4.75% savings account.

Obviously it makes pure financial sense to leave them in the 4.75% and pay off the Mortgage in June '26

But that means keeping the mortgage for nearly 2 more years.
The early redemption fee is about £2000, essentially the interest I would pay if I ran it to 2026, so in reality I'm not really much worse off.
The interest I'd gain on keeping the 67,000 in a 4.75% is about £6,000 over the 2 years.
So from that point, yes it's saving £4000 to not pay off early ... but paying off early would stop the repayments at £700 pcm ... which will be £16,800 !
To me that looks like a no-brainer. Pay off now and be mortgage free & £10,000 better off.
Presumably my maths is massively wrong.

£700 repayments off a £67k balance by June 2026 would leave a balance in the region of £54k. Your £67k in the bank would have become £73k, and if you repaid it then, you would have roughly £20k left.

If you cleared it now, it would cost you £69k, and you would benefit by £700/m. If you add that up until June 2026 it's £15,400 plus any interest you gain on saving it.

Sort of. That £700 is mostly capital remember - it's only the interest element which is cost. 

The real cost of paying it off early is the amount of interest you would have earned by leaving the money in the bank, plus the early repayment charge, less the interest saved on the mortgage. In this case 3% on roughly 60k over 2 years plus £2000 = £5600.

To the poster - this is not to say that clearing it early would be a bad decision; it's more whether you feel the potential relief of it is worth £5600 to you (which it may be).