Once a mortgage gets quite low (say about 40k) can you just pay it off?

MWT

Exodi said:

At some point in time, the value of my investment will equal my outstanding mortgage balance, and someone may consider selling off their investments to clear their mortgage (though this would mostly be for emotional reasons - such as the notions of 'security, freedom, etc' that get cited).

From a strictly returns-focused perspective, one might consider paying the mortgage down over the normal term and investing all surplus cash the optimum strategy (obviously after establishing a sensible emergency fund and any other more important expenditure) because investment returns are expected to beat mortgage rates over the long term.

Exactly, we have an ER loan at a sub 4% fixed rate for life, we could pay it off completely, but with interest rates on cash currently above 4% and the return on our S&S ISA far higher still, it makes no sense to do that.

We will nibble it down with the allowed 10% repayments each year though.

kevinqq

MWT said:

Exodi said:

At some point in time, the value of my investment will equal my outstanding mortgage balance, and someone may consider selling off their investments to clear their mortgage (though this would mostly be for emotional reasons - such as the notions of 'security, freedom, etc' that get cited).

From a strictly returns-focused perspective, one might consider paying the mortgage down over the normal term and investing all surplus cash the optimum strategy (obviously after establishing a sensible emergency fund and any other more important expenditure) because investment returns are expected to beat mortgage rates over the long term.

Exactly, we have an ER loan at a sub 4% fixed rate for life, we could pay it off completely, but with interest rates on cash currently above 4% and the return on our S&S ISA far higher still, it makes no sense to do that.

We will nibble it down with the allowed 10% repayments each year though.

thanks. First time 10% was mentioned.  So you can pay a max of 10% without altering anything?

MWT

kevinqq said:

MWT said:

Exodi said:

At some point in time, the value of my investment will equal my outstanding mortgage balance, and someone may consider selling off their investments to clear their mortgage (though this would mostly be for emotional reasons - such as the notions of 'security, freedom, etc' that get cited).

From a strictly returns-focused perspective, one might consider paying the mortgage down over the normal term and investing all surplus cash the optimum strategy (obviously after establishing a sensible emergency fund and any other more important expenditure) because investment returns are expected to beat mortgage rates over the long term.

Exactly, we have an ER loan at a sub 4% fixed rate for life, we could pay it off completely, but with interest rates on cash currently above 4% and the return on our S&S ISA far higher still, it makes no sense to do that.

We will nibble it down with the allowed 10% repayments each year though.

thanks. First time 10% was mentioned.  So you can pay a max of 10% without altering anything?

Depends on your lender, 10% is a common feature on mortgages though, but the base varies, for some it is 10% of the balance at the start of the year, for others it is 10% of the initial loan ...

So you do need to check the terms of your particular mortgage.  

Altior

Exodi said:

Altior said:

As long as your mortgage rate is reasonable, I wouldn't touch it.

I agree, though for different reasons (I only provided an objective answer because the OP asked a specific question).

I wouldn't overpay a mortgage because in terms of my long term plan, I expect my investment returns to be greater than what I'd expect to pay in mortgage interest (my XIRR is currently ~12% whereas my mortgage is ~5%, so it's not even close).

At some point in time, the value of my investment will equal my outstanding mortgage balance, and someone may consider selling off their investments to clear their mortgage (though this would mostly be for emotional reasons - such as the notions of 'security, freedom, etc' that get cited).

From a strictly returns-focused perspective, one might consider paying the mortgage down over the normal term and investing all surplus cash the optimum strategy (obviously after establishing a sensible emergency fund and any other more important expenditure) because investment returns are expected to beat mortgage rates over the long term.

My personal perspective is that, ideally, the individual has the capacity to settle the mortgage at a given point in time, or indeed make repayments in a crisis. Say for example, interest rates are high and the end of a fix is nearing. The problem with having the capital in investments is that you could end up needing to liquidate in a downturn, it's not controllable in most types of equity or bond investing.