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. 

MWT

Altior said:

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. 

Investments are part of a balanced strategy, and things like a fix ending are obviously highly predictable.

Never 100% in the stock market of course, having an emergency fund to cover short term problems is important, but in general both mortgages and investments require long term planning and if you've got the liquidity then both investments and of course pensions are part of the mix.  

eschaton

Exodi said:

eschaton said:

kevinqq said:

eschaton said:

Work out what’s best with internet rates. 

Last year I spent £40k to repay my mortgage 6 years early. 

Doing so has and will continue to be very financially beneficial. 

when the true figure would have been what?

What true figure?

I presume they mean what would you have paid towards your mortgage over the 6 years if you didn't repay it early.

It's a bit of a warped way to look at it though as obviously you saved money not paying interest on the mortgage, but you also lost potential interest on the savings.

I think the OP is looking for a simple clear answer of "Yes, doing X is best" when in reality it's not black and white.

Unable to give a true figure as rates are variable but I’d guess I’ll save around £3k at a rough guess. My mortgage was a BR tracker and interest gained would have lost 20% in tax.

The biggest savings are from not buying a new car last year. The depreciation would have been considerably more than my current car. After years of spending silly money on cars, the change of priority for my spending will save me £000’s longer term.

I’d made my first ever mortgage payment last April with £4k I’d received that wasn’t expected. That took 9 months off my mortgage. That was a good feeling so I paid another £4k from my own money the next day to take 18m off.

The following month I’d seen a car I wanted that would have cost around £11k + trade in and was really tempted, even although I hadn’t intended replacing my car until this year. I then looked at how much I’d save by delaying the new car until this year. That was enough to make me make another overpayment of £8k taking 3 years off the mortgage.

I then made another £9.3k overpayment in August forgetting a new car for the foreseeable. I then planned overpayments for 12m to have it paid off by August 2025. That lasted until October when I used nearly every penny I had and paid it off. I do have a good home improvement fund but that money is ring fenced for that purpose.

It might not work for everyone but the benefit for me personally was well beyond financial.

It actually spurred others to do likewise in the family. Due to personal circumstances my sister decided to do similar 4/5 months ago. She actually thought she was the first as she didn’t know I’d fully repaid mine. That then gave my cousin the same idea and she repaid 2/3 months ago. 

Altior

MWT said:

Altior said:

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. 

Investments are part of a balanced strategy, and things like a fix ending are obviously highly predictable.

Never 100% in the stock market of course, having an emergency fund to cover short term problems is important, but in general both mortgages and investments require long term planning and if you've got the liquidity then both investments and of course pensions are part of the mix.  

A fix ending is predictable, but not the prevailing rates at the time of renewing. For example I fixed for 7+ years, which ends in September 2028. No idea what rates will be like at the time of needing to renew, never mind when I originally entered the fix over four years ago. I expected significant increases in the rates shortly after fixing, which is why I did a lengthy fix. 

For me, the ideal scenario is to have options. Sinking capital into a mortgage reduces options, but there may be a compelling reason to do so.

If a big crash/correction happened in the equity markets, then I might consider moving cash reserves into equities. Which is another option available if not overpaying the mortgage.