Future mortgage strategy?

Mive

Hi All,

I have been lurking here, reading and learning a lot from you.

I hope you don't mind if I pop with a question that has been running through my head for a while, just to hear your thoughts and ideas.

Me, M45 (halfway through my life, I guess), married, no kids, homeowner since 2016 with a mortgage, outstanding mortgage approximately 48k, still 8 years and 5 months outstanding. House value approximately 170K on paper. Salary approx. 50k per year, approximately £130k in my pension pot over the last decade (my contribution 10% with generous contribution from my employer). Approximately 40K Cash Isa, 12K Stocks & Shares ISA, approximately 10K in different cash pots in (relatively) high-interest accounts. No other outstanding debts.

My question is: what shall I do with my mortgage (in my name only)? Since day one I have overpaid quite aggressively, and over the last few years I have been reducing my mortgage by 6 months (approximately) every year. I cut 4 years and a bit in total, and if I continue overpaying like this I will be mortgage-free in 5 years or so. I have been always cutting the length of the mortgage, not the monthly payment.

The monthly payment is extremely affordable (less than 20% of my take-home pay, approximately 25% with the monthly overpayment I stack in a high-interest account, and overpay once a year to reduce the term). Although we might be able to afford something bigger and better, we are happy where we are. There is enough space for us and our stuff, and we made this house 'ours', with a refit (or partial refit) of kitchen and bathroom over the last year or so.

My question for you, very simply: I still want to overpay my mortgage. I believe that, despite the idea that I could have higher interests in other types of investments, there is nothing like the freedom of being mortgage-free, or otherwise knowing that I could easily pay off my mortgage if needed.

Option 1 would be to continue overpaying reducing the term, with a view of terminating the mortgage in 5 years or so.

Option 2 would be to overpay but reducing the amount I pay monthly, and not the term. In this case, I would use the extra cash to overpay my pension (although the extra payments would not be matched by my employer!) or for other investments. I would still save in interests (although not as much as in Option 1), but I would still have a mortgage going on if I would need to free some cash for a partial renovation or something like this. It is unlikely, but we never know.

Thank you for your advice!—————————

To provide some context, I also own a second property (with mortgage) with my wife, who works away from home. Unfortunately, this is not a commutable distance and, rather than paying a very expensive rent, we decided to buy a property. This mortgage is in both names, while the main house is in my name only. Currently my wife (who has a higher salary) covers the monthly mortgage payment (outstanding 120K or so, but with approximately 15 years), we both contributed towards the deposit and we see this second property very much as a retirement pot.

El_Torro

My question for you, very simply: I still want to overpay my mortgage. I believe that, despite the idea that I could have higher interests in other types of investments, there is nothing like the freedom of being mortgage-free, or otherwise knowing that I could easily pay off my mortgage if needed.

This paragraph appears to answer your question for you: Go with Option 1.

You seem to have a good grasp of the pros and cons of paying your mortgage off early so really it comes down to personal preference. As you have rightly alluded to: Paying the mortgage off early isn't the option that will make you richest, though it does come with advantages.

Worth bearing in mind as well that global stock markets seem overly expensive at the moment. When they will drop, how far and how long they will take to recover is anyone's guess but now might be a good time to put more in your mortgage rather than in stock market investments.

Yorkie1

Your current interest rate on your mortgage may be relevant - how much is it?

There is also an argument that the longer investments do better, the longer they are invested - so getting more into your pension at this stage will likely benefit over the longer term.

But yes, it is a matter of personal preference to quite a large degree.

Mive

Thank you both, you are both right. Reducing the amount I pay monthly through overpayment will take some years to see some results. Better to plan for option 1 (overpaying reducing the term) for the next two/three years. At the same time I will increment my pension contributions.

Many thanks again!