Pay the mortgage off or keep the investment?

AndrewJID

Hi,

Found this forum really useful so thought I'd get some sage advice!

My mortgage (16 years left to run) is an interest only one. I have an investment fund that right now is equal to the size of the mortgage - so if I want, I could pay it off anytime.

The question is... should I?... the investment is projected (its a "guaranteed" fund) to make around 3 times the amount of the mortgage if I keep it for the long term so at the end I will be able to pay the mortgage off, but will also have a big wad of dosh left over. The downside to doing this of course is that I need to keep paying the interest on the mortgage until that time.

So there's the problem - pay off the mortage and be debt free (but loose the long term value of the investment), or keep the investment and gain the value at the end (but then pay for the debt over the remaining term). I did an NPV calculation in excel on the investment and its come back as roughly what it is now.

I'm kinda stumped - both choices have their merits.

Welshlassie

If you used the investment to pay off the mortgage and then paid what you had been paying in mortgage interest into an investment/savings account how different would the position be in 16 years?

AndrewJID

If I did as you suggest, at the end I'd have about 90% of what the investment is worth at the moment.

Ma77hew

Sounds like if you pay the mortgage off it will cost you more than if you don't pay it off, which kind of defeats the point of doing it.

Assuming your not continuing to make contribution, your investment must be getting somewhere in the region on 8% per annum after tax, so beating current mortgage rates by miles.

Unless of course you want to pay it off so that you can change job, give up work, travel the world. If none of these sort of things are what motivates you to pay of the mortgage, and its purely financial reasons, then go with whichever option costs the least/saves the most.

owitemisermusa

Hmm...tricky IMHO. As long as you have no desperate need for your funds, are able to continue to pay the mortgage (possibly overpaying to cut down interest) and have emergency cash savings, I'd say stick with the investment.

I say that because you've stated that it's a guaranteed return (good choice BTW).

This is an interesting dilemma and I would love to see what the experts think (so this is also a !BUMP!).