I paid off my mortgage today
Discussion
gangzoom said:
Just remember time waits for no one, and no one dies thinking what an amazing life they lived because they managed to clear their mortgage early.
Life is about experiencing new things, don't always assume you will have the good health needed to experience those things, money isn't even 'real' these days. Life is for living not for watching numbers in your bankaccount.
That's made me stop and think a bit... I'm naturally a saver and keen to pay off my mortgage, as a result I'm in a position to do so by July 2026 at which point I'll be 49. It will however mean living like a pauper for the next two years. Well that's not strictly true, it just means not a lot of what most people consider to be luxuries, which frankly don't hold any appeal to me whatsoever. Maybe that's the wrong word, I mean stuff like gadgets, consumer goods, extravagant days out, wild holidays, fast food, membership and subscriptions to this that and the other. Life is about experiencing new things, don't always assume you will have the good health needed to experience those things, money isn't even 'real' these days. Life is for living not for watching numbers in your bankaccount.
So I could go nuts and splurge on all that stuff but I'm generally a content person as it is, with a busy and full life, so don't really see the point.
Then again what am I missing out on??? Agghhh!
gangzoom said:
Just remember time waits for no one, and no one dies thinking what an amazing life they lived because they managed to clear their mortgage early.
Life is about experiencing new things, don't always assume you will have the good health needed to experience those things, money isn't even 'real' these days. Life is for living not for watching numbers in your bankaccount.
I would say they certainly do - or at least they should. Otherwise why make sacrifices to clear it early? Bring mortgage free is a means to an end rather than a goal in itself…Life is about experiencing new things, don't always assume you will have the good health needed to experience those things, money isn't even 'real' these days. Life is for living not for watching numbers in your bankaccount.
I will hopefully be in a position to retire before I’m 58, which simply wouldn’t be possible if I had a mortgage.
And being mortgage free has allowed me to take some pretty good trips over the years so I have those memories.
Finally - and most importantly - I’m not getting stressed reading about mortgage rates creeping up.
I would also disagree that Life is about experiencing new things - with that attitude you’re always going to be chasing the next “thrill” trying to top the last one. I’ve heard it called the “hedonistic treadmill”…
Far better to take pleasure in the ordinary, everyday things. It’s a beautiful day so I’ll be out on my Brompton later taking photos, then a dog walk and pub quiz this evening. Tomorrow I’ll go for a swim, piano practice and hopefully finish the Stephen King book I got for a quid off Amazon. If I take the attitude that I should be skydiving or something then I’m never going to be truly “happy”…
On finances, investing instead of paying down debt is not always a great plan in the current interest rate environment.
Sure, maxing out ISA and pension are always a good idea. But higher/additional rate tax payers get £20k a year in the former and down to £10k a year in the latter.
Anything else they save/invest is subject to either 40/45% income tax, or capital gains tax. This can murder returns.
In that scenario, paying down a 4.5% mortgage may be smarter than investing, and far less risky. The 4.5% on the mortgage debt is a cash cost and no longer necessarily looks attractive as leverage to allow them to play with extra investment money.
Obviously, when that interest cost was 1.5%, it was worth holding the debt and investing instead, as anything over about a 3% investment return was accretive - worth paying the interest on the mortgage for, and investing instead.
On a 4.5% mortgage, to be accretive, that annual return needs to average at just under 9% - and that's an aggressive target.
My maths is sketchy, but I think the point stands?
Sure, maxing out ISA and pension are always a good idea. But higher/additional rate tax payers get £20k a year in the former and down to £10k a year in the latter.
Anything else they save/invest is subject to either 40/45% income tax, or capital gains tax. This can murder returns.
In that scenario, paying down a 4.5% mortgage may be smarter than investing, and far less risky. The 4.5% on the mortgage debt is a cash cost and no longer necessarily looks attractive as leverage to allow them to play with extra investment money.
Obviously, when that interest cost was 1.5%, it was worth holding the debt and investing instead, as anything over about a 3% investment return was accretive - worth paying the interest on the mortgage for, and investing instead.
On a 4.5% mortgage, to be accretive, that annual return needs to average at just under 9% - and that's an aggressive target.
My maths is sketchy, but I think the point stands?
Edited by Harry Flashman on Sunday 5th May 07:32
Edited by Harry Flashman on Sunday 5th May 07:33
Wheatsheaf said:
gangzoom said:
Just remember time waits for no one, and no one dies thinking what an amazing life they lived because they managed to clear their mortgage early.
Life is about experiencing new things, don't always assume you will have the good health needed to experience those things, money isn't even 'real' these days. Life is for living not for watching numbers in your bankaccount.
That's made me stop and think a bit... I'm naturally a saver and keen to pay off my mortgage, as a result I'm in a position to do so by July 2026 at which point I'll be 49. It will however mean living like a pauper for the next two years. Well that's not strictly true, it just means not a lot of what most people consider to be luxuries, which frankly don't hold any appeal to me whatsoever. Maybe that's the wrong word, I mean stuff like gadgets, consumer goods, extravagant days out, wild holidays, fast food, membership and subscriptions to this that and the other. Life is about experiencing new things, don't always assume you will have the good health needed to experience those things, money isn't even 'real' these days. Life is for living not for watching numbers in your bankaccount.
So I could go nuts and splurge on all that stuff but I'm generally a content person as it is, with a busy and full life, so don't really see the point.
Then again what am I missing out on??? Agghhh!
You list some things there that are experience related (as opposed to material), so I do agree with your sentiment on “things” but suggest holidays and days out within reason are part of what makes life worth living?
My dad used to say you can’t count on anything health wise after 60 but the more I look around, from 50 onwards seems to be snipers alley in my peer group so saving for “one day” might be false economy if I’m offed before then!
My dad dropping dead from heart attack at 69 has moulded my view of potential retirement.
I don’t think I’m as robust as he was as such, but he smoked and I never did, so I’m planning no further than 80 from a financial perspective.
A couple of redundancies hit me early in my career with big mortgage / big family at the time and it’s easy to get blinded to better ways to use the money than clearing the mortgage.
But it all comes good in the end I’ve found provided you can make ends meet and pay the monthlies, even if taking lesser jobs or a forced career change like I did.
Used below before but it does ring true with me…
Zj2002 said:
I chop and change my mind all the time about overpaying.
I have £160,000 left (I’m 39) and I paid in £15,000 last summer as my S&S isa wasn’t performing. Immediately regretted it as the money is ‘gone’.
I can’t decide whether to move and take on more debt, or really increase the payments and pay it off.
I read a lot about folk paying it off and then invest. However not overpaying and investing earlier to benefit from compound interest over a longer period also appeals.
In the short term I over pay by £100 a month and put £1,000 in a S&S isa it’s a topic that I think about quite a lot. Wife thinks I’m nuts and just live and let live.
The £1000 a month S&S ISA allows you peace of mind to invest, but also this leaves you liquid enough should redundancy ever crop up,you've enough cashflow to not lose the house.I have £160,000 left (I’m 39) and I paid in £15,000 last summer as my S&S isa wasn’t performing. Immediately regretted it as the money is ‘gone’.
I can’t decide whether to move and take on more debt, or really increase the payments and pay it off.
I read a lot about folk paying it off and then invest. However not overpaying and investing earlier to benefit from compound interest over a longer period also appeals.
In the short term I over pay by £100 a month and put £1,000 in a S&S isa it’s a topic that I think about quite a lot. Wife thinks I’m nuts and just live and let live.
Cashflow is king as my old accountancy lecturer used to bang on about when analysing companies who went bang, even though they were profitable.
We tried and then immediately failed to have a rainy day fund, when despite what we were led to believe, "over payments" made into a 5 year fix with Northern Rock were not then extractable. Banks do that sort of thing in a crisis.
A Proper (10year fix) Offset Mortgage was our next product to allow us a rainy day fund, that was not fully competitive interest rate wise, but it was a figure we could pay on a single wage and proved useful when I was made redundant. The savings side could always eat itself if we had no money coming in. MrsPal even stoozed using a loan that was less than our mortgage rate, purely to satisfy our need to ensure we had cashflow, should something hit the fan.
Having a line of credit to cover outgoings without having to rely on credit checks when you are potentially at a low ebb gives you breathing space to make decisions that aren't a kneejerk reaction to having no money to cover immediate outgoings. You do have to disciplined not to spend it though.
We are at a "virtual" mortgage free stage for our lives, we could pay off the mortgage, I've a reasonable 6 month rainy day fund, divert the mortgage payment towards a S&S ISA & I'm also considering a SIPP but perhaps as MrsPal is likely to be a higher rate tax payer soon, her having a SIPP would make more sense.
I congratulate the OP & Others for being mortgage free, but I think for me atm having cashfow to allow us to function for a few years and allow an orderly non distress sale of our house to say release equity and downsize, would be more important than having it paid off with no access to cash. Family experience of redundancy, health issues, banks changing things and unemployment means I crave a belt & braces approach, as I don't trust banks not to take the umbrella when it starts raining.
Edited by thepeoplespal on Sunday 5th May 11:50
I flip flop a little bit on my main focus between mortgage, isa and pension. But it probably averages out at a sensible split. We are in a position to pay off the mortgage should we wish, but I think I will always keep a monthly amount that doesn’t really register.
I think it’s all about balance personally, there are risks to going all in on any element. I also think people tend not to compare like for like, particularly around taxable elements, missed opportunity etc.
I’ve met many people in the count the pennies and pay it down camp, but also a few in the debt junkie, live now camp where that unforeseen circumstance that never happens to people like them, happened. Neither appeals.
I think it’s all about balance personally, there are risks to going all in on any element. I also think people tend not to compare like for like, particularly around taxable elements, missed opportunity etc.
I’ve met many people in the count the pennies and pay it down camp, but also a few in the debt junkie, live now camp where that unforeseen circumstance that never happens to people like them, happened. Neither appeals.
NerveAgent said:
I think it’s all about balance personally, there are risks to going all in on any element. I also think people tend not to compare like for like, particularly around taxable elements, missed opportunity etc.
.
This is it for me, a good spread between the three is the least risky, and also keeps the most options open for dealing with the unexpected..
Harry Flashman said:
On a 4.5% mortgage, to be accretive, that annual return needs to average at just under 9% - and that's an aggressive target.
My maths is sketchy, but I think the point stands?
9% is not aggressive, I’ve managed just over 10% with my low cost global tracker over the last 10yrs. I’m paying 6% on the mortgage at the moment, rather get over 10% for my pension and ISA. You’d be stupid to pay off the mortgage. My maths is sketchy, but I think the point stands?
BoRED S2upid said:
RSTurboPaul said:
What happens if there's a massive global financial crash and both houses and investments (that you were planning to use to pay off a mortgage) plummet?
I struggle to muster confidence in our esteemed leaders and their handing of the financial situation over the longer term... lol
Then you still have a worthless mortgage free house to live in. You always need a roof over your head. I struggle to muster confidence in our esteemed leaders and their handing of the financial situation over the longer term... lol
YouWhat said:
BoRED S2upid said:
RSTurboPaul said:
What happens if there's a massive global financial crash and both houses and investments (that you were planning to use to pay off a mortgage) plummet?
I struggle to muster confidence in our esteemed leaders and their handing of the financial situation over the longer term... lol
Then you still have a worthless mortgage free house to live in. You always need a roof over your head. I struggle to muster confidence in our esteemed leaders and their handing of the financial situation over the longer term... lol
YouWhat said:
Harry Flashman said:
On a 4.5% mortgage, to be accretive, that annual return needs to average at just under 9% - and that's an aggressive target.
My maths is sketchy, but I think the point stands?
9% is not aggressive, I’ve managed just over 10% with my low cost global tracker over the last 10yrs. I’m paying 6% on the mortgage at the moment, rather get over 10% for my pension and ISA. You’d be stupid to pay off the mortgage. My maths is sketchy, but I think the point stands?
To me, it's about risk balancing. If you run a big mortgage, and the money you would have paid it down with is in global securities, the risk is pretty acceptable when you are making a big profit (after tax).
If the profit after tax is the same as the cost of your interest, that risk-reward profile changes.
Now, the investments will compound, so on one level using them to pay down static debt is a bit silly (I'm not sure I go with your "stupid" analysis). Paying down mortgage debt loses you opportunity.
But also, look at risk. What if equities go through a profound, structural correction, and bonds aren't a good hedge against this? We are seeing some of that sentiment, now. Someone mentioned a US debt default which may actually see a market crash, flight of money to private companies from bonds and a superb stock buying opportunity - you never know!
Anyway, not being a hedge fund guru, I can't bank on that, so: your investments correct significantly, just as you have to refinance the debt and have rising cashflow calls. You lose your highly paid job and because its a global recession, can't get back to where you were. You can neither afford the big mortgage repayments, nor pay it down because your investments are in the toilet.
Suddenly, the risky play looks, well, risky. But at least you won't have a big CGT bill when you liquidate your investments to pay down debt in a frantic attempt to stay in the house
My point was this. One approach does not fit all people, and all circumstances.
I'll give some insoght into our circumstances, as i do think it helps to explain my thinking: i have found it helpful when others have done the same and unlike most British folk, i am pretty open about finances. When i was a young starter I was on PH, open about my (bad) financial habits and a couple of great people really helped me on the journey to learning about managing one's finances. Thank you for that.
I ran big debt from 2008 on very low interest, and invested instead.
I git married in 2014 and we bought a house We are a double earning family, so I can afford to take much more risk than many of my friends who are the sole breadwinners. So we have mirrored my earkier approach, deliberately running big mortgage debt at very low interest (repayment, but not overpaying) and invested instead, maxing out ISA and GIA (i can't put any extra contributions into the pension due to tapering). We moved to another house in 2017. We kept to the original mortgage term, rather than extending it at this point or the subsequent refinance - my sop to debt responsibility. I did, however, break a mortgage, pay some penalty money and go for a longer-term fix at a low interest rate as I just didn't see money getting cheaper. This was a lucky gambit.
The main mortgage is up for refinance in 2027, and I will be looking at whether I want to continue running the debt at its current level. 4.5% is 4x the interest rate i currently pay - is the extra 3.5% in negative cashflow (which buys me nothing - it's just interest) worth the opportunity of putting that money into investments?
Probably, to a degree. But it's not as easy a calculation as it once was, given the risk of market corrections, risk of me losing my job and, in my late 40s/50s onwards being more expensive and less employable than I once would have been. Yet at my age, my costs are increasing when others' are decreasing.
We have young kids, and regard their education as an essential cost (we do private schools, due to living in a bit of London where state schools are very poor - we could of course move, and may well do so). Cashflow preservation to do this is a priority that didn't exist 5 years ago, or in my 30s/early 40s.
I may take the mortgage debt down a notch or two at refinancing time.
The point I am making is that this is all more nuanced than many make it out to be. The security of having a house that you cannot really lose can give you an appetite for risk that you may not have if that house is vulnerable to a big change in circumstances. On the other hand, running big, low cost mortgages and banging extra money into investments has worked out very nicely in a long term bull stock market - and that may well continue.
Life isn't just about numbers. It's also about security, risk appetite, the psychology of investing/running debt, cashflow and your dependants.
Edited by Harry Flashman on Sunday 5th May 11:55
By the way, mistake made in my maths above - if you are not taking income, but rather making gains on your investments, CGT is due not income tax. So rhe tax burden on those compound gains is 20% not 40/45% for higher and additional rate tax payers.
Makes it easier to stay invested rather than pay down the mortgage.
How on earth HMRC and you calculate CGT on liquidated assets that you have paid into monthly over decades, varying your ETF investments, is, however, anyone's guess! You'd need to talk to a specialist about that. Many buy accumulating funds rather than taking more easily tracked and taxed dividend income, pushing returns into CGT liability from income tax liability (right?) so that's another thing...
My knowledge is sadly lacking on these tax calculations...will have to take sound advice if ever liquidating non ISA holdings. This is also why the ISA and pension are so, so important, being wraps against CGT (and indeed income tax on the ISA, and to a degree on the pension).
Makes it easier to stay invested rather than pay down the mortgage.
How on earth HMRC and you calculate CGT on liquidated assets that you have paid into monthly over decades, varying your ETF investments, is, however, anyone's guess! You'd need to talk to a specialist about that. Many buy accumulating funds rather than taking more easily tracked and taxed dividend income, pushing returns into CGT liability from income tax liability (right?) so that's another thing...
My knowledge is sadly lacking on these tax calculations...will have to take sound advice if ever liquidating non ISA holdings. This is also why the ISA and pension are so, so important, being wraps against CGT (and indeed income tax on the ISA, and to a degree on the pension).
Edited by Harry Flashman on Sunday 5th May 12:18
That’s all fair - I’m a bit younger at 36 and next house will be the most expensive we buy unless something drastic changes with our finances, so happy with an element of risk. We also have two earners (broadly equal which is handy) so totally agree with what you’ve said.
Much of what you’ve said is why I have quite a large cash float, is currently 1 year of living as we do with two wages, just to help iron out any issues because you’re exactly right - private school fees and repayments can wreck a 6 figure sum very quickly. Could start selling watches after that
Re your last post, I believe you get a certificate each year from your provider to help you work out the tax situation?
Much of what you’ve said is why I have quite a large cash float, is currently 1 year of living as we do with two wages, just to help iron out any issues because you’re exactly right - private school fees and repayments can wreck a 6 figure sum very quickly. Could start selling watches after that
Re your last post, I believe you get a certificate each year from your provider to help you work out the tax situation?
Edited by okgo on Sunday 5th May 13:41
On the last point, you do. But pretty much all our stuff is tax sheltered or in cash (emergency and fun funds), so haven't had to do too much in terms of CGT, yet.
My mum paid her very low rate mortgage off early, against my advice and loved being debt free. It means she has no cash, and I am having to fix her house at the moment.
She has given me so much in life, that it's a pleasure to do this for her, but it shows that having zero debt but not having a float could get you in real trouble.
My mum paid her very low rate mortgage off early, against my advice and loved being debt free. It means she has no cash, and I am having to fix her house at the moment.
She has given me so much in life, that it's a pleasure to do this for her, but it shows that having zero debt but not having a float could get you in real trouble.
The thing with 'paying off mortgage' could be very well personal lifestyle choice and having peace of mind. Looking at the property as you are 'inhabiting', it is not only asset value growth -exempt from CGT but also 'income return' annually, which means you need to consider not paying rent at all. Not to mention, it is a 'secured' loan so unlike other most debts like credit cards, the cost of debt will always have much lighter effect.
The total value of UK homes is just about £8.6trn comparing to FTSE is only £3.6trn
The total value of UK homes is just about £8.6trn comparing to FTSE is only £3.6trn
Harry Flashman said:
Yup. Someone on here once told me that the reason for owning a home outright was to not have to pay rent once retired.
It's not the whole story, but it is definitely part of it.
But for you and I I suspect zone 2/3 London isn’t our end destination. It isn’t quite the same if you know you’re going to chop out when the kids are older. It's not the whole story, but it is definitely part of it.
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