Paying mortgage early - any downsides?

[595Heaven]

We've got 1 year 10 months remaining on our mortgage, which is made up of about £6,800 repayment and £47,500 interest only, funded by a mix of endowment and stocks and shares ISAs.

Whilst the endowment is not performing as it was meant to, I've been overpaying against the interest only sum for a while. I'm now in a position where the latest valuations of the endowment and ISAs is more than the total outstanding balance by just over £2k.

I'm getting more and more concerned that a bad Brexit (not that I can see a good Brexit tbh!) could have a horrible impact on the stock market at just the wrong time, and am considering cashing the endowment in early and withdrawing sufficient from the ISAs to pay the mortgage off.

Is this a good idea? I'll end up with nearly £1k/month more disposable income, and obviously would be much better insulated from any stock market falls (I realise it could rise as well...). I'd look to save / invest at least half of this, at least until such time as the 911 itch finally gets scratched!

Is there a downside to not having a mortgage? I'd lose the life insurance benefit of the endowment, but this was mainly to ensure the house was paid off. What other downsides are there?

It feels like I need some proper advice, but not sure whether an IFA will help - surely they'll be looking to sell me something?

[p1stonhead]

What’s your interest rate? It may not make objective sense if it’s very low and you could (note ‘could’) get a better rate for your money elsewhere.

Clearing a mortgage isn’t necessarily a decision that people look at objectively though - it’s often psychological more than anything.

[595Heaven]

Interest rate is 2.04%

I'm trying to be objective - it always felt like being mortgage free was the goal, but now the end is in sight, part of me thinks it may not be a good idea. I'm not sure why though!

We're not looking to move, but may want to extend our existing place, which would mean borrowing.

[Derek Chevalier]

595Heaven said:

I'm getting more and more concerned that a bad Brexit (not that I can see a good Brexit tbh!) could have a horrible impact on the stock market at just the wrong time

Are you suggesting that a bad Brexit will bring upon a global downturn?

[595Heaven]

Derek Chevalier said:

595Heaven said:

I'm getting more and more concerned that a bad Brexit (not that I can see a good Brexit tbh!) could have a horrible impact on the stock market at just the wrong time

Are you suggesting that a bad Brexit will bring upon a global downturn?

Not sure about global, but I don't see a great result for the UK at the moment... In the short term at least.

[Wacky Racer]

Definitely pay the mortgage off, nobody knows what is going to happen in the next two or three years.

A mortgage is a millstone around your neck, pay it off now whilst you can.

You can always borrow again if you need too when things settle down a bit.

[595Heaven]

Wacky Racer said:

Definitely pay the mortgage off, nobody knows what is going to happen in the next two or three years.

A mortgage is a millstone around your neck, pay it off now whilst you can.

You can always borrow again if you need too when things settle down a bit.

Thanks. That's my thinking really. There's just a nagging doubt that says it's not the right move

[jimPH]

Wacky Racer said:

Definitely pay the mortgage off, nobody knows what is going to happen in the next two or three years.

A mortgage is a millstone around your neck, pay it off now whilst you can.

You can always borrow again if you need too when things settle down a bit.

At higher interest rates.

Can you just put everything into cash until after Brexit, then see how things are, pay it off of things go bad and reinvest if not.

[Derek Chevalier]

595Heaven said:

Derek Chevalier said:

595Heaven said:

I'm getting more and more concerned that a bad Brexit (not that I can see a good Brexit tbh!) could have a horrible impact on the stock market at just the wrong time

Are you suggesting that a bad Brexit will bring upon a global downturn?

Not sure about global, but I don't see a great result for the UK at the moment... In the short term at least.

But if you are holding a globally diversified portfolio, then why does it matter?

[The Leaper]

Years ago I had a straightforward repayment mortgage over 25 years. When interest rates went up I increased my payments, when interest rates reduced I kept payments the same. Result; mortgage repaid over 10 years, saved about £80,000. Would I do something similar again? You bet!

R.

[LeadFarmer]

I’m overpaying on my mortgage, but with its interest rate being only 0.23% above Bank of England base rate I think I’ll stop overpaying just before it’s almost paid off, and keep just a tiny mortgage going. That way if I need to borrow against the house I can get some very cheap cash.

[sidicks]

LeadFarmer said:

I’m overpaying on my mortgage, but with its interest rate being only 0.23% above Bank of England base rate I think I’ll stop overpaying just before it’s almost paid off, and keep just a tiny mortgage going. That way if I need to borrow against the house I can get some very cheap cash.

You’ll be borrowing at the prevailing rate, not the current rate you’ve locked-in to

[xeny]

595Heaven said:

Is there a downside to not having a mortgage? I'd lose the life insurance benefit of the endowment, but this was mainly to ensure the house was paid off. What other downsides are there?

What else can you do with the capital at a level of risk you're comfortable with? Does it offer a better return than the interest you're paying on the mortgage over a time frame that is appropriate?

[JulianPH]

The upsides are:

• You will own you house completely (rather than effectively renting part of it from the bank)
• Your market concerns would be addressed by switching a lump sum investment into a monthly one, thereby giving you the benefits of pound cost averaging
• You are always free to take out another mortgage if you need the lump sum, but if markets do fall you are not always free to pay off your mortgage

Downsides:

• If markets continue to perform strongly your capital invested could earn more than the interest on your mortgage
• If you do need to take out a new mortgage for any reason it could be at a higher rate than you are currently paying (however, you will have the lump sum at hand that your former £1,000 a month mortgage payments generate through investment).

I would stick with your long term plan and pay the mortgage off early, thereby freeing up income to increase your retirement provision.

[fido]

One more upside. It will save you some conveyancing fees and a tad less stress if you are selling in the near future.

[NDA]

If you are going to stay in the house for a few more years, I'd pay off the mortgage now.

From my perspective, property is not a good investment at the moment - my house has dropped in value considerably as a consequence of the ludicrous levels of Stamp Duty. So it's not a good time to sell, but it is a good time to stay put and ride out the drop in prices. Therefore paying off the mortgage is a good thing....

If something happened to your income over the next 3 years - not having a mortgage is a huge benefit.

[markiii]

there's better options than paying it off sure, are there ones that carry less risk? i doubt it.

Personally I don't think it matters how well brexit goes, in the short term the pound is going down against the euro imho

therefore keep it either in euros or euro markets would seem like a sound bet, then cash it once the inevitable happens.

that said from a stress level perspective I'd still pay it off and get it gone.

[anonymous-user]

Regardless of all the very valid objective reasons there may be for not paying it off, the feeling of being mortgage-free is great.

[troika]

Pay it off. The feeling is great. You can even be a bit more adventurous with your investments when you have that level of security.

[LeadFarmer]

sidicks said:

LeadFarmer said:

I’m overpaying on my mortgage, but with its interest rate being only 0.23% above Bank of England base rate I think I’ll stop overpaying just before it’s almost paid off, and keep just a tiny mortgage going. That way if I need to borrow against the house I can get some very cheap cash.

You’ll be borrowing at the prevailing rate, not the current rate you’ve locked-in to

Surely I’d just be borrowing from my current mortgage and at the same rate, especially if the extra I was borrowing equated to just the amount I had overpaid?