Should I clear my mortage?

[Lord Flashheart]

I have about 7 years left on my interest only mortgage and could clear it tomorrow. But should I? Currently I'm paying about £175 per month in interest, which is creeping up gradually and was just over £120 not so long ago. Being as there's not much out there earning any interest anymore, I just wondered whether paying the mortgage off now was the sensible thing to do. How much would £220k need to earn to warrant holding onto it for 7 years? Here in the south east, I couldn't even stick it into a buy to let for a few years as I probably couldn't find one for so little!
I should make it clear that I would not invest in anything that involves significant risk, fast cars or prostitutes.. All of these would probably leave me a mortgage to pay off and no money.

[Sheets Tabuer]

There is some school of thought that says you should clear debt, there is another that says you can make more by investing it. S&P below for instance.



Remember inflation erodes debt

If it were me I'd follow the numbers, depends on your age and earning power though.

[Evoluzione]

Oh God not this again

[dmahon]

Sheets Tabuer said:

There is some school of thought that says you should clear debt, there is another that says you can make more by investing it. S&P below for instance.



Remember inflation erodes debt

If it were me I'd follow the numbers, depends on your age and earning power though.

-20% YTD though. OP could have lost £50k+ if he decided to invest rather pay it off at his last renewal.

OP, the answer is usually that it’s slightly better to invest the money for higher returns vs mortgage interest. There is however short and medium term risk. Plus some lost mental peace in having your mortgage paid off. You also of course lose easy access to the liquid cash.

I personally paid mine off before getting into investing and never looked back. Not worth the risk or hassle to try to make a few %.

Edited by dmahon on Monday 13th June 06:39

[Lord Flashheart]

Evoluzione said:

Oh God not this again

I'm sure if I dig deep I'll find similar threads on PH, but I imagine they'll be more about long term investment. My question is probably a bit simpler, in that 7 years isn't exactly a long term investment and the world is clearly a very different place than it was just 2 years ago.
Without looking into the sort of risky finance that could lose me a fortune, I'm just asking whether there is anything low risk, or even no risk, where £220k could potentially earn more than the £2k minimum I pay in interest annually. As I've already got my premium bonds quota and some ISAs, I didn't know whether there was anything else out there, or if paying off the mortgage, and therefore saving a minimum of £14k in 7 years, was in fact the best return.

[Lord Flashheart]

dmahon said:

Sheets Tabuer said:

There is some school of thought that says you should clear debt, there is another that says you can make more by investing it. S&P below for instance.



Remember inflation erodes debt

If it were me I'd follow the numbers, depends on your age and earning power though.

-20% YTD though. OP could have lost £50k+ if he decided to invest rather pay it off at his last renewal.

OP, the answer is usually that it’s slightly better to invest the money for higher returns vs mortgage interest. There is however short and medium term risk. Plus some lost mental peace in having your mortgage paid off. You also of course lose easy access to the liquid cash.

I personally paid mine off before getting into investing and never looked back. Not worth the risk or hassle to try to make a few %.

Edited by dmahon on Monday 13th June 06:39

This is what I was thinking. Unless there's something that could return half as much again as I pay out monthly, it just might not be worth it. Being mortgage free might well be a great place to be mentally.

[I 8 a 4RE]

The very simple and only right answer (joke) is … yes.

Yes to both.

This need not be a one extreme or the other.
Pay off half the mortgage and stick the other half in some passive funds in an ISA wrapper.

Job hedged.

I understand those who want to be mortgage free but it sounds like OP would be able to clear remaining £100k mortgage easily at any time and use that cash for some moderate returns.

[Jawls]

Lord Flashheart said:

Evoluzione said:

Oh God not this again

I'm sure if I dig deep I'll find similar threads on PH, but I imagine they'll be more about long term investment. My question is probably a bit simpler, in that 7 years isn't exactly a long term investment and the world is clearly a very different place than it was just 2 years ago.
Without looking into the sort of risky finance that could lose me a fortune, I'm just asking whether there is anything low risk, or even no risk, where £220k could potentially earn more than the £2k minimum I pay in interest annually. As I've already got my premium bonds quota and some ISAs, I didn't know whether there was anything else out there, or if paying off the mortgage, and therefore saving a minimum of £14k in 7 years, was in fact the best return.

On paper, investing will trounce this.

220k in global equities returning 5% annually would be investment returns of 89k over 7 years. That destroys the 14k interest payment. Even if you had to invest it all outside of tax free wrappers and did no CGT management, you’d still handily beat the interest.

Of course, reality not that simple and there’s *major* sequence of returns risk etc. And I certainly wouldn’t be sticking £220k in market at once even that’s mathematically rational so drip feeding in over day a year might dampen the gains. You say you want low risk and global ratio ties are not low risk in the short to medium term. They are highly volatile.

Hell, if you’re only paying £2k a year interest then that’s 0.91%, so a half decent savings account beats that for best zero risk.

Personally, I both overpay mortgage and invest, with a heavy bias towards investing.

Edited by Jawls on Monday 13th June 08:06

Edited by Jawls on Monday 13th June 08:11

[happyh65]

Lord Flashheart said:

I'm sure if I dig deep I'll find similar threads on PH, but I imagine they'll be more about long term investment. My question is probably a bit simpler, in that 7 years isn't exactly a long term investment and the world is clearly a very different place than it was just 2 years ago.
Without looking into the sort of risky finance that could lose me a fortune, I'm just asking whether there is anything low risk, or even no risk, where £220k could potentially earn more than the £2k minimum I pay in interest annually. As I've already got my premium bonds quota and some ISAs, I didn't know whether there was anything else out there, or if paying off the mortgage, and therefore saving a minimum of £14k in 7 years, was in fact the best return.

Have you considered the income tax aspect here? There’s no relief on your mortgage payments.The investment would need to return approx £20-25k gross depending on your upper tax rate to leave a net £14k+.At first glance it’s a no-brainer ,pay it off so long as it doesn’t use all your available cash.

[Armitage.Shanks]

Depends if you’re happy carrying the debt and whee you are in life with regards to retirement. I paid mine off 10 years early and never looked back as I wanted to be completely debt free because I was brought up that way. Mine was an endowment mortgage (remember them) which I keep the endowment payments going to maturity for a nice bunce.

Overpaying and some investing may be the compromise.

[gotoPzero]

If you cant stomach investing, and a lot of people cant as its too psychological for them then just pay off the mortgage.

Its better than leaving it in cash and having inflation take *massive* chunks out of it on a daily basis. Its as simple as that really.

However, the real answer is we need to know how you are for pensions, ISAs, emergency fund, any kids, expected cost of living to change up or down etc etc.

[Welshbeef]

Have you been maxing out the £40k pa into your pension? That’s certainly the best return

[Ziplobb]

We have paid off a big chunk this year. Its been interest only £270k for 12 years. I think we have overpaid £500 a month on the bigger chunk of £170k as it costs a bit more. The rate has crept up and so has the interest payment each month. We work for ourselves and have kept a fair bit of cash on deposit for this reason and 2 years ago when Covid came along I am glad we had that cash.
Times have changed though and with an eye for retirement over the next 2/3 years we have just paid off £100k and I will lump off another £40/£50 k in the next couple of months. I am not too worried about the rest as its a better rate, I will be overpaying by the monthly interest saving on the other portion plus my £500 per month.
At some point before we are 60 and the mortgage is due to be repaid we will downsize our home which was always the plan anyway. That time has come earlier than we thought as prices have moved up and we find our part of the country has become very desirable.

[Langleyuser]

I 8 a 4RE said:

The very simple and only right answer (joke) is … yes.

Yes to both.

This need not be a one extreme or the other.
Pay off half the mortgage and stick the other half in some passive funds in an ISA wrapper.

Job hedged.

I understand those who want to be mortgage free but it sounds like OP would be able to clear remaining £100k mortgage easily at any time and use that cash for some moderate returns.

This. When in doubt, hedge. There are scenarios which you can’t imagine now and hedging gives you options.