Mortgage about to be paid off - what next
Discussion
Question for a friend (seriously)
Mortgage is due to be paid off in the next 12 months.
So the two choices are
Use the money which is normally used to pay the mortgage to invest monthly circa £700
Or
Remortgage for 20 years and invest £150,000 that would be borrowed across whatever investments and pay the monthly mortgage payments circa £700.
In 20 years the couple will be 55 and the goal is to retire early
Mortgage is due to be paid off in the next 12 months.
So the two choices are
Use the money which is normally used to pay the mortgage to invest monthly circa £700
Or
Remortgage for 20 years and invest £150,000 that would be borrowed across whatever investments and pay the monthly mortgage payments circa £700.
In 20 years the couple will be 55 and the goal is to retire early
Assuming 4% return (based on 7% return with 3% deducted for inflation) the £150k investment would grow to £330k and a £0 investment with £700 a month would grow to £250k.
If returns were closer to 7% after inflation the difference would be more like 350k/600k.
If returns were closer to 1% then you are looking at parity.
Given that mortgage interest rates are likely to be higher than 0% then the above needs adjusting.
Its usually a bad idea to invest money which is from a loan. Rates are low now but could easily be 3-4% which would reduce returns to next to nothing or even negative.
If it were me I would invest the £700 into an ISA each month. The main risk here would be them spending the money rather than investing it!
If returns were closer to 7% after inflation the difference would be more like 350k/600k.
If returns were closer to 1% then you are looking at parity.
Given that mortgage interest rates are likely to be higher than 0% then the above needs adjusting.
Its usually a bad idea to invest money which is from a loan. Rates are low now but could easily be 3-4% which would reduce returns to next to nothing or even negative.
If it were me I would invest the £700 into an ISA each month. The main risk here would be them spending the money rather than investing it!
I would advise against paying it off. When I was in the same position, I got the largest interest only offset mortgage and fully offset it. This just means I am left with a huge loan facility at the base rate +.5% for the next 20 years. Which is always going to be the cheapest way to borrow money. This has come in very handy on several occasions whilst I have needed a "bridging" loan because my cash is invested. It just give so much more flexibility.
cashmax said:
I would advise against paying it off. When I was in the same position, I got the largest interest only offset mortgage and fully offset it. This just means I am left with a huge loan facility at the base rate +.5% for the next 20 years. Which is always going to be the cheapest way to borrow money. This has come in very handy on several occasions whilst I have needed a "bridging" loan because my cash is invested. It just give so much more flexibility.
Interesting..... I am in a similar position to you, but have perhaps not thought this through fully. I have an offset with e.g. 100k to pay, and 100k in savings. It is a capital + interest offset. Obviously every month the money owed number is decreasing by the mortgage payment, and I need to do something meaningful with this surplus.. However you have got me thinking of what I should be doing.............. seems like an excellent idea, and one I will look into further.
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