Opinions/Views please.

[Sam7374]

Hi All,

After a quick trawl through the threads this looks like the most relevent area to post!

I wanted some views on my current situation. I'm considering paying off my mortgage due to owning another property abroad but wanted a wider audience's opinions on what you would do, details below :-

Age 43, wife and a 5 year old boy

House Value - £410,000
Mortgage - £81,000
Other property value - £106,000 Approximately, no mortgage and generates around £700 per month rent

Just wondered what you guys would do?

[monabri]

I think you might need to provide more info. Generally, pay off any credit card debts first if you have any. If you pay off your mortgage early are there any charges? It is hard to comment when we don't know your family income versus family outgoings. Once again, generally, if you have a debt, I would pay it off asap but not at the extent of not heating/eating or having some money in case of emergency. The rental income might not be guaranteed or you might need to spend money on a new boiler perhaps.

[Sam7374]

Thanks for the reply, No debt apart from mortgage, income is circa £50k and can save around £700 PM, no penalty for paying off mortgage early either, mortgage payment is £500 P/M.

Rental income isn't guarenteed as you say but we've had the same tenant in place for the past 6 years with no voids, thinking of selling the property as it's State side and the dollar is very strong..

Would be nice to be mortgage free but just trying to work out if its really the sensible option!

[monabri]

Is there any capital gains tax considerations to be considered - i,e, if you sell the Stateside property and you make x thousand pounds? Depends on teh difference between buying and selling values I guess. If you inherited property, then the value at probate is the figure to go into the calculation.

[Urbandreamer]

I have paid off my mortgage, twice.

There are valid arguments that you may get better returns by using the money for other things. However if you are struggling to make up your mind what to do then paying off mortgage capital is quite a good default option.

You don't need to pay it all off either. You could simply reduce the outstanding debt to either reduce the term or reduce the payments.

I must confess that it's a very pleasent feeling to be mortgage free, but as I said, I was willing take out one for a second time.

[JohnB]

Emotionally paying off a mortgage is very satisfying, and dominates financial arguments about leverage and diversity. But its worth considering the use-it-or-lose it ISA allowance to harbour 20+15k worth of the property sale, or pension top-ups if a higher tax tax payer.

If your total investments are in property, you are rather exposed to one section of the market. Overseas property is exposed to ForEx risk, but now is (hopefully) a good time to transfer the cash back.

[Sam7374]

thanks again for the replies, with regards to tax on the US property side, nothing to pay there but i'll need to work out tax implications when bringing the money home..

paying off the mortgage would save me £6k per year, would be nice to own the house outright too!!

My wife thinks im having some sort of midlife crisis, i havn't looked at Porsche's yet so i think shes wrong!

thanks again, i'll check out the uk tax implications and go from there.

[Haylingchris]

You don't need to actually pay off the mortgage to get the benefits of reducing the mortgage costs.

If you transfer to an offset mortgage, with a matched savings account you can reduce the interest paid (to nothing if you can save sufficient). You're then paying the lowest possible rate for your mortgage and you have access to "emergency funds" if you need them.

I've paid off two mortgages this way and saved myself thousands

[Shelford]

If there is one regret I have (aged 51...), it is not making more use of the tax-free envelope of ISA/PEPs. At 81K, you have a low mortgage relative to the house value, and are comfortably on track to pay this off by, (say) 53. Like you, the thought of being mortgage free was/is highly attractive. But so is the thought of having by 50, several hundred thousand in a tax shelter, providing you with more choices at that age (say to consider earlier retirement). Your profile indicates you can also invest up to £40K per year in a SIPP each for instance, and from April, £40K combined into ISAs.

[uryjm]

I paid off my mortgage when I was 43 and suddenly found that it seemed I had more cash than I knew what to do with. I'd maxed out the annual allowance on joint ISA's, I was putting enough into a pension and I still had money left over. What to do with it? I felt I was putting enough into equities and I wasn't going to go out and buy the Porsche or the Rolex either, being far too tight for that. So what other investments options were there? What was missing from my portfolio? Property. But I didn't want the hassle of buy to let and I'd never fancied buying abroad either. So, eventually, about two years later, we moved to a bigger house and took on another mortgage!
Paying off the mortgage is a good idea, I think, as it gives you a kind of psychological financial freedom. But once you have the additional money, you still have to decide what to do with it.

[kempiejon]

What was missing from my portfolio? Property. But I didn't want the hassle of buy to let and I'd never fancied buying abroad either. So, eventually, about two years later, we moved to a bigger house and took on another mortgage!Paying off the mortgage is a good idea, I think, as it gives you a kind of psychological financial freedom.

That's a good way of looking at the question. A mortgage is one of those debts many people think are OK. Probably, it's the only way many people can buy property. If you want to look at property as investment rather than saved rent then a mortgage is a normal way of leveraging your investments. Property investments well, I prefer stocks, REITs or collectives, I do not need to own holiday homes or to be a landlord, that sounds like a job I'd not enjoy, in fact I prefer to be a tenant, with the right landlord and agreement. Inflation seems less painful the more you owe. What are cheap mortgages these days, a few percent? I think inflation is up this month and that's been a 12 month trend, it could continue, I'm pretty confident I can outpace both putting my money to work long term so it's the psychological benefits of being mortgage free I'd way up.

From the OP £80k mortgage on a £400k house plus other assets and plenty of cash flow - I'd let the debt ride, but I'm confident of my temperament. I'd check the market place, there could be a savings, think about a move to the best rate and a fix and over pay to reduce the term. That gives some more options.

[mswjr]

For what it's worth, we paid our UK mortgage off as quickly as we could by ramping up the monthly repayments. Not through any kind of nuanced financial planning or grand plan, but primarily because it was a self- imposed discipline that actually worked for us. Most other ideas started well then foundered in a sea of overspending.

Mortgage free in my forties/ wife, thirties (by making it number one financial priority), the lifting of a significant monthly outgoing then unexpectedly but fortuitously had a substantial and liberating affect.

With the significantly lower required minimum income and a guaranteed roof over our heads, it was far easier to make bolder decisions in terms of life style, career, investment etc.
I am convinced that most of the big decisions we made, and which subsequently paid off well, would not have been taken had we been hostage to 'paying the rent' (mortgage) every month.

I don't just mean they paid off financially, but it was far easier to commit to various sojourns abroad, knowing there was always a home available back in UK.

Similarly, the decision to invest in a couple of start ups (which went well), was made easier by the lower 'survival income' necessary had they misfired.

On paper, I'm sure it's provable that having a cheap mortgage for as long as possible and investing elsewhere increases lifetime returns, but the psychology wasn't working. Get rid of the monthly debt then be more imaginative.

I don't recommend it to anyone else particularly, but it worked for us.

(ps I guess it's reversible as well. Re-mortaging would raise capital if really required)

[Sam7374]

Hi All,

I really apprciate the replies, I'm currently going to clear the mortgage at this point in time!

I even went and viewed a nice large 4 bed house to see if it tempted me as I was contemplating bringing the money home/topping up the mortgage and moving! but I just can't see the point of getting an extra bedroom (box room) for another £150,000....

Again thanks to everyone who replied.

[richfool]

The idea of paying off or reducing mortgage debt is going to become increasingly more attractive as the prospect of rising interest rates starts to loom, and based on rising inflation, that prospect is going to arise before too long.

[vrdiver]

Another vote for "pay off the mortgage". We did it years ago and it was indeed a very liberating feeling.

I'm sure it cost us more financially (I worked for what is now Diageo, and sold off some shares to do it) but I have to say it's not about the money, it's about that feeling that nobody can take your house away from you, no matter what cliff edge you drop off...

Also, we diverted the monthly mortgage savings into re-buying shares (not Diageo, as I was still overweight in them) so with a bit of discipline the mortgage money starts to snowball (especially if you reinvest dividends) and having previously used it to pay the mortgage, it was like getting free shares since buying them had no impact on our living standards!

In the end, you have to decide between security/emotional comfort and cold financial logic. If it looks like a close call, getting the security thrown in might be the deciding factor.

VRD

[monabri]

money starts to snowball (especially if you reinvest dividends) and having previously used it to pay the mortgage, it was like getting free shares

Yeah !!!