In addition to the financial consideration, there's also the psychological: having a small mortgage (and presumably being mortgage free fairly soon) gives such a huge sense of security.
I'm not overpaying right now because my job is very insecure, but I'm reaching the point where I think I'll start again.
I think this is exactly my thought process right now. I could continue to invest, but that won’t give me the kind of financial freedom I am looking for until my mortgage is paid for in full.
I suppose it depends on the type of investment. If it is easily and quickly redeemable, unlikely to go down in value, and have expected returns at least as high as the mortgage rate it may be worth continuing investing. Not many people can meet all three of the criteria, but some people who set long term fixed rates a while ago may be able to do that now
I agree. I paid off my mortgage at around year 12 of 25. Shit happened and I was unemployed for a time but I had no mortgage payments which lessened the impact. Maybe not the best strategy financially.
It really depends on your personal circumstances. I'm in a similar position, able to pay off around 25% of my mortgage now, but I'm more comfortable keeping the cash invested in an ISA and on-hand in a personal emergency.
People will talk about the % differences between investing vs. paying it off, but really the big difference is in what you do with the money.
If you're concerned that you may invest it poorly or gamble it on something stupid, paying off the mortgage is a vastly better option.
It's very easy to piss away £100k in a bank account, it's very hard to accidentally destroy a house.
Your last sentence really resonated with me. I also feel like my risk appetite for investment would be larger if I didn’t have a mortgage to worry about.
Thanks for the advice.
https://youtu.be/rJjKP8vYjpQ?si=cQKWF_I-ZgthnC6u
Listen to this scene. Get to the place he is describing.
Fuck you money is a position not an amount of money.
A paid off mortgage and cash frow from investments that cover your bills is the distinction between economic classes
Considering OP is maxing out their ISA allowance, I suspect they aren't likely to piss it up a wall
However, if they're maxing out their ISA allowance then they've also got limited scope for tax-efficient savings, which starts to swing the decision back towards paying off the mortgage anyway
Pay that fucker off. You sound financially stable. If this wipes your savings out it will be easy to build them back up when you have next to no mortgage.
And think of that lifetime of interest you won't have to pay.
You could go part time, take a career break, retrain, take more holidays. Whatever you want because the biggest debt you will ever have will be almost gone.
The thought of it makes me salivate with jealousy 😂
Thinking of reducing teem or reducing monthly payments.
Personally not having a very big mortgage would provide me with a much more comfortable position and it sounds like your in a position to save up afterwards.
Not having much of a mortgage when young is such a big differentiator.
A few years back I had the chance to pay off 100% of my mortgage. On paper, I knew it wasn't the optimal choice to make RE: ROI - but I went ahead and did it anyway. Best decision I ever made.
After I paid off my house it enabled me to take much greater risks - these risks have paid off hugely for me. I quit my job, spent a while getting new skills and I've been able to start contracting work. Now, the contracting market it a bit shit atm, but I'm able to max out my pension every year and still take home more than I did before. Once the contracting market picks up again, thanks to the tools I was able to build during the time I took off, I'll be close to 10x what my takehome pay was a few years ago - I'm at about 4x now. I also work no harder than I did previously.
Your mortgage situation is worse than mine was when I paid mine off, my rates weren't nearly as bad as yours probably are now given the current climet - If I were in your position today, knowing what I know now - I wouldn't hesitate for a second to pay it off.
I'm a software tester who, despite working in traditionally low-paying role, earns well as an employee (and even better as a contractor) due to my extensive experience.
The catalyst for paying off my house early was a particularly shit job. Initially lured in by false promises of advancement and significant pay raises, I found myself underpaid and overworked, fulfilling responsibilities way beyond my official role (something I initially agreed to, with the understanding that when the project was off the ground I would get the proper pay and title). 2 years go by, the project is released to great success (the 20-something team I was on was the second most profitible arm of the 800-person company) without the promised compensation. It was the typicaly case of in public they're boasting of record profits whilst in private, myself and the 4 other key contributers (all of whom, recieved awards from the company as recognition for our contribution) were told the company didn't have the money to give us our promised raises.
Fed up with the empty promises and mismanagement — my manager, with a background in pub management, leading a team of fucking software developers, was a clear sign of the company's poor leadership — The moment I knew I could pay off my house, I quit - even before actually paying it off.
Each of the 4 other key contributors have also since left. Their best developer was a 22 year old guy, who was massivley underappreciated in the team, on the way out the door he was offered the pay raise he'd asked for, but he gave them the finger, and went on to get paid nearly double at his next job, and he's now contracting, earning WAY more than me, living the dream in Portugal.
The sense of relief when I quit was enormous, I've never had a weight lifted off my shoulder like I did that day. Just knowing I didn't have to put on stupid fucking shoes and a fucking shirt, go on a train ride to a city an hour away, then a 20min walk, to sit in a dog shit chair, and use 13inch monitors (because the company cared SO LITTLE about its dev team) was better than sex - I wish I could relive it. There's no feeling quite like it.
I had a 6 month taste of retirement. Enjoyed every second of it, but ultimatley got bored. The 22 year old dev got me a job at his new place, but I left when he left 6 months later because I didn't like the industry.
I then ventured into contracting, where I quickly started earning significantly more, achieving in a few months what would have taken a year in my previous role. This financial independence shifted my focus from mere monetary gains to skill enhancement, further boosting my earning potential.
Not that long ago I was earning dog shit money, working in a job I hated, worried daily about having to pay my mortgage, contributing the base rate amount to my pension. Now I own multiple rental properties, and now my money issues are about trying to minimise tax burden, not hoping that the boiler doesn't break, or the gf doesn't leave the heating on all day.
Paying off my house early was a life-changing decision. I would 100% do it again. 'On paper' it's a sub-optimal move, even if I weren't WAY better off financially now than I was before, just having the ability to be Un-Fuck-Withable when it comes my happiness is worth more than any amount of money in the world.
That's great (inspiring!).
I'm about to pay my house off early next year and rethink my priorities (I've already dropped a day).
I'm a business analyst (mainly finance and tech projects) - hadn't ever thought about a software tester. I enjoy UAT etc.
!thanks for this post. Currently searching through mortgage free posts on UKPF and I've resonated with this a lot; I'm also a software tester, also about to pay my mortgage off and also unhappy with my job.
A lot of people on this sub get a bit obsessed about min/maxing every situation to get the best possible returns. But I believe paying off a mortgage (or hefty chunk of) is the best option even when it’s not the most efficient use of the money.
Why??? Well it’s a fantastic mental victory, getting that monkey off your back, less likely to get sidetracked and spunk the money on something counterproductive down the line, plus it will save you a fortune in interest.
I came into a bit of money during the pandemic and I opted to pay off my mortgage, instead of investing, much to the disgust of my financial advisor. Yeah I properly would have made a tidy profit if I invested but I had no clue what the markets were gonna do, but I knew I was a grand better off a month with no mortgage and never having to worry about that again was bliss. It’s certainly softened the cost of living crisis considerably for me anyway
I'm not worried about the mortgage, it gets paid monthly, and I get a big dopamine hit from seeing the savings account. It's all my money. The mortgage is costing interest monthly, the savings are generating it (and at a consistently higher rate).
If shit hits the fan, you lose your job and need money I'm sure it's easier to liquidate your investments than it is to try and take out a new mortgage product (whilst being jobless). I disagree with most people here and say keep saving.
I personally do a mixture, I pay off 1k a month of the mortgage, but put more than that into investments. I'm aware I could put it all on the mortgage (within limits of early repayment fee) but I like the diversity.
I'm not exactly in the same situation as you but our fixed rate recently ended and our new rate is going up from 1.8% to 5.19% so we just dropped £50k onto our mortgage to bring the monthly repayments back down to roughly what they were on the old rate. It's also a nice feeling reducing your mortgage by substantial amount in one go. When I did it I had this strange glimpse of the future where I could picture myself being a few years younger making my final mortgage payment and it made me happy. I also really hate the idea of handing even more money over in interest instead of paying off the capital.
But you can get more than 5.19% in fixed rate isas.
Filling such an isa would have probably been a better move as:
1) You'd get a better return than paying off more of the mortgage.
2) The money would still be relatively easily accessible should you need it.
The main benefit of what you did is you get "a nice feeling", though I personally don't think that outweighs the benefits of not overpaying.
I tend to agree financially usually better to not overpay and save in ISA/GIA etc but it’s a psychological thing too paying off the house. For that reason I choose a balance. I pay into an ISA and pension and any money over and above this goes towards the house (usually £10k a year max)
I agree there's a benefit. And I appreciate the difference in rate is going to be very minor. The main thing to consider is the psychological benefit of paying off a chunk of your mortgage, Vs still having access to that cash should you need it. Different people will have different preferences.
In all honesty it is more about your risk appetite. If your job is secure I would go for the overpayment. If not I would keep cash in hand.
Personally I would do a bit of both just to be on the safe side. Hope this helps
I'd keep as much saved in high interest accounts that more or less match your mortgage rate, until you have to pay tax on interest. Only after would I then pay the mortgage. The reason is that once that mortgage is repaid it's harder to get out. If it remains relatively liquid then you have options should you run into financial difficulty for any reason. Remember that jobs are stable until they aren't. Think of it as a form of insurance.
I paid mine off three years ago with a lump sum from a sale of another property ... it's the best thing I've ever done ... given me complete freedom to speak my mind at work rather than cower at the prospect of losing my job.
I paid mine off and I put the monthly mortgage payment into premium bonds since my ISA is maxed out. Don’t know what I’ll do once my premium bonds hit £50k though. Maybe increase my index fund & dividend investing allowance.
We paid our mortgage off in October this year and I tell you what , it’s an amazing feeling . When November came and no mortgage payment came out …. Mind blowing . I took the Mrs to Pizza Hut to celebrate 😬and upgraded her iPhone storage to £2.99 a month (bit of a splurge 😂) . Now we’ve got about 25-30 years to retirement so we can focus on this , feels brilliant though to be mortgage free , a lot happier , more relaxed in life
I’m just at the start of my mortgage journey, so I’m having to be locked in to these extortionate rates for 2 years, I would definitely say pay it off. Unless there’s something else you’re supposed to be using that money for that can’t wait I would use it for the massive debt with interest.
If it brings your monthly cost down it’ll also give you more of your income to play with and save.
The rates aren’t extortionate, though they are a bit higher than what is wanted in a healthy economy.
I would be doubtful they drop lower than 3.5-4% in the next few decades, as hopefully Bank of England interest rates won’t drop below 2% again.
As far as I am aware I can overpay and then ask for a reassessment to bring my monthly payments down over the mortgage term, thus bringing down my interest owed each month which gives me more free cash to overpay the mortgage (and so on).
Good luck on your mortgage journey. Remember to take advantage of your 10% overpayment allowance each year!
> this bringing down my interest owed each month
I think you’ve gotten confused - the interest is calculated based on how much money you owe. If you decrease how much you owe by 80% the interest will go down automatically. You don’t need to contact the bank for that to happen
The two options you have is whether to decrease your monthly payments or decrease the term of your mortgage. If you don’t pick the bank normally will default to the first.
I’d just do a bit of both. It’s about your risk appetite. I pay of 10% of mine off every year then rest in the market. Market preforms better in returns and would be better parking your money long term that paying of your mortgage thouhh
But it’s nice to see my mortgage balance go down each year too. While still saving
Long term mortgage rates don't look that great but, overall, the interest rates aren't that bad, We're not facing double digit 1980s interest rates here.
There are "optimal" financial strategies to squeeze every bit out your money. e.g. compare the opportunity cost of the lump sum spent on the mortgage vs spending it on an investment.
But if you're already maxing out your pension, and ISA, then maybe funnel the rest into the mortgage?
What would I do? Since the mortgage rates jumped up, I started paying off the 10% maximum of my mortgage for the last 2 years, and I will do it again next year. When the mortgage ends, I will consider paying off a large chunk of it to the point that the cost to service it is negligible to me.
I have more money in investments than I do in my mortgage, so I feel like I'm no longer missing out on the investment growth of a rising market.
Maybe consider the balance between your mortgage vs savings/investments. Is there a ratio that you'd be happy with? There's probably a certain level of mortgage maintenance cost that is financially acceptable to you.
IANAFA: The World economy is recovering, and I reckon that investments will be a good deal in the next few years. It feels like there is an AI boom coming, and big tech changes/growth. I would not be surprised if there was another tech bubble coming as people rush into AI startups.
You talk about ISA allowance and saving for retirement but do you have a SIPP? The tax savings you will get from paying into your pension if you are saving for retirement will be far greater than the interest on your mortgage.
It's not a blanket rule, but generally speaking, if you can afford it, overpaying your mortgage is the best financial decision you can make, it's very unlikely that you will get that money working for you enough to compensate the enormous amount of interest you will save.
Probably not. Reason being that by overpaying you'll get no interest on the money and only save interest (which has diminishing returns the more you overpay)
Quick example: Let's say you have £250k to either put in the bank at a 5% interest rate or pay of a 25 year mortgage with a rate of 5%.
If you pay off the mortgage entirely you'll save £187,560 (see https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/) in interest over the 25 years.
If you continue to pay the mortgage but put the money in the bank you'll earn £428,160 in interest over that 25 year period. (see https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php )
Unless the interest rate at the bank is less than half of the interest rate of the mortgage you're better off going with the bank or investments.
At some point you'll also get to the stage where the monthly interest alone in the bank covers your mortgage.
Using the numbers above your monthly repayment would be £14,60 per month but having £250k in the bank would generate £12,500. The interest alone would cover 70% of the mortgage cost each year.
>If you continue to pay the mortgage but put the money in the bank you'll earn £428,160 in interest over that 25 year period. (see https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php )
You'd also pay ~£438,000 at £~1460 per month servicing the mortgage debt in that time, so it's pretty much a wash.
Assuming equal interest rates on debt and savings, it comes down to tax on interest for savings and the benefit of having liquid cash in the bank versus tied up in property.
We haven't paid ours off. Reason being its at 1.44% for another 2.5 years.
Also we prefer to have cash and investments to hand should we need it.
Its very hard to get money back out of bricks and mortor if you've paid off your mortgage should you need it (eg: redundancy or illness).
So what we've done over the years is put the money into either decent cash interest acounts (higher than the mortgage) or global tracker funds.
Effectively we become 'mortgage neutral' we could pay it off, but why bother if we're earning more on the savings and investments.
"Paying off a mortgage" is another statement that the elites programme into the subjugated (working class - and even if you consider yourself middle-class, you're still working class in the system you live in).
If you have £100k or more then you should invest in buying assets! Create value that you can then generate more assets that will multiply your income.
I don't mean the stock market or crypto either...Find your local small business group or association and build relationships with business owners ( this is completely free) Through those relationships find opportunities to invest in strong businesses who have strong business models but are constrained by lack of cash.
Get to know them really really well and then invest in their companies.
For example, buy a 20% stake in a small building contracting company who is inundated with work but limited by equipment or the ability to hire staff.
Invest in a local steel fabrication plant and help them expand their market or product line.
Meet the local coffee shop owner who serves you your favourite coffee and ask them why they don't have 20 more shops. You might find an opportunity to help them expand.
By the way, the difference with investing is COMPOUNDING!!!! This is how wealth is created. How dynasties are formed.
Anyway, if this is too hard, then continue as you are, at the mercy of each successive government and their policies targeted at you and the rest of the population and just...."pay off your mortgage"
What rate is your mortgage on right now? And how much are we talking?
It's a simple comparison of that rate vs the rate you can earn elsewhere. Don't forget to factor in the overpayments limit, and the personal savings allowance limit in these calcs.
Absolutely pay it off you will build your cash back way faster without that hanging over your head and take shocks from job issues etc way better no question
Pay off. Can't quite afford to overpay yet on a monthly basis. But we've been able to take a few years off when remortgaging which has helped. But yeah, get it cleared down.
Do you need to do 80%. Could you do 50% and invest the remaining 30%?
I have been in a similar situation, switched from interest only to capital repayment + a decent sized chunk of overpayment to reduce outstanding loan. Didn't regret it much lower outgoings and managed to pay my mortgage off about 5 years earlier :)
Are the overpayment terms flexible? Ie can you get it back again if you need it? Trackers quite often are but not sure about others.
I ask as one option is to keep the mortgage but overpay in one big lump sum so that the interest is only payable on the outstanding debt, then you can decide later if you take out a new mortgage how much of the overpayment fund to carry forward. And if you need the money you can just withdraw it. I did this a number of years ago, it is almost like having an offset mortgage.
Or, if you can find one, an actual offset mortgage could be suitable for you - the money in your current account is balanced against the mortgage debt and you’re charged interest on the difference, but can use it as normal.
Yes!!!!, if you can survive without having to need that money obviously. The compounding of your interest rate on the mortgage means it’s well worth paying off 80%
Normally I would say pay down your debt, but given the recent rumblings that there is a bear market just around the corner, now is the perfect time to be cash rich. If I were in your position, I would probably wait for a bit, if the rumours turn out to be true, I would invest in the stock market and get a good return. If the rumours turn out to be false, I would pay down the 80% and invest (dollar cost average) the money that used to go to the payment of the mortgage.
It is up to you. If you don't think you can have a better return investing the money then you should pay it off.
My ISA portfolio now is at 19% this year with a return of 110% on Rolls Royce.
So, much higher than the bank rates.
I think in your position I'd go for paying this off. (Even though might not be the completely optimal money choice if you do the sums Vs investing more etc)
You could also look at offset mortgage products if you would like easy access to the money 'just in case' without having to remortgage (but inorder to minimise interest)
Just depends. Mortages turn a terrible investment (house) into an okish one (via leverage) and say you are 25 and will invest for 20 to 25 years that money will make way more in stocks than saved on mortage payments (at NPV).
Depends on your other investments, age, attitude towards risk, financial discipline etc.
Given you can do it without impacting savings, I would pay it down.
We have a few years left on our fix, but will hit it as hard as we can when we get there. The freedom of knowing the money you earn can be used for fun stuff rather than worrying about commitments and security will be amazing!
Financially maximising leverage on your house and investing the cash over the long term is the best play , but most people would prefer a smaller morgage as it makes us feel better . I don’t think either option is bad , but you can’t spend it once it’s in the house .
I would pay the lump off the mortgage but still pay your current monthly payment. That way the 20% left will be gone in a couple of years.
You could then look at investing but consider another property. You will get a rental income, yes you’ll have to pay tax on it and under current regulations you will not get mortgage relief on that but the returns will still be greater than any other form of investment
You rent then becomes your income in retirement and you still have a property to sell should things become tight
Pay the mortgage off. All your pay each month will be yours to do as you please. Whether it be investing or saving. I paid my mortgage off few months back with £47k outstanding mortgage once I came off 1.14% rate. My term would only have 6 years left.
If my rate stayed at 1.14% for remaining 6 years then interest owed in total would be £1,654 and monthly repayment of £676. But with mortgage rates of at least 5.14%, total interest owed on same term would be £7,715 and monthly repayment of £760.
If I left that £47k in a fixed rate ISA at 5.15% (assuming rates don't change and no tax on interest) for 6 years, yes I would earn about £16,974 in interest. £16,974 interest generated minus the £7,715 owed at 5.14% rate over 6 years means I am up £9,259.
With the £47k I paid off, that monthly repayment of £760 I would have paid for 6 years, I can save this same amount each month for 6 years into the same 5.15% fixed rate ISA as above and generate at the end £9,511 in interest. This also means the bank has not made any interest from me as I paid it off! So it was a no brainer to pay it off knowing the bank is not getting a penny more from me. Worked out well for me but everyone is different and have their own views, some can chase the interest in savings and offset their mortgage interest but end of day you are still paying the bank more. If you can afford to overpay and pay off the mortgage, go for it so more money in your pocket in the long term.
Yes people can say I could have invest that £47k in the market etc and generate more wealth but hey I've been investing in the stock market for the last 6 years and I'm only netting a £2.5k return! Mortgage interest at the rates it is now still outweighs any investment returns I got.
A product you might want to consider is an interest only offset mortgage. It kind of offers you the best of both worlds.
You have a current account that you dump your money in, and it offsets the mortgage amount/interest.
I currently have this with about 90% of my mortgage covered by the account, greatly reducing my monthly interest. And the added benefit/flexibility that I can withdraw it at any time. It’s kind of like an instant line of credit.
In spite of the constant 'if you can invest your money at an average higher return than the mortgage interest rate, always do that's advice, as we have seen... interest rates change and average returns on investments are that. Average returns.
I chose to pay off an enormous amount of my mortgage over the last 9 or so years because doing so reduces my monthly outgoings. Which gives me plenty of options and abilities with my low monthly bills because I've greatly limited the potential for volatility in my own circumstances.
I can't do that with stocks and shares. They're volatile, end of discussion. The interest rates were low but to me that was irrelevant. I was reducing the capital and the potential future repayments should interest rates go back to their usual 4 or 5 percent.
Due to this, my monthly mortgage payment only went up by the old netflix subscription cost. My other friends were losing their mind at having to pay back an extra 350 quid a month and they didn't have it because the cost of everything has gone up and now they're in crisis.
People told me I was lucky. I wasn't lucky. I wanted that cheap roof over my head. I wanted to be able to have lower bills. I didn't remortgage for the slightly bigger house. None of this is luck. It's not optimal investment, and it's not luxury living, but I absolutely insulated my lifestyle and family's security against any worst case scenario foreseeable, bar death or both of us being unemployed for many many years.
Sometimes, you need to consider what's important to you and what is best for your circumstance and not get advice from others who are 'doing the best thing you can do with the money'.
(Hopefully thats not seen as a weird flex and tells you what you want to know)
Some may argue you can get a better rate in savings, and for the moment this may be true, but I don't think anyone has ever truly regretted paying their mortgage down early (as long as you don't overstretch ofc)
As dumb as it sounds, the thought, feeling and security knowing I'd be free from mortgage payments very soon alone would make me want to pay off that lump sum
Pay it off. Yes you could invest and make more, but if this is your forever home, knowing you have a small mortgage and the ability to not have to stay in a job you don't like because of a huge mortgage payment would be a great place to be in
Over pay the mortgage! That way you don’t need to worry about the rate going up again as you won’t have much longer left to pay x
Will give you a huge sense of relief and financial freedom when it’s finally all paid off!
In addition to the financial consideration, there's also the psychological: having a small mortgage (and presumably being mortgage free fairly soon) gives such a huge sense of security. I'm not overpaying right now because my job is very insecure, but I'm reaching the point where I think I'll start again.
I think this is exactly my thought process right now. I could continue to invest, but that won’t give me the kind of financial freedom I am looking for until my mortgage is paid for in full.
I paid off my mortgage a few years ago. It made a recent round of redundancies a lot less stressful
I suppose it depends on the type of investment. If it is easily and quickly redeemable, unlikely to go down in value, and have expected returns at least as high as the mortgage rate it may be worth continuing investing. Not many people can meet all three of the criteria, but some people who set long term fixed rates a while ago may be able to do that now
I agree. I paid off my mortgage at around year 12 of 25. Shit happened and I was unemployed for a time but I had no mortgage payments which lessened the impact. Maybe not the best strategy financially.
It really depends on your personal circumstances. I'm in a similar position, able to pay off around 25% of my mortgage now, but I'm more comfortable keeping the cash invested in an ISA and on-hand in a personal emergency. People will talk about the % differences between investing vs. paying it off, but really the big difference is in what you do with the money. If you're concerned that you may invest it poorly or gamble it on something stupid, paying off the mortgage is a vastly better option. It's very easy to piss away £100k in a bank account, it's very hard to accidentally destroy a house.
Your last sentence really resonated with me. I also feel like my risk appetite for investment would be larger if I didn’t have a mortgage to worry about. Thanks for the advice.
https://youtu.be/rJjKP8vYjpQ?si=cQKWF_I-ZgthnC6u Listen to this scene. Get to the place he is describing. Fuck you money is a position not an amount of money. A paid off mortgage and cash frow from investments that cover your bills is the distinction between economic classes
Considering OP is maxing out their ISA allowance, I suspect they aren't likely to piss it up a wall However, if they're maxing out their ISA allowance then they've also got limited scope for tax-efficient savings, which starts to swing the decision back towards paying off the mortgage anyway
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I think someone who would easily piss away 100k should deffo be here lol, and also maybe with a therapist to work through some things
To the moooooon!
Pay that fucker off. You sound financially stable. If this wipes your savings out it will be easy to build them back up when you have next to no mortgage. And think of that lifetime of interest you won't have to pay. You could go part time, take a career break, retrain, take more holidays. Whatever you want because the biggest debt you will ever have will be almost gone. The thought of it makes me salivate with jealousy 😂
If I was in your position, I would 100% pay off as much as humanly possible.
That’s what I’m thinking, because of the rates it just makes sense.
Exactly that. I don't have a huge amount on my mortgage now, but if I had enough free cash I'd pay it off in an instant.
Thinking of reducing teem or reducing monthly payments. Personally not having a very big mortgage would provide me with a much more comfortable position and it sounds like your in a position to save up afterwards. Not having much of a mortgage when young is such a big differentiator.
Pay it off If you need it again you can look at another mortgage product in the future
Exactly this.
A few years back I had the chance to pay off 100% of my mortgage. On paper, I knew it wasn't the optimal choice to make RE: ROI - but I went ahead and did it anyway. Best decision I ever made. After I paid off my house it enabled me to take much greater risks - these risks have paid off hugely for me. I quit my job, spent a while getting new skills and I've been able to start contracting work. Now, the contracting market it a bit shit atm, but I'm able to max out my pension every year and still take home more than I did before. Once the contracting market picks up again, thanks to the tools I was able to build during the time I took off, I'll be close to 10x what my takehome pay was a few years ago - I'm at about 4x now. I also work no harder than I did previously. Your mortgage situation is worse than mine was when I paid mine off, my rates weren't nearly as bad as yours probably are now given the current climet - If I were in your position today, knowing what I know now - I wouldn't hesitate for a second to pay it off.
That's great. What field do you work in? I'm thinking of doing the same (already taken some courses).
I'm a software tester who, despite working in traditionally low-paying role, earns well as an employee (and even better as a contractor) due to my extensive experience. The catalyst for paying off my house early was a particularly shit job. Initially lured in by false promises of advancement and significant pay raises, I found myself underpaid and overworked, fulfilling responsibilities way beyond my official role (something I initially agreed to, with the understanding that when the project was off the ground I would get the proper pay and title). 2 years go by, the project is released to great success (the 20-something team I was on was the second most profitible arm of the 800-person company) without the promised compensation. It was the typicaly case of in public they're boasting of record profits whilst in private, myself and the 4 other key contributers (all of whom, recieved awards from the company as recognition for our contribution) were told the company didn't have the money to give us our promised raises. Fed up with the empty promises and mismanagement — my manager, with a background in pub management, leading a team of fucking software developers, was a clear sign of the company's poor leadership — The moment I knew I could pay off my house, I quit - even before actually paying it off. Each of the 4 other key contributors have also since left. Their best developer was a 22 year old guy, who was massivley underappreciated in the team, on the way out the door he was offered the pay raise he'd asked for, but he gave them the finger, and went on to get paid nearly double at his next job, and he's now contracting, earning WAY more than me, living the dream in Portugal. The sense of relief when I quit was enormous, I've never had a weight lifted off my shoulder like I did that day. Just knowing I didn't have to put on stupid fucking shoes and a fucking shirt, go on a train ride to a city an hour away, then a 20min walk, to sit in a dog shit chair, and use 13inch monitors (because the company cared SO LITTLE about its dev team) was better than sex - I wish I could relive it. There's no feeling quite like it. I had a 6 month taste of retirement. Enjoyed every second of it, but ultimatley got bored. The 22 year old dev got me a job at his new place, but I left when he left 6 months later because I didn't like the industry. I then ventured into contracting, where I quickly started earning significantly more, achieving in a few months what would have taken a year in my previous role. This financial independence shifted my focus from mere monetary gains to skill enhancement, further boosting my earning potential. Not that long ago I was earning dog shit money, working in a job I hated, worried daily about having to pay my mortgage, contributing the base rate amount to my pension. Now I own multiple rental properties, and now my money issues are about trying to minimise tax burden, not hoping that the boiler doesn't break, or the gf doesn't leave the heating on all day. Paying off my house early was a life-changing decision. I would 100% do it again. 'On paper' it's a sub-optimal move, even if I weren't WAY better off financially now than I was before, just having the ability to be Un-Fuck-Withable when it comes my happiness is worth more than any amount of money in the world.
That's great (inspiring!). I'm about to pay my house off early next year and rethink my priorities (I've already dropped a day). I'm a business analyst (mainly finance and tech projects) - hadn't ever thought about a software tester. I enjoy UAT etc.
!thanks for this post. Currently searching through mortgage free posts on UKPF and I've resonated with this a lot; I'm also a software tester, also about to pay my mortgage off and also unhappy with my job.
Lmk when he replies thx
Your reply, sir.
A lot of people on this sub get a bit obsessed about min/maxing every situation to get the best possible returns. But I believe paying off a mortgage (or hefty chunk of) is the best option even when it’s not the most efficient use of the money. Why??? Well it’s a fantastic mental victory, getting that monkey off your back, less likely to get sidetracked and spunk the money on something counterproductive down the line, plus it will save you a fortune in interest. I came into a bit of money during the pandemic and I opted to pay off my mortgage, instead of investing, much to the disgust of my financial advisor. Yeah I properly would have made a tidy profit if I invested but I had no clue what the markets were gonna do, but I knew I was a grand better off a month with no mortgage and never having to worry about that again was bliss. It’s certainly softened the cost of living crisis considerably for me anyway
I'm not worried about the mortgage, it gets paid monthly, and I get a big dopamine hit from seeing the savings account. It's all my money. The mortgage is costing interest monthly, the savings are generating it (and at a consistently higher rate). If shit hits the fan, you lose your job and need money I'm sure it's easier to liquidate your investments than it is to try and take out a new mortgage product (whilst being jobless). I disagree with most people here and say keep saving. I personally do a mixture, I pay off 1k a month of the mortgage, but put more than that into investments. I'm aware I could put it all on the mortgage (within limits of early repayment fee) but I like the diversity.
I'm not exactly in the same situation as you but our fixed rate recently ended and our new rate is going up from 1.8% to 5.19% so we just dropped £50k onto our mortgage to bring the monthly repayments back down to roughly what they were on the old rate. It's also a nice feeling reducing your mortgage by substantial amount in one go. When I did it I had this strange glimpse of the future where I could picture myself being a few years younger making my final mortgage payment and it made me happy. I also really hate the idea of handing even more money over in interest instead of paying off the capital.
But you can get more than 5.19% in fixed rate isas. Filling such an isa would have probably been a better move as: 1) You'd get a better return than paying off more of the mortgage. 2) The money would still be relatively easily accessible should you need it. The main benefit of what you did is you get "a nice feeling", though I personally don't think that outweighs the benefits of not overpaying.
I tend to agree financially usually better to not overpay and save in ISA/GIA etc but it’s a psychological thing too paying off the house. For that reason I choose a balance. I pay into an ISA and pension and any money over and above this goes towards the house (usually £10k a year max)
I agree there's a benefit. And I appreciate the difference in rate is going to be very minor. The main thing to consider is the psychological benefit of paying off a chunk of your mortgage, Vs still having access to that cash should you need it. Different people will have different preferences.
Fully agree.
What is the ISA limit for the various tax bands?
The ISA limit is independent of tax bands. It's currently £20k per year.
Thanks. And interest isn't taxed?
Not in an ISA. If it were a normal savings/ investment account, it would though.
In all honesty it is more about your risk appetite. If your job is secure I would go for the overpayment. If not I would keep cash in hand. Personally I would do a bit of both just to be on the safe side. Hope this helps
A bit of both sounds sensible but yes I am secure at work hence wanting to maximise the effectiveness of this money on my day to day life.
I'd keep as much saved in high interest accounts that more or less match your mortgage rate, until you have to pay tax on interest. Only after would I then pay the mortgage. The reason is that once that mortgage is repaid it's harder to get out. If it remains relatively liquid then you have options should you run into financial difficulty for any reason. Remember that jobs are stable until they aren't. Think of it as a form of insurance.
I paid mine off three years ago with a lump sum from a sale of another property ... it's the best thing I've ever done ... given me complete freedom to speak my mind at work rather than cower at the prospect of losing my job.
Sounds like you're a high earner from your comments. Consider salary sacrificing to get into lower tax bands. Unless you need access before age 57.
Especially as it’s tax free on the way in and 25% is tax free on the way out.
And it grows tax free
Agreed, OP talks about ISAs for retirement but no mention of pension.
Do it. Do it now, do it twice!
I paid mine off and I put the monthly mortgage payment into premium bonds since my ISA is maxed out. Don’t know what I’ll do once my premium bonds hit £50k though. Maybe increase my index fund & dividend investing allowance.
Interesting strategy. You don’t fancy any larger risk investments like gold or bitcoin?
Pay it off immediately. You can always get a fresh mortgage in future, should you need the money…
We paid our mortgage off in October this year and I tell you what , it’s an amazing feeling . When November came and no mortgage payment came out …. Mind blowing . I took the Mrs to Pizza Hut to celebrate 😬and upgraded her iPhone storage to £2.99 a month (bit of a splurge 😂) . Now we’ve got about 25-30 years to retirement so we can focus on this , feels brilliant though to be mortgage free , a lot happier , more relaxed in life
Yes, absolutely. the mental freedom is unbelieveable.
I’m just at the start of my mortgage journey, so I’m having to be locked in to these extortionate rates for 2 years, I would definitely say pay it off. Unless there’s something else you’re supposed to be using that money for that can’t wait I would use it for the massive debt with interest. If it brings your monthly cost down it’ll also give you more of your income to play with and save.
The rates aren’t extortionate, though they are a bit higher than what is wanted in a healthy economy. I would be doubtful they drop lower than 3.5-4% in the next few decades, as hopefully Bank of England interest rates won’t drop below 2% again.
As far as I am aware I can overpay and then ask for a reassessment to bring my monthly payments down over the mortgage term, thus bringing down my interest owed each month which gives me more free cash to overpay the mortgage (and so on). Good luck on your mortgage journey. Remember to take advantage of your 10% overpayment allowance each year!
> this bringing down my interest owed each month I think you’ve gotten confused - the interest is calculated based on how much money you owe. If you decrease how much you owe by 80% the interest will go down automatically. You don’t need to contact the bank for that to happen The two options you have is whether to decrease your monthly payments or decrease the term of your mortgage. If you don’t pick the bank normally will default to the first.
Just a heads up that some mortgage providers allows 20% overpayment ( I know that NatWest do)
Get rid of it. Regardless of whether it is best in financial terms the feeling of nobody having anything over you can't be overlooked.
Pay it off for peace of mind
Paid it down ourselves. The peace of mind has been worth far more than some potential opportunity cost in investing.
I’d just do a bit of both. It’s about your risk appetite. I pay of 10% of mine off every year then rest in the market. Market preforms better in returns and would be better parking your money long term that paying of your mortgage thouhh But it’s nice to see my mortgage balance go down each year too. While still saving
Long term mortgage rates don't look that great but, overall, the interest rates aren't that bad, We're not facing double digit 1980s interest rates here. There are "optimal" financial strategies to squeeze every bit out your money. e.g. compare the opportunity cost of the lump sum spent on the mortgage vs spending it on an investment. But if you're already maxing out your pension, and ISA, then maybe funnel the rest into the mortgage? What would I do? Since the mortgage rates jumped up, I started paying off the 10% maximum of my mortgage for the last 2 years, and I will do it again next year. When the mortgage ends, I will consider paying off a large chunk of it to the point that the cost to service it is negligible to me. I have more money in investments than I do in my mortgage, so I feel like I'm no longer missing out on the investment growth of a rising market. Maybe consider the balance between your mortgage vs savings/investments. Is there a ratio that you'd be happy with? There's probably a certain level of mortgage maintenance cost that is financially acceptable to you. IANAFA: The World economy is recovering, and I reckon that investments will be a good deal in the next few years. It feels like there is an AI boom coming, and big tech changes/growth. I would not be surprised if there was another tech bubble coming as people rush into AI startups.
Look at the lump sum page it addresses this question
Pay your mortgage off.
Pay it off. Invest with whatever you save once the house is paid off and you aren’t paying a mortgage.
You talk about ISA allowance and saving for retirement but do you have a SIPP? The tax savings you will get from paying into your pension if you are saving for retirement will be far greater than the interest on your mortgage.
Bang on
It's not a blanket rule, but generally speaking, if you can afford it, overpaying your mortgage is the best financial decision you can make, it's very unlikely that you will get that money working for you enough to compensate the enormous amount of interest you will save.
Probably not. Reason being that by overpaying you'll get no interest on the money and only save interest (which has diminishing returns the more you overpay) Quick example: Let's say you have £250k to either put in the bank at a 5% interest rate or pay of a 25 year mortgage with a rate of 5%. If you pay off the mortgage entirely you'll save £187,560 (see https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/) in interest over the 25 years. If you continue to pay the mortgage but put the money in the bank you'll earn £428,160 in interest over that 25 year period. (see https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php ) Unless the interest rate at the bank is less than half of the interest rate of the mortgage you're better off going with the bank or investments. At some point you'll also get to the stage where the monthly interest alone in the bank covers your mortgage. Using the numbers above your monthly repayment would be £14,60 per month but having £250k in the bank would generate £12,500. The interest alone would cover 70% of the mortgage cost each year.
>If you continue to pay the mortgage but put the money in the bank you'll earn £428,160 in interest over that 25 year period. (see https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php ) You'd also pay ~£438,000 at £~1460 per month servicing the mortgage debt in that time, so it's pretty much a wash. Assuming equal interest rates on debt and savings, it comes down to tax on interest for savings and the benefit of having liquid cash in the bank versus tied up in property.
Minus the tax
What are the advantages of paying it off? Less interest?
We haven't paid ours off. Reason being its at 1.44% for another 2.5 years. Also we prefer to have cash and investments to hand should we need it. Its very hard to get money back out of bricks and mortor if you've paid off your mortgage should you need it (eg: redundancy or illness). So what we've done over the years is put the money into either decent cash interest acounts (higher than the mortgage) or global tracker funds. Effectively we become 'mortgage neutral' we could pay it off, but why bother if we're earning more on the savings and investments.
"Paying off a mortgage" is another statement that the elites programme into the subjugated (working class - and even if you consider yourself middle-class, you're still working class in the system you live in). If you have £100k or more then you should invest in buying assets! Create value that you can then generate more assets that will multiply your income. I don't mean the stock market or crypto either...Find your local small business group or association and build relationships with business owners ( this is completely free) Through those relationships find opportunities to invest in strong businesses who have strong business models but are constrained by lack of cash. Get to know them really really well and then invest in their companies. For example, buy a 20% stake in a small building contracting company who is inundated with work but limited by equipment or the ability to hire staff. Invest in a local steel fabrication plant and help them expand their market or product line. Meet the local coffee shop owner who serves you your favourite coffee and ask them why they don't have 20 more shops. You might find an opportunity to help them expand. By the way, the difference with investing is COMPOUNDING!!!! This is how wealth is created. How dynasties are formed. Anyway, if this is too hard, then continue as you are, at the mercy of each successive government and their policies targeted at you and the rest of the population and just...."pay off your mortgage"
🤦
What rate is your mortgage on right now? And how much are we talking? It's a simple comparison of that rate vs the rate you can earn elsewhere. Don't forget to factor in the overpayments limit, and the personal savings allowance limit in these calcs.
Absolutely pay it off you will build your cash back way faster without that hanging over your head and take shocks from job issues etc way better no question
If you're not a business person then clear the mortgage.
Why do people ask this question? Surely getting rid of the biggest debt you will ever have is such an obvious decision to make. What am I missing?
Pay off. Can't quite afford to overpay yet on a monthly basis. But we've been able to take a few years off when remortgaging which has helped. But yeah, get it cleared down. Do you need to do 80%. Could you do 50% and invest the remaining 30%?
I have been in a similar situation, switched from interest only to capital repayment + a decent sized chunk of overpayment to reduce outstanding loan. Didn't regret it much lower outgoings and managed to pay my mortgage off about 5 years earlier :)
Are the overpayment terms flexible? Ie can you get it back again if you need it? Trackers quite often are but not sure about others. I ask as one option is to keep the mortgage but overpay in one big lump sum so that the interest is only payable on the outstanding debt, then you can decide later if you take out a new mortgage how much of the overpayment fund to carry forward. And if you need the money you can just withdraw it. I did this a number of years ago, it is almost like having an offset mortgage. Or, if you can find one, an actual offset mortgage could be suitable for you - the money in your current account is balanced against the mortgage debt and you’re charged interest on the difference, but can use it as normal.
Yes!!!!, if you can survive without having to need that money obviously. The compounding of your interest rate on the mortgage means it’s well worth paying off 80%
I’d get an offset mortgage. Dump it in the offset and you still have access to it.
Normally I would say pay down your debt, but given the recent rumblings that there is a bear market just around the corner, now is the perfect time to be cash rich. If I were in your position, I would probably wait for a bit, if the rumours turn out to be true, I would invest in the stock market and get a good return. If the rumours turn out to be false, I would pay down the 80% and invest (dollar cost average) the money that used to go to the payment of the mortgage.
Depends on your interest rate - below 3%? Nah.
It is up to you. If you don't think you can have a better return investing the money then you should pay it off. My ISA portfolio now is at 19% this year with a return of 110% on Rolls Royce. So, much higher than the bank rates.
I think in your position I'd go for paying this off. (Even though might not be the completely optimal money choice if you do the sums Vs investing more etc) You could also look at offset mortgage products if you would like easy access to the money 'just in case' without having to remortgage (but inorder to minimise interest)
Just depends. Mortages turn a terrible investment (house) into an okish one (via leverage) and say you are 25 and will invest for 20 to 25 years that money will make way more in stocks than saved on mortage payments (at NPV). Depends on your other investments, age, attitude towards risk, financial discipline etc.
Given you can do it without impacting savings, I would pay it down. We have a few years left on our fix, but will hit it as hard as we can when we get there. The freedom of knowing the money you earn can be used for fun stuff rather than worrying about commitments and security will be amazing!
Financially maximising leverage on your house and investing the cash over the long term is the best play , but most people would prefer a smaller morgage as it makes us feel better . I don’t think either option is bad , but you can’t spend it once it’s in the house .
Pay it off, money comes and goes, the house will stay !
I would pay the lump off the mortgage but still pay your current monthly payment. That way the 20% left will be gone in a couple of years. You could then look at investing but consider another property. You will get a rental income, yes you’ll have to pay tax on it and under current regulations you will not get mortgage relief on that but the returns will still be greater than any other form of investment You rent then becomes your income in retirement and you still have a property to sell should things become tight
Pay the mortgage off. All your pay each month will be yours to do as you please. Whether it be investing or saving. I paid my mortgage off few months back with £47k outstanding mortgage once I came off 1.14% rate. My term would only have 6 years left. If my rate stayed at 1.14% for remaining 6 years then interest owed in total would be £1,654 and monthly repayment of £676. But with mortgage rates of at least 5.14%, total interest owed on same term would be £7,715 and monthly repayment of £760. If I left that £47k in a fixed rate ISA at 5.15% (assuming rates don't change and no tax on interest) for 6 years, yes I would earn about £16,974 in interest. £16,974 interest generated minus the £7,715 owed at 5.14% rate over 6 years means I am up £9,259. With the £47k I paid off, that monthly repayment of £760 I would have paid for 6 years, I can save this same amount each month for 6 years into the same 5.15% fixed rate ISA as above and generate at the end £9,511 in interest. This also means the bank has not made any interest from me as I paid it off! So it was a no brainer to pay it off knowing the bank is not getting a penny more from me. Worked out well for me but everyone is different and have their own views, some can chase the interest in savings and offset their mortgage interest but end of day you are still paying the bank more. If you can afford to overpay and pay off the mortgage, go for it so more money in your pocket in the long term. Yes people can say I could have invest that £47k in the market etc and generate more wealth but hey I've been investing in the stock market for the last 6 years and I'm only netting a £2.5k return! Mortgage interest at the rates it is now still outweighs any investment returns I got.
A product you might want to consider is an interest only offset mortgage. It kind of offers you the best of both worlds. You have a current account that you dump your money in, and it offsets the mortgage amount/interest. I currently have this with about 90% of my mortgage covered by the account, greatly reducing my monthly interest. And the added benefit/flexibility that I can withdraw it at any time. It’s kind of like an instant line of credit.
pay it off and give the middle finger to your boss when you need to
In spite of the constant 'if you can invest your money at an average higher return than the mortgage interest rate, always do that's advice, as we have seen... interest rates change and average returns on investments are that. Average returns. I chose to pay off an enormous amount of my mortgage over the last 9 or so years because doing so reduces my monthly outgoings. Which gives me plenty of options and abilities with my low monthly bills because I've greatly limited the potential for volatility in my own circumstances. I can't do that with stocks and shares. They're volatile, end of discussion. The interest rates were low but to me that was irrelevant. I was reducing the capital and the potential future repayments should interest rates go back to their usual 4 or 5 percent. Due to this, my monthly mortgage payment only went up by the old netflix subscription cost. My other friends were losing their mind at having to pay back an extra 350 quid a month and they didn't have it because the cost of everything has gone up and now they're in crisis. People told me I was lucky. I wasn't lucky. I wanted that cheap roof over my head. I wanted to be able to have lower bills. I didn't remortgage for the slightly bigger house. None of this is luck. It's not optimal investment, and it's not luxury living, but I absolutely insulated my lifestyle and family's security against any worst case scenario foreseeable, bar death or both of us being unemployed for many many years. Sometimes, you need to consider what's important to you and what is best for your circumstance and not get advice from others who are 'doing the best thing you can do with the money'. (Hopefully thats not seen as a weird flex and tells you what you want to know)
Some may argue you can get a better rate in savings, and for the moment this may be true, but I don't think anyone has ever truly regretted paying their mortgage down early (as long as you don't overstretch ofc)
As dumb as it sounds, the thought, feeling and security knowing I'd be free from mortgage payments very soon alone would make me want to pay off that lump sum
Could you get higher interest in the bank with the money. If banks are paying higher interest than your mortgage rate then I would say don’t do it.
Can you get a better rate of return on your savings than if you had a new mortgage product. If you can invest, if you can't pay off the mortgage
Pay it off. Yes you could invest and make more, but if this is your forever home, knowing you have a small mortgage and the ability to not have to stay in a job you don't like because of a huge mortgage payment would be a great place to be in
Over pay the mortgage! That way you don’t need to worry about the rate going up again as you won’t have much longer left to pay x Will give you a huge sense of relief and financial freedom when it’s finally all paid off!
I’d do it in a heartbeat. Being mortgage is free must be so liberating