Should you pay off your mortgage?

If you were born in the 1970s or before, you come from a generation where the nirvana was paying off your mortgage.

And, dependent on how many times you have moved, and how much you now owe, it is entirely feasible that you could be in a position to pay off your mortgage. Particularly as house prices were much lower compared to wages, back in the day.

But, just because you have the funds to pay off the mortgage, is that the right thing to do?

To a large degree, the answer lies with you – what’s most important to you, where you are now in your life, and what dreams and plans you have for the future.

Initially, it can feel like the best idea – reducing your monthly outgoings, and therefore having more disposable income to use as you please.

It will give you peace of mind, and if you are a person who dislikes any kind of risk, then having no mortgage reduces your risk, because you own your house, rather than sharing it with the mortgage lender.

However, paying off the mortgage does bring some risk with it. If you are faced with going into long term care, the value of your property will be included in any financial assessment regarding your entitlement to any Government support.

To be fair, there are some ways to mitigate that, but we’ll talk about that another day.

Whilst you might be risk averse, we like to talk to clients about an entirely different approach – one that is quite alien to many…

We often recommend not paying off the mortgage. 

Instead, we suggest, if you have a repayment mortgage, you convert to one, where you pay the interest only, but not the capital.

Why?

Because, suddenly you have significantly more disposable income. On a £1,000 per month mortgage, the interest would be around £200 (dependent on interest rates), meaning you would have £800 left.

This approach means you are at the front of the queue for your own money. Remember, you have worked hard for your money, focusing on your future, maybe planning for your retirement.

But we say, why wait for your retirement? 

Why not enjoy yourself now? We have no idea what the future holds, and it would be a tragedy if you were not able to enjoy the fruits of your labour now and in the future.

If you want to go on a special holiday, work four days instead of five, treat yourself to a new car, or spoil your children/grandchildren, then go for it!

Of course, we are not recommending you recklessly spend all of your money, and put yourself in debt. 

But we are suggesting that life is for living, and you can’t take your money with you. Naturally, you will want to protect your loved ones, when you are no longer able to support them, but it is possible to do both.

So, should you pay off your mortgage? We think the answer is very often yes, but let’s have a chat to see if it’s right for you. Call us on 01344 875 310.

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