Advantages of not paying off mortgage?

L

LeperKing

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Myself and my wife, have a 35 year annuity mortgage with BOI. I inherited some money and am considering paying it all off.

The thing is we have gotten use to setting the money aside, and also the benefit of TRS on the interest. Assuming I can find a place for the money that has a better return than our mortgage rate, wouldn't it be better to not pay it off?

Thanks
 
Assuming I can find a place for the money that has a better return than our mortgage rate, wouldn't it be better to not pay it off?

Maybe - but where are you going to get a guaranteed net rate of return of even c. 3% these days? Forget about mortgage interest tax relief as it is marginal in the greater scheme of things, especially from year eight onwards. In general it does not make sense to maintain savings while you have debt outstanding. This is particularly the case with higher cost debts but if the only debt you have is a mortgage and you can pay it off and are unlikely to need to borrow at higher than mortgage rates in the medium term then it seems like a no brainer to me to do so. Note that by paying off the mortgage you also no longer have to pay mortgage protection life assurance premiums. One thing about paying off the mortgage is that you'll need to find a place to store the deeds - check with your lender, solicitor and bank to see if they offer safe-keeping services for free or for a nominal charge.

If you want to provide some more detailed information so that we can get a better picture then how about ... how long and how much is left on your mortgage, what is the house worth approximately, do you have any other debts, how much money have you come into and what other savings/investments have you got?
 
No debts, maxed SSIA, Term = 34 years left, 92% Mortgage, House is approximatly 350k, have enough to pay off remaining amount.

No investments, but I was considering using the money to invest in a diversfied blue chip equity fund. I heard I might get approx 8%, (does that sound right?)

It's the repayments that I'm curious about as well, having a mortgage over our heads encourages us to not over spend, and save every week. With no mortgage, there's no pressure to save! (Which I don't like!)

Thanks Clubman
 
No investments, but I was considering using the money to invest in a diversfied blue chip equity fund. I heard I might get approx 8%, (does that sound right?)

You might get 8% - or you might not - or you might lose money. There is no guarantee. In many cases such an investment may be a good idea as a medium/long term investment as part of an overall diversified portfolio. For what it's worth, on the face of things such an investment certainly looks potentially suitable to you in my amateur view. For example, by owning your own home, you already have a good chunk of equity in property so it may well make sense to diversify into (indirect) share investments now. However do bear in mind that there is no guarantee at all about how such an investment will perform. Certainly there is no guarantee that you will achieve the guaranteed net c. 3% return achievable by paying off your mortgage and then deciding what share investments you should make.

It's the repayments that I'm curious about as well, having a mortgage over our heads encourages us to not over spend, and save every week. With no mortgage, there's no pressure to save! (Which I don't like!)

I find that a strange way of looking at things to be honest. You are saying that it's easier to save while having outstanding debts than without which seems contradictory to me. If you pay off the mortgage now then you could easily set up a direct debit to pay what would have gone on mortgage and mortgage protection life assurance payments into something like a unit linked fund.

If I was you I'd certainly seriously consider clearing the mortgage now, using the erstwhile mortgage and related payments for some sort of regular savings plan (e.g. unit linked fund with a plan towards a c. 5 year+ timeframe) and consider where to invest any remaining disposable or lump sum cash.

Does this make sense to you? I am not a personal finance professional so if in doubt consider getting .
 
Sorry, to clarify that 2nd point, I meant to say to save our money for the monthly payments to the mortgage.

Either way I'm not up to speed on what my options are for investment products that involve regular savings. I dont want that unused income burning a hole in our pockets. You make a good point about the mortgage protection insurance.

Thanks for the link.

LeperKing
 
I meant to say to save our money for the monthly payments to the mortgage.

As I said you could simply replace the direct debit that currently collects the mortgage repayments with one that siphons some or all of the erstwhile mortgage repayments to some sort of regular savings vehicle.

Either way I'm not up to speed on what my options are for investment products that involve regular savings.

Have a look at the links that I mention to get an idea of the sorts of things to consider when reviewing your finances and deciding what sort(s) of (lump sum and regular) investments might be appropriate for you specific circumstances/needs.

I dont want that unused income burning a hole in our pockets.

Better for it to be burning a hole in your pockets than lining the coffers of the mortgage lender if you can clear the mortgage without hardship and don't need to borrow immediately thereafter. Better still if it is invested in a place that suits your investment goals/needs, timeframe, attitude to risk/volatility etc.

Hope this helps.
 
In recent years, mainly due to low interest rates, I've completely changed my attitude to clearing a mortgage early. Have a read through . You have many options which you should consider before simply pouring all the inheritance into the mortgage.
And as always, get professional advise, especially since there is quite a large sum involved.
 
Yes but, as seems to be the case here, if one has no obvious short/medium term use for a lump sum and has debts (even a mortgage) outstanding then it seems to make eminent sense to reduce or discharge the debts in my view. I did this myself a few years back and never looked back.
 
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