Should I pay off my mortgage or invest?
19 July 2021
Question by Paul
I'm 52 and want to retire at 55. I still have a mortgage of £180k, but the interest rate is very low at 0.18% above the base rate until 2030. I have about £570k in cash in various investments, including Cash ISA. I have £140k in a Stock & Shares ISA into which I invest £2.5k a month. The performance of the Stocks & Shares ISA has been mixed, and I'm nervous that Brexit/Trump/China etc will have a negative effect over the next 2 years. I'm thinking of paying off a big chunk of my mortgage, and reducing/stopping payments into the Stocks & Shares ISA to just let the fund sit for a while. I think this will give me security, as I have lowered or negated my debt. My question is, do I pay off the mortgage or keep paying into the Stocks & Shares ISA?
Answered by Boring Money
Your question seems a very simple one, but your comments do open up more questions.
In answering you, therefore, I can talk about the principles of whether this might be a good idea, but I am not going to be able to give you a yes or no answer. More on that later.
So, in principle...
Getting rid of your mortgage as quickly as is affordable to you – and certainly before retirement – is almost always a good thing. And overpaying is also, rarely, going to be bad move. It could save you thousands in interest overall. And provide a great feeling of security, knowing your house is all yours.
There are two (main) issues to consider first, though:
Is your 0.18% above base a ‘deal’ with a fixed term?
If so, there may be terms and conditions on it which could leave you with a high, early repayment penalty if you try to pay off more than a certain amount before the end of that term. Please do check first.
Are you certain you would not need any amount of that money again once you had repaid it?
You will not (currently) be able to replicate this amazing interest rate, if you then needed to fund an emergency that you could then not pay for without taking on new debt.
I don’t know what you earn, and I don’t know what your wider circumstances are.
However, you do suggest you have quite a lot in cash. More than your mortgage and more than we would usually expect you would need for an emergency fund.
You have less in investments and are worried about what is going on in markets at the moment.
Therefore, I get the impression that you are a fairly cautious person and would quite like the certainty. If that is the case, neither of the above are an issue for you, and there are no other debts to be concerned with, reducing your mortgage could, indeed, be a very sensible move.
However, as I suggested earlier, I can’t say definitively.
Your note has left me with more questions about your situation than you have, or would be expected to go into here.
£2,500 a month is more than the ISA contribution allowance, for example.
Regulated Financial Advice
A regulated financial adviser would be helpful for your situation, though they would need to find out about your employment, your plans to retire soon, about your wider pension provision and your expectations for income once you do. And particularly your concerns about markets over the next 2 years, when you have what appears to enough cash to see you through a lot longer than that.
All being well, that may ultimately have zero bearing on whether you should pay off a chunk of your mortgage.
But they are details which a financial adviser which you would need to clarify first, before advising you.
Hope this helps!