To clear off mortgage or not

nye2006

Have a tracker mortgage with 280k left.
I've inherited money and trying to decide whether to clear mortgage off or not.
With the interest rate so low would we be mad?
No other debts or loans.

Heres Johnny

Although nice to be mortgage free your tracker is the cheapest money you will ever get in your lifetime. I advised people financially for years and many people wanted to overpay trackers saving themselves small interest. Even my own mortgage at 2.95% I will not overpay, the opportunity cost is too great.

Your 280k can be put to work for you.

From your income, maximise your pension contributions if you have one, if not start one. You can put up to certain % of your income based on age and get 40% or 20% relief depending on your salary.
Your 280k can of course be used as cash flow of maximum pension contributions put a strain on your income, which they would for the majority of people.

After that, and more short to medium term, there are many investment and savings products to invest in. I'd recommend drop feeding your money in with a monthly premium after maybe a small initial investment so you get a feel for investing and how it works.

Beware any advice to invest it all in one big initial lump, stock markets are high and have grown every year for nearly a decade. We may be at the top of the market, similar to housing in my own personal opinion.

However, drip feeding in you get the benefit of something called euro cost averaging, if they do drop you are at least buying in cheaper and when they rebound your fund rebounds quicker.

So No, your return on clearing a tracker is only going to be less than 2%, but you have the potential to secure a very very lucrative retirement now as well as a medium term investment in any of the products out there. Just get recommendations from someone you know that has used an advisor before and has policies or plans with them to see what to do with your money.

And again, don't part with all your money with anyone. Keep a good deal of it in a short term accessible bank account that gives a small interest return.

Heres Johnny

Apologies I see it's your tracker mortgage has 280k remaining, I read it that your inheritance was 280k.....same concept applies though

blindside88

Exactly as Here’s Johnny as said. Just to add as well if you have any other borrowings clear those off ASAP as they will be at far higher interest. If you choose to leave the money on deposit for a while I would advise splitting it between banks so as to be covered by the deposit guarantee scheme (although unlikely to be needed in the short term), it’s an unnecessary risk leaving it all in one bank

nye2006

Heres Johnny wrote: »

Apologies I see it's your tracker mortgage has 280k remaining, I read it that your inheritance was 280k.....same concept applies though

Thanks defined benefit pensions and have a substantial amount of savings college saved for etc.

Appreciate the advice

CeilingFly

Advice above is usually the best advice, but if you have a decent pension and savings, then pay off the mortgage and upgrade your lifestyle and be worry free.

Yes, you could make a better low risk return - but there's still risk involved (remember bank shares were considered almost risk free!).

Why wait to enjoy a better lifestyle?

Bigus

Might be no harm to knock 81000 off it , brings it under 200 k, the bank might even give a bigger reduction than the capital you pay as it's in their interest to get rid of these,

while your at it would the bank take an offer of 250 on the 280 in full and final settlement? Wouldn't be a bad deal I you got that sort of discount, to clear it now.

nye2006

Bigus wrote: »

Might be no harm to knock 81000 off it , brings it under 200 k, the bank might even give a bigger reduction than the capital you pay as it's in their interest to get rid of these,

while your at it would the bank take an offer of 250 on the 280 in full and final settlement? Wouldn't be a bad deal I you got that sort of discount, to clear it now.

Tks for the advice!

CeilingFly

Bigus wrote: »

Might be no harm to knock 81000 off it , brings it under 200 k, the bank might even give a bigger reduction than the capital you pay as it's in their interest to get rid of these,

while your at it would the bank take an offer of 250 on the 280 in full and final settlement? Wouldn't be a bad deal I you got that sort of discount, to clear it now.

no a chance in hell of a bank giving a discount.

Trackers are PROFITABLE.

For about 12/18 months around 2011 / 2012 there were loss making when Irish banks had to pay high money market rates, but currently banks are borrowing at 0% interest and even some short term bonds are negative interest.

So a 1% tracker is a 1% margin (or more if they have a negative interest bond) and with the OP in a very healthy financial position there is zero risk for the bank and with plenty of money in the banks the last thing they want is to do deals on perfectly good mortgage loans

Heres Johnny

nye2006 wrote: »

Heres Johnny wrote: »

Apologies I see it's your tracker mortgage has 280k remaining, I read it that your inheritance was 280k.....same concept applies though

Thanks defined benefit pensions and have a substantial amount of savings college saved for etc.

Appreciate the advice

You seem to be well clued in already. I inherited money myself from a wealthy uncle under the 'favourite nephew' inheritance tax relief and did what I advise myself. I also went back studying and qualified as an actuary. It was worth doing. Possibility to change career here and study if there's any dream job out there for you.

AVCs on your pension might be a good idea and bring your retirement a few years closer. Pension money is best return available really but it's capped of course. I'm done with work at 60, that's my goal. 25 years left.

I balance it with knowing my money is working for me and kids future is covered but enjoy the things I like now. Create memories, have trips away. Go see things you always wanted. Do a 4 day work week if you can and would like that. When my mortgage is small i might clear it a few years early. But not now.
There should be enough to do a bit of it all.

Wanderer78

I'd pay a chunk off anyway, you may never get this chance again. Best of luck

canonball5

Congrats OP you're in a brilliant position!

Personally I would pay off my mortgage, I agree with the above posts about the percentage rates but the peace of mind knowing I own my house would be amazing.

Firstly, I'd pay off any debt I had and max out my AVC's. Don't forget to enjoy some of it too.

daheff

OP to echo what another poster has said, (and depending on your mortgage tracker rate), you should not pay off the mortgage.

This is based on the following:

1-Once you pay the money back to the bank, they are unlikely to lend it to you if you had a financial crisis -eg losing your job (when you would need it most). If you had cash on deposit you could use this.

2-Tracker mortgages are cheap to service. If you can find a (safe) return for your money that gives the same or better return (after tax!) then you are better off to invest rather than pay down your mortgage.


3-Do you have any other loans? If you want to pay off loans start with the most expensive loans first (typically credit card debt).

4-Max out contributions to your pension. If you are on the higher tax rate the investments could be earning 40% (tax benefit) on investment. Even on the lower rate you get 20% benefit. Plus over time may have a return (typically they do).

ArthurG

Good advice all round re cost of financing your mortgage. However I think there is a massive psychological benefit to not having that burden sitting on you for the next 20 or 30 years.

Heres Johnny

Also consider the eroding effects on your inheritance sum of inflation over time. I can't say if there will be high or low inflation in next 5, 10, 25 years but there will certainly be some.

I dont know what age you are but 5% inflation (very high figure, I know) over 14 years your lump sum will lose half it's purchasing power.

Imagine having 30,000 in inheritance in late 1980s and saying that'll do nicely for a house purchase in 10 years I'll stick that in the bank. Then come mid to late 1990s and you couldn't buy a house, even though I know there was interest on deposit accounts back then it wouldn't have kept up with inflation.

Same story today, exaggerated example above but don't do nothing with it.
Pay off the mortgage if it's psychologically good for you to do so, but do something financially beneficial with the 1000 a month or whatever cash flow it frees up for you.

yammagamma

id pay off my mortgage if i were you ,i overpaid every extra penny we had and am now mortgage free and now can start building up savings and enjoy life now and save a small pension. people seem to forget pensions are taxable income when you go to take them out also pensions are liable to fair deal scheme in nursing homes where they will take 80% of that big pension of yours and you could end up there quiet young also who says fund managers wont loose most of your pension but still get there big fat take,also who knows what vulture fund will end up with your mortgage, i have my folio printed up and framed here on the wall in the home office and i can tell you there no better feeling giving you a lift after a hard days work driving through the gates knowing your home in your home and looking at that framed folio.

NIMAN

There is always the psychological bonus of not having a mortgage, actually owning your home.

For many that is one less stress in life to worry about. And potentially the biggest stress (ask those who bought a house between 2004--2008).

Of course mathematically people will say you could make use of the low interest rate and earn more in savings etc, but something to be said for being mortgage-free.

Bigus

NIMAN wrote: »

There is always the psychological bonus of not having a mortgage, actually owning your home.

For many that is one less stree in life to worry about.

Of course mathematically people will say you could make use of the low interest rate and earn more in savings etc, but something to be said for being mortgage-free.

There's a lot more than "something" to be said for having no mortgage at an early age , to me it's a Fundamental change in life.
Below is a little Story doing the rounds about current western economic thinking.
"
An American businessman was standing at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish.

“How long did it take you to catch them?” The American asked.

“Only a little while.” The Mexican replied.

“Why don’t you stay out longer and catch more fish?” The American then asked.

“I have enough to support my family’s immediate needs.” The Mexican said.

“But,” The American then asked, “What do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take a siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos. I have a full and busy life, senor.”

The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds you could buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats, and eventually you would have a fleet of fishing boats.”

“Instead of selling your catch to a middleman you would sell directly to the consumers, eventually opening your own can factory. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC where you will run your expanding enterprise.”

The Mexican fisherman asked, “But senor, how long will this all take?”

To which the American replied, “15-20 years.”

“But what then, senor?”

The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions.”

“Millions, senor? Then what?”

The American said slowly, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take a siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos…”

Mrs OBumble

daheff wrote: »

1-Once you pay the money back to the bank, they are unlikely to lend it to you if you had a financial crisis -eg losing your job (when you would need it most). If you had cash on deposit you could use this.

On the other hand, if your mortgage is paid off, then losing your job isn't such a crisis: living off the dole is very possible if you don't have hoysing costs, and the housr you are living in doesn't count in the means test.