AIBU in thinking no point in being mortgage free

[Tunaormayo74]

My husband and I want to be mortgage free and could pay it off when we are in our 50s and 60s respectively. However, I don’t see the point. All it means is that we will have less disposable income now but no better off when we retire. The only way it makes sense is to downsize when the mortgage is paid and use the equity to afford holidays, etc but why not enjoy the holidays now rather than when we are older? If we stayed in the property we are working hard to pay off the mortgage for, all that will happen when we died is the government will take a huge chunk of the equity in inheritance tax.

Am I being unreasonable to think there is no point in paying off your mortgage early if it means you’ll be in your late 50s or over?

Yeah I was thinking that.

That's not how inheritance tax works.
It is paid by the estate before it is distributed based on the value of the estate, not by the individuals inheriting based on their share.
So, the number of individuals inheriting makes no difference to the tax bill.

In the early days, I overpaid by rounding up the payments to the nearest £ !
Then, as my salary increased, to the nearest £5 etc. Didn't miss those small sums, but it was well worth it.

Am I being unreasonable to think there is no point in paying off your mortgage early if it means you’ll be in your late 50s or over?

😂Heavens forfend that anyone that ancient dares to enjoy disposable cash or holidays OP. Obviously, more leisure & cash is the preserve of the young, & anyone older than 50 should just stay home with their knitting & sanatogen.

Are you usually a glass half empty kind of person OP?

We paid our mortgage off and cut a 25 year mortgage down to 13 years. Purely by overpaying when we could, which was most of the time.

I was 51 at the time, and we had bought a house in the first place that we could still cover the mortgage of if one of us wasn't working. Because we paid the mortgage off we could afford to save up and using savings, investments and pension draw downs, we bought another house, took early retirement [53 for me] and moved to the South West of France 18 months ago. Our UK house is rented out long term and gives us income to help meet visa requirements to stay.

We have no intention of working again unless it is for language development [and can't until we have the first 5 years of residency done], and have a lovely life. I've now moved my pension to an income generating investment and it has opened huge doors and opportunities for us.

We could have 40 odd years left on this earth, I'm not going to spend it working and stressing if I don't have to.

Also, the IHT allowance is £500k if you're leaving a house to direct descendants so that's why no tax is due in your case.
(It's potentially £1 million if the person leaving the property inherited their spouse or civil partner's allowance).

We took the balanced approach - paid the minimum sometimes and overpaid a bit once we were out of debt. Had the attitude that some things were important (family holidays while kids were teenagers) and some weren't (I've never had a new car and we didn't have expensive furniture).

Then a couple of unexpected things happened - an accident that resulted in compensation and redundancy, so we downsized and paid off the mortgage. I love being debt/mortgage free, but we can't really downsize much more, so I don't feel able to retire early because I like having the money to spend on holidays etc. We have savings now, and we wouldn't have that if we still had a mortgage.

You've misunderstood what HMRC told you. There would have been no IHT to pay even if it had been left to just one of you. As long as your mother left it to one or more of her direct descendants (children or grandchildren), her estate qualified for the Residence Nil Rate Band (RNRB) in addition to the normal nil rate band. That meant she could leave up to £500k without any IHT, ignoring any unused nil rate band or RNRB from your father she may have been able to use if your parents were married when he died.

We paid off our mortgage 3 years ago in our late 40s. Best thing we ever did. It removes a huge amount of pressure around work - thinking you have to stay in a job that sucks because you have a mortgage to pay.

and yes some ppl on this thread have very strange ideas about what being in your 50s looks like…..

OP you seem to be steadfastly ignoring or misunderstanding the benefits of paying off your mortgage early.

I always have over paid but only to the point it didn't hamper my day to day spends, so holidays etc still happened.

We've enjoyed those things and will repay a 25 year mortgage in 16 years. We'll save thousands in interest (have you worked your potential savings out?) We're 50 and 54.

We'll use that mortgage money now for investments for retirement and even more holidays.

Ultimately it is your decision, but you will pay less interest on your mortgage if you pay it off early. For example, if you take out a £250k 25-year repayment mortgage at 4.5% interest, you will pay a total of £417k over the life of the mortgage. If you pay off that mortgage after 10 years, you will pay a total of £348k - a saving of nearly £70k.

As for whether the government will take a huge chunk in IHT, that depends on the value of the property and who inherits. If you have children or grandchildren and leave your property to them, you and your husband will qualify for the Residence Nil Rate Band as well as the normal nil rate band, meaning you can leave up to £1M before paying any IHT.

Over paid mortgage- yes

Enjoyed holidays - yes

Opened opportunities for early retirement, career change, down sizing, more time for hobbies & travel - yes

No downsides so far !

However, each person will have different financial circumstances, so early repayment may not suit everyone

I do not wish to be working FT until state retirement age

We get the longest terms possible then overpay when we feel like it still young though so it works. There's no obligation to pay more like a shorter term so if circumstances change its easier to manage. We have £500 mortgage but household income is high it feels like nothing we will be upsizing soon and following the same method.

Speaking personally, I wish I had been in a position to repay my mortgage early. My original plan was to retire mortgage-free in my mid-50s. Unfortunately, two divorces and other factors mean I still have a mortgage in my late 60s, so I still can't retire.

I think Op is doing that thing of ignoring the benefits as it's unlikely they will be able to pay off early.
Similar to the " why buy when you can rent"threads from people who can't afford to buy.😬

Op you are forgetting that between 50s- 60s and death there is hopefully plenty of life left to live.
We paid ours off at 44, just whacked it for a few years and it was so, so worth it.
Such peace of mind.
We have now inherited and as we don't need to money, it's going to skip a generation and get our DC on the property ladder.

Not the same thing but I have a car loan I put spare money into. It’s a whopping 10.1% interest as it was a bit of an emergency purchase.

It’s quite nice as every time you make an additional payment it tells you how much you’ve saved in interest (about a 1/3 of the payment currently) and if you’ve knocked a month or two off the loan.

Im sure there are calculators that’d do the same for your mortgage. That said life is a balance and I’m not going to live on beans on toast/ cancel kids activities/ miss out on social stuff just to hammer down the debt. There has to be a happy medium where you allow yourself some treats, a holiday every other year for example, whilst still being relatively frugal and oaying it off a bit faster.

OP I think you really need to look into IHT Estate planning.
Some advice here is incorrect, as a couple your estate can be £1mill (£325k plus the uplift of £175k) depending on the value of the property.
Money in pensions can be IHT free.
Care fees only come into play for the 2nd partner as if the first needs care it is still the others home.
When my husband died in his 40's I chose to not pay off the mortgage due to low interest rates & became a landlord as I needed monthly income for my children - now I am working hard to pay it off due to rising interest rates.
I will be mortgage free by around 50

Thanks. We’re planning on doing that. I’m it’s part of my worry. It’s making all this effort only to see it taken away in some inheritance tax or other stealth tax.

Kindly, you need to take advice from an FA @Tunaormayo74

You need to think about what you can invest now in maybe a private pension and how that would grow, compared to what you are going to end up paying in mortage + interest, over the coming years.

How old are you both? What is your pension going to be if you are going to still pay a mortgage from it in your 60s? Presumably you have occupational pensions and not just the state pension?

You also need to gen up on inheritance tax. The remaining spouse will inherit the other's allowance. If you have children, you can pass on £500K tax free to them. Your own allowance is £325K and this doubles when one spouse dies.
At current levels, you'd pay IH of 40% on your estate, minus the house, if that's left to children.

Don't underestimate the joy of being mortgage free. I've had lots of lovely holidays, but I don't think about them every day. Remembering that the roof over my head is paid for is a daily source of quiet satisfaction.

I’m not ignorant of the benefits of repaying early otherwise why would I have started on that journey. I’m questioning whether it is really worth it when (1) you might not be in a position to really enjoy that financial freedom for long when you retire and (2) it will only benefit the tax man. Overpaying now involves opportunity costs no matter how much of a stretch it may or may not be.

In other words, when you weigh up the costs and benefits, is it really a benefit?

I get that psychological safety and no doubt it the value attached to it is incredibly high. In terms of the quantifiable monetised aspect, is it worth it?

Lol no, no they dont.
Most people will have been renting, then managed to scrape together the minimum deposit they needed on the biggest mortgage they could afford.
This was done when rates were silly low and to keep monthly payment low most people took a mortgage term of 30 years.
Most people will not be paying their mortgage off in their 40's, especially now with interest rates rising.

My mortgage was originally set to run until im 70 years old, there is no way im letting that happen

We are not prioritising our mortgage until the kids are grown. We could over pay now and be mortgage free earlier, but to what end? So we have more money to go on holiday in our 50s? We need money for our family now, we had kids young (so will actually have a lot of our 40s to over pay anyway) and I don't want to make sacrifices now in their childhoods so we have more money in middle age, that just doesn't make sense.

@Dinofantastic You can only avoid IH on property/ estate (depending on its value) if the house is in your children's names when you are still alive and don't die within 7 years or it is seen as avoiding tax. Otherwise it's as @UggyPow says.

I'm interested in your pensions. How can you fund a (large?) mortgage out of a pension and what is your pension?

I'm assuming you are in your 40s now if you are asking about paying off your mortgage later in life.

Don't assume the state pension will provide as there are predictions the age may rise to 70.

What if one of you dies early? How much would you have to live on?

If you pay off the mortgage earlier, then that money which is now an 'excess' should ideally be invested in a pension that you can take tax free. Currently the government gives 20% uplift (tax relief) on a private pension if you are building one.