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?

We are 50 and late 40s and paid ours off this year. I thought my DH would be less stressed now but he still worries about the gas bill, has asked me to stick to a budget when looking for summer holidays (which is fine but not necessary as we are both in good paying jobs) and I thought it would make him happier. I think it'll just take a little while for him to relax into it 🤷‍♀️

I'm mortgage free but have no income so nothing is perfect

The house is worth well over the inheritance tax threshold even if our child benefits from the allowance attached to both of us.

Pension very good for me. Okayish for DH but we are not extravagant.

Overpaying seems to be creating huge equity that will be eaten up in taxes if we do not live long enough or are not for enough to enjoy it.

Sorry for being so sour and depressing with my outlook.

You need to think long term and also consider the possible worst case scenarios- ill health, death, etc.

If for example, you pay £2K a month in a mortgage now and pay it off early by overpaying, where does that leave you?

Would that £2K go on holidays or into a nest egg for old age?

You've not mentioned your pensions. Poverty in old age is not fun!

We paid off our mortgage in our mid-50s by overpaying. We then saved some of the amount and are now lucky in old age to have a very large savings pot and a pension that is in the higher tax bracket, excluding the state pension.

You may live for 30 years after you retire and you don't want to be scrimping.

Our mortgage term has me paying it off at 50, so we’re hoping to overpay to bring that down into my 40’s. Means we can both be part time whilst still young, have time earning without that big expense before retirement, save masses of interest. My DH’s parents are only paying theirs off now in their 60s and they are knackered and done, I don’t want to be in that situation.

Overpaying seems to be creating huge equity that will be eaten up in taxes if we do not live long enough or are not for enough to enjoy it

Your mortgage will still need to paid off at some point or your children will inherit a debt surely?

If you pay it off, your pensions will still be taxed. If you spend willy-nilly that won't be taxed.

What if one of you dies young? And the mortgage is not paid? Can one of you still pay the mortgage?

We will have paid our mortgage off by early/mid 50s but not by missing out on holidays and nice things while we were younger. So in my 50s I'll be able to scale back work/go PT again until I retire- or carry on but put more money into pension for a good retirement- you never know what will happen health-wise so it's good to have options.

It has to be a balance for me though, I agree. Some close family members only made it to their 30s and 40s and you only live once. I know people who chose to flog their guts out making massive amounts of money in banking etc in their 20s and "retired" in the early 30s, very well off. But they never saw the light of day in their 20s. To me, you never get your 20s back.

For us, it was a huge benefit to be mortgage free from our 40's - when I met my husband we had roughly equal amounts of savings/capital and were able to buy our first home together mortgage free. We had lovely holidays with our young daughter, I had a year out after my parents died - I was emotionally exhausted from caring for them. As our daughter grew we were able to help her with rental on her flat, then later on paid for a lovely wedding and gave them a substantial deposit on their first house.

But the most important thing is it gives you choices. We hit a huge problem when my husband was in his mid 50's with a very stressful front line job compounded by workplace bullying. It was literally killing him - so he was able to retire at 57 and his workplace pension was just about enough to live on due to being mortgage free. Likewise I retired not long after, again having workplace pensions. I'm so happy that we've had about ten years retirement together already, especially so as we didn't meet until we were middle aged.

Never under-estimate the power of being mortgage free. As others have said, there are various things a good IFA can suggest regarding mitigating inheritance tax. Mortgage free gives you choices, freedom and personal autonomy.

That only applies if you never intend to move.

We moved in our early 40s to a larger house and doubled our mortgage. Our income increased so it wasn't a burden. we did avoid moving again as we didn't want to be saddled with an even bigger mortgage in our 50s or 60s.

Unless a property tax is brought in you don't get taxed on equity in your main home!

The property would pay off the mortgage and still leave a lot for our child to inherit.

You get taxed via inheritance tax when the house is classed as part of your estate, although £1M is outside IH at the moment if it's left to the children.

Bear in mind all of this may change especially if Labour are in government.

What do you mean? Inheritance tax is applied to the decease’s estate, which include all properties main home or not.

Unless you are both planning to die at once I wouldn't worry about IHT in the short term. Plenty of time to give money to your kids when they are grown ups to minimise it.

@Tunaormayo74 You need to pan for your retirement. If that means spending now and not paying off your mortgage, do that. Also you can't predict house prices. There may be a crash- who knows? You may both lose your jobs. Or retire early with ill health. You have to think about worst case scenarios.

How old are you now?

And even then it's only 40% over the threshold, not 40% of everything. And the threshold will have gone up. And even if they do pay IHT they would be bloody well off on the rest.

You've got to plan according to your individual circumstances. I was lucky to be mortgage free thanks to inheritance. In your 40's, while in good health, you've got to start thinking about how your 60+ years will look, allowing for poor health and no one wanting to employ a 60+ year old. If you will need major repairs doing to the house, or you'll need/want equity release. If your partner dies, how will that make a difference. We've had nice lower cost apartments built for the over 55s, a lot of 65+ year olds are opting to sell up and buy one. So think about were you live and figure in the possibility of not driving, because of medical issues.

A work friend worked so hard to pay of the mortgage on his home and a holiday rental apartment. He died in his mid 50's and it was only then his wife realized that he had opted out of his work pension which had been sitting at 35 yrs contributions. He had done this to pay the mortgages which would have been paid on his death anyway and his widow list his death in service payment. Check your finances carefully before making any decisions.

I’m 46.

@Catspyjamas17 so basically, the gains I get in reducing the interest I would have paid is taken by the 40% of the excess.

Your plan doesn't sound terrible but it is about what you're comfortable with. I agree you need to have a balance and live life now especially as none of us know how long we've got and if we will even make it to retirement

Gift what you can before it's looking like you will need care within seven years. Either way they'll still get something.

@CallintheClownies sorry - I meant that IHT planning can be done now, depending on the potential size of the estate etc etc. I don't mean you can avoid paying it. Sorry if I wasn't clear.

I don't understand where you are coming from @Tunaormayo74. There is of course a balance between standard of living now and making overpayments so the mortgage term will be shorter. But I don't see how IHT is a consideration. It's not a tax you will ever have to pay on your own property, and one you have plenty of time to minimise for your kids.

We don't actually have a choice. We have 7 years til our life insurance expires. H has CKD which means no one would insure him again. So we overpay the mortgage so in the event of his untimely death, me and the kids will be fine.

We still have a very good quality of life by not buying a house which is more expensive than we can easily afford.

That can happen to anyone so I'd rather have the security of a home which is ours not the bank's.

But IHT will still apply whether the property is paid off or not.
All that will happen is some of the cash estate will go towards paying the remaining mortgage off then your property is worth well over the IHT threshold anyway.
Your logic is baffling tbh.
You are not thinking about the life in between retiring and dying and how you will fund that.