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?

You said the equity in the property would end up paying the mortgage off?
Presumably this means there will be no cash in the estate?

If there is cash then when finalising outstanding debts it would be used first rather than the property being sold.
Funeral costs, outstanding debts etc are paid out of the estate with cash being used first.

I would love to be mortgage free, instead without any inheritance we'll be paying a mortgage well into our 60s. In many ways we don't have the freedom and security some on this thread have and it comes with stress. However it's a choice. We live in a 5 bed house in the south east with small kids and it's expensive here. We could move away from the south east and be mortgage free because we have enough equity to buy outright elsewhere in the UK. We can downsize in the future and be mortgage free if we want. So we have choices. We'd be looking at being mortgage free in the next 3-5 years if we'd stayed in our tiny starter home but I didn't want to stay there and prefer where we live now for the time of our lives we are at.
I'm sure mortgages to 70 will be the norm soon unless the market changes.

I certainly wouldn’t overpay if it meant cutting back on things we enjoy.
But it’s sensible to overpay if it’s affordable. Which for us, it is.

Life is for living now.
But I also don’t want to be a poor pensioner.

How old is your DC? Why don't you downsize, then put any extra cash away to help them also buy a house? Fair enough if you don't want it all going to tax, but the alternative if you purposely don't want to pay it off quickly means it's going to a bank instead, which seems much more depressing!

That's even more worrying then. How are you going to pay for the morgage and upkeep?

I would think the interest saving on a large mortgage would be worth it even accounting for inheritance tax but as many people have pointed out there are other factors to consider (peace of mind, security in your retirement etc)
If you want to avoid inheritance tax then you can give cash to your child (or whoever you want) well before you die or downsize the house and give them the cash.
If you are passing on your property it will have to be worth over £1m before you child pays tax (assuming you whole estate is less than £2m).

I agree. It's all about striking a balance.

I wouldn't live miserably now for a future that isn't guaranteed (and I am shocked by those who do)

But equally I would fritter my money on pointless stuff and status symbols at the expense of a comfortable older age.

So - we do spend plenty on holidays and activities. But we prioritise overpaying the mortgage over "stuff" (we both drive very modest cars given our salaries; I buy clothes and books 2nd hand).

*wouldn't fritter, that should say!

I had an interest only mortgage, paid it off in my 50s - I didn't have to forgo stuff to do that, but although I still have a hefty service charge, it's a relief not to have to pay rent or mortgage if I want to take a break from working.

You must have heard the famous quote by Franklin that there are two things you can't avoid in life- death and taxes.

If you accumulate a lot then some will be taxed. You need to get your head around it and do some inheritance planning but not on mumsnet!

How old is your child? Have you factored in university costs at all? We were paying more than our mortgage at one point when both were at uni- their accommodation costs.

I disagree with your point of downsizing but it does depend on the house you have. We have a pretty normal 4-bed house but as it's SE it's worth quite a bit. I'd not want anything smaller because we will the space easily when family stay over.

Tunaormayo74 - We didn't have critical illness cover at the time. When we took out our mortgage in our late 20s we had life insurance but there was a big difference in the monthly payments if critical illness cover was included. At the time we were young and when you're young you never think you're going to get seriously ill when you're older. There isn't much help financially if you have a mortgage and are unable to work. We only had £12,000 left to pay so decided that we would just pay that off.

So your house is worth over £1M?

Let's do some sums. Let us imagine that your estate, including the house, is worth £1.4M and you have a £500k mortgage. If you die, the mortgage will have to be paid but there will be no inheritance tax, so your child will inherit £900k. If you pay off the mortgage, there will be no mortgage to pay but your estate will be over the IHT threshold by £400k, giving IHT of £160k. Your child will inherit £1.24M.

I could put in other figures, but the result will always be the same. Your child will inherit more if you pay off the mortgage. Keeping the mortgage to avoid IHT is not a good idea.

Does one child really need this whilst we could enjoy some of it by not paying down all the mortgage?

It would seem that paying off a mortgage is partly storing up money for others to enjoy, including the taxman.

Just to be clear, I appreciate the peace of mind argument for paying the it early and less the interest paid.

@CallintheClownies that’s probably the crux of it. Accepting that we will be taxed heavily in death.

'Building up the estate'? Presumably you're enjoying your larger house? If asset building was your primary concern you should've stuck the money into investments. Especially as you have only one child.

Honestly I think in your situation most people pay off the mortgage. Then at some point retire, downsize into something manageable freeing up cash. At that point you can gift money to your dc and that’s a Potentially exempt transfer for iht purposes providing you survive for seven years or you can invest in something that won’t have IHT applied. For example Business property relief is given on managed commercial woodland if you hold it for a minimum of two years. That way you keep control of your money but pass it along exempt from IHT when you die.

Speak to an advisor and plan properly.

You seem to have put paying for care into the same 'waste of money' bucket as inheritance tax.

It really, really isn't.

I've had to sort, or been party to sorting, care for various people and the diffence between good and bad care is vast. The possibilities for getting the former are much, much better if you can pay.

Does one child really need this whilst we could enjoy some of it by not paying down all the mortgage? It would seem that paying off a mortgage is partly storing up money for others to enjoy, including the taxman .Just to be clear, I appreciate the peace of mind argument for paying the it early and less the interest paid.

You need to see an IFA.
Separate out all of your goals.
Now, retirement, and inheritance. They are all separate issues.

I could ask why you need a house that's worth £whatever, if only 3 people live in it. Why not sell it and buy something smaller?

Why do you want a big and expensive house (and mortgage) at the expense of not having holidays? Because that's what you are suggesting - not overpaying your mortgage so you can have the cash now to spend.

There is lots you are not accounting for in your plans. Things that might happen.

Care home fees for a start. You wouldn't have to sell your home upfront, but the costs would be clawed back (as a debt) once your house was sold, unless you had cash to pay the care home fees.

Without knowing your circs, it's impossible to advise, only point out the things you aren't thinking about.

Some people want to pay off their mortgage in case they are made redundant (how secure are your jobs? Do you have savings to cover any shortfall?)

How much income do you expect to have as retirees and would that cover your mortgage?

At what age ideally do you want to retire?

Honestly I think in your situation most people pay off the mortgage. Then at some point retire, downsize into something manageable freeing up cash.

@Badbudgeter and others!

I get really annoyed at this idea.

I am retired. Our house is a normal 4-bed 2 bath home. It's worth around £750K (SE.)

I don't want to downsize and live in anything smaller. I don't want a semi, or 2 bed house. We fill this one very easily with all our possessions and have spare rooms for DCs to stay.

Please stop suggesting that all people in their 60s either have massive houses, in which they are rattling around, or they want to go back to the sort of homes they lived in when they first bought a house.

Quality of life is just as important when you retire!

I agree with you, no point scrimping to pay mortgage off quicker if you can’t enjoy yourself. Might die age 50! Here for a good time, not necessarily a long time,

We started once DC started school, and nursery costs stopped.

It depends, but generally it’s better to pay off debt earlier as there’s far less of it, due to interest. So if you pay a mortgage off 10 years early, you may save £50k for example.

I have a lovely ye olde farmhouse in the countryside. It’s worth about the same as yours. I will absolutely be downsizing back to a city when I get older. I think my quality of life will be much improved if I’m not looking after a building/ garden. I have 40 tonnes of hardcore coming next week to top up the drive. I don’t fancy doing that when I’m in my 60s!

While anecdotally some may die 2 years after retiring currently the average life expectancy for a 65 year old woman is 85 so 20 years of retirement. You are 10 times more likely to need to give up work for medical social reasons ( doesn't include wanting to retire early ) before retirement age than dying before retirement

I'm envious @Badbudgeter !

But you must be a bit of an outlier.

Most of us are living in smallish houses with titchy gardens. Mine is about 40 ft x 30ft.

I don't know where this idea comes from that 'the elderly' are all living in mansions with acres of land.

We could afford to move to something bigger, close to £1M, with more land, but I draw the line at that as it wouldn't be sensible.

But my current home is not large by any means and we don't need any equity from downsizing.

Pay it off and continue to save the mortgage payment amount for retirement.