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?

I don’t understand this. Doesn’t sound correct.

Being mortgage free will enable more peace of mind now AND in the future so it makes no sense to me not to do it.

As long as you have the means to pay off your mortgage whenever you want, as I did, you have the peace of mind anyway.

You may also have the added satisfaction that in the meantime you are using the money to make more money than you would save by paying it off early.

Have you looked at the gov.uk webpage on IHT that someone linked above?

It's £500k per person, so a million for a married couple. That £500k is made up as being the standard £325k plus another £175k if it's your "home" that you're living to your children etc. So a married couple leaving their home to their children, the threshold is £1million, for a single person leaving their home to their children, the threshold is £500k. All explained on the HMRC IHT webpage.

Once we have paid off the mortgage we will be downsizing and living off the proceeds!

we will try to help the kids get n the property ladder but also with the extra monthly income we could afford to pay for holiday cottages for the family/take everyone out for lunch etc

otherwise you are assuming the older kids are going to be at your house visiting weekly when in reality they’ll be living their own lives

if older kids love anything it’s free holidays/free meals and house deposits…….over and above visiting their parents in their large house

and in the meantime you are paying thousands of pounds in interest to the banks! Just doesn’t make sense

I misread what @BooneyBeautiful wrote.

The main reason to pay off your mortgage is to allow you to stay in the same house while no longer working, or working significantly reduce hours. Most people would aim to do this by normal retirement age, but some people want to be able to do this early, or at least maintain the flexibility to do so if they wish or circumstances change. Most people wouldn't be able to afford to keep up their mortgage payments on a pension and line comfortably.

On the other hand, a signficant downsize on retirement is a perfectly good alternative to paying off the mortgage. If you would be happy moving to a signficantly cheaper house, then that's fine.

My father actually still had an (interest only, very low interest) mortgage when he retired and even when he died. He had a very good pension so it wasn't an issue. Less equity for his children to inherit obviously, but no particular reason for him to work to pay it off for our benefit!

Thinking about the cost of interest etc is important too, but possibly not even the main thing compared to what you expect you long term housing/working/pension/expenditure situation to be.

Once we have paid off the mortgage we will be downsizing and living off the proceeds! Why not downsize sooner, pay off the mortgage sooner, and spend/invest the mortgage payments? Borrowing to invest in residential property may be a good investment, but it is not clear cut. And if it is such a good investment, maybe you should keep doing it for longer rather than paying it off?

The OP does have a point about IHT. Assuming someone has a sufficiently large amount of equity in their house that they would be paying IHT on it despite leaving it all to their children, then every £ paid off on the mortgage will partly benefit their children but also partly in IHT. Just the same as if invested it another asset. Whereas if they spent the money, they would get the full benefit, obviously!

We are mortgage free which has enabled my husband to retire a few years earlier and me to go part time. It means our disposable income is actually about the same but no mortgage to pay (or life insurance). We like to have a better work/life balance.

@Tunaormayo74 This is why you need to see an IFA.

You are trying to make plans but aren't aware of some basic tax info.

I think @taxguru is slightly incorrect here as a surviving spouse 'inherits' the other person's allowance, so if they were widow(er) the limit is still £1M in property if left to children.

The limit before IHT is £1M.

The limit before IHT is £1M.

I know. So may not apply to OP. And doesn't apply to most people. But it's still a valid point in some cases.

@Tunaormayo74

@Harmonypus could you not have downsized even with a mortgage still to be paid? The equity would have paid off the balance with some left to live on plus your pension.

Basically, no.
I have a 3-bed terrace in a 'not so great area' in Birmingham and my teenage son was at home.
My mortgage was 45% of my income and in 2011 when I finished work, it was 60% of my pension/benefits, plus there wasn't much equity, and I'd have needed another mortgage for another home (unless you're suggesting I should have lived on a park bench), which you can't get when you're on benefits, hence me having stuck it out and paid it off ASAP.
So, it's only now that I'm in a position to buy a smaller place, my budget wouldn't allow me to buy a similar home, but I can manage a small bungalow somewhere else, which will hopefully last me the next 30yrs

I've always overpaid where I can, without missing out on holidays etc and hopefully will be mortgage free by 37. My main reason was security as I have health conditions and if I ever cannot work, I wouldn't want the additional financial stress, especially with a child. Plus then I can live doing whatever I please and have saved 1000s in interest. With interest rates increasing, to me, it was more sensible.

Yet I know other people who pay the bare minimum to be able to blitz money and would rather pay it off over 35 years.

Everyone's circumstances are different.