To want to pay off our mortgage

[SparkleShineRainbow]

If you have paid off your mortgage without a cash injection from family / inheritance / lottery, how did you do it?
Would you recommend it?

Live with DH and the 2 DC, both in secondary school, in London. Been in our house 10-15 years on interest only, lots of equity due to value increase. I have a good job, salary in low 6 figures, no reliable annual bonus although some years it’s a decent 4-figure sum. Husband self employed, earns a bit above UK national average.
We enjoy a good standard of living, holidays and kids activities etc. We spend most of what we earn. I save about 10% but only started recently. Not been brought up with money. Disposable spending money has been more important until now. But I don’t want to work forever and I don’t have a plan. I now want to pay mortgage so I feel more secure long term eg if I lose job or want to cut down.

Mortgage principal is a bit over 3x combined annual income (after tax).
We have never and will never receive cash injection from family or inheritance. I sometimes play the lottery though!

We are v privileged, I recognise that and apologise to those struggling who might find the question a bit grotesque.
NC in case outing.

I'm 50 and took out my first mortgage about the same time. Always repayment.

The alternative to a repayment mortgage then was not an interest-only mortgage, it was an endowment mortgage and you were required to take out an endowment policy to ensure they were paid off. Endowments had been popular since the 1980s because were supported through favourable tax breaks, and there was a huge scandal developing in the 1990s about their mis-selling. I can remember people being sent very severe warning letters because the risk of not being able to pay-off the capital at the end of the term was considered such a high risk.

The ability to take out an interest-only mortgage without demonstrating a solid plan to pay it off was a bonkers decision by lenders. But it's been self-reinforcing due to the massive upward pressure it put on property prices and paper value appreciation.

The op I assume has thrown her pension at this, with no repayment plan the only way you can get an interest only mortgage is to promise the lender a lump sum from your pension.

II’m also 50. They may have existed but interest only or endowment mortgages weren’t on the table when I was buying my first house in my mid 20s. Even small houses were way more than £25k then. Four or five times that.

I was also a bit naive because I thought mortgage terms had to be 25 years.

The ability to take out an interest-only mortgage without demonstrating a solid plan to pay it off was a bonkers decision by lenders. But it's been self-reinforcing due to the massive upward pressure it put on property prices and paper value appreciation

They weren’t bonkers if they were used properly.

My husband used a self certified interest only mortgage to buy the house we are in now before he had sold his previous one. He didn’t have to prove anything.

It was a rapidly rising market so buying before selling made sense.

You need to switch the mortgage to a repayment and overpay significant amounts of monies.

Plus very possibly you will have to downsize and/or move to a cheaper area and in doing so repay the mortgage loan and only buy with whatever uplift in property value you have achieved.

I was actually working in conveyancing at the end of the 90s (awful job - I’ve never dealt with so many rude and aggressive people and I moved on to working with serious criminals!).

I clearly remember that on interest only mortgages we’d get people to sign documents allocating endowment policies to the mortgage lenders. In retrospect endowment shortfalls were a ticking time bomb but those people thought and were advised they had a repayment vehicle.

Interest only with no repayment vehicle simply didn’t happen, at least not that I can remember.

Self-cert interest-only second-mortgage..

He wasn't an exotic dancer in South Florida by any chance?

It wasn’t a second mortgage, it was his first one. The house he lived in belonged to his then partner. He wasn’t on the mortgage or deeds. I can see I wasn’t quite accurate when describing it as “his” house.

Based on his current dancing prowess, I don’t think he was an exotic dancer in South Florida, or anywhere else.

Could you sell and downsize?

Good point but there is article in the Telegraph stating that if they reduce tax free lump sum many will simply stop paying into pensions above a certain amount. I for one will take much overdue financial advice as a NHS pension contributor and could well be at the level now where I no longer need to pay in towards the NHS pension. These payments are not held in a fund but actually go towards current pensioners payments.

Apparently it's quite common for wealthy people to have interest only mortgages for massive houses and just pay it off when they downsize.

I hope they don’t reduce it, but it will significantly impact people like the op , if they’ve used their pension lump sum as a repayment vehicle for their interest only mortgage. It’s a foolish way to do it in the first place, due to the annual reduction associated with a lump sum payment, far outweighing any benefits from tax efficiency, it only works if you don’t live long.

It’s really not. You’d need to provide stats for that. Wealthy and downsizing to pay your mortgage is a complete contradiction in terms,

It makes perfect sense @Theonewhogotaway

you wrote to pay it off when they downsize, yes wealthy individuals take mortgages to ensure they can invest their capital elsewhere in a higher interest rate than they pay on the mortgage, think Harry and Megan.

they don’t then have to sell their house and downsize to pay it off.

Again:

I’m far too risk-averse to ever go interest only, although they were still quite common when I got my first mortgage in 2005 and a few of my friends had them.

The penny didn’t drop with me about overpaying until quite late and we started to doing it seriously during lockdown when I’d had a decent salary boost and nothing to spend the surplus on, so started overpaying and stashing money in various savings pots.

it’s amazing how quickly overpaying can bring the capital down and wish we’d started earlier, but we now only owe 5 figures (yay) and - assuming I can get back into decently paid work (am currently between jobs) - would hope to be mortgage free in 3 years.

as @Ginmonkeyagain said, overpayments also basically offset the pain of the interest rate rise. It was like we’d bought out that risk.

Why do you keep posting rhe same stuff? No one is disagreeing with you it is financially beneficial, i am disagreeing they need to sell their houses and use rhe equity to pay the mortgage as you wrote that.

evidence that.

There is nothing in what you’ve posted to suggest wealthy people downsize to pay off the mortgage though? Have multi-million mortgages, yes, downsize to pay them off, no.

The whole point is that they have more than enough money to pay the mortgage, they just invest it somewhere they get a higher return than the mortgage interest rate. No downsizing required.

Downsizing is an option obviously which some may choose to do

Not to pay their mortgage. They are wealthy, they don’t need to downsize to pay it off as you wrote.

Buying a house twice the size of the one they have is also an option since having an interest only mortgage has no connection to how much money they have or how much they can afford to pay each month.

An interest only mortgage for the super rich has no connection to affordability or why normal people take out interest only mortgages

I paid mine off aged 46 by downsizing when DC left home and using the equity from the sale to purchase another house with cash.

@SparkleShineRainbow these replies have probably got you panicking. Don’t worry, you are on a high salary and your mortgage doesn’t sound to be that large. You can save this!

Lots of good advice here I won’t repeat. Definitely speak to a mortgage broker in real life though.

It’s true that the path you went down with your mortgage wasn’t the most financially sound. But what’s done is done and you put some of the extra disposable money you had into renovations, so you will have boosted your property value there.

I agree she can fix this, I assume she’s in her forties, but we can’t forget she’s paying hundreds of thousands more on interest, on the mid level example I gave it was 166k more. 550 a month extra every month for the privalge of not paying rhe principle sum.

so any increase will need to be offset by how much they’ve spent on interest to enable it. And she still owes as much as they day she bought it.

so in the example I gave with a repayment mortgage she’d have paid 634k in total, inc interest for a 400k house. In interest only it is 800k. Assuming she has the 400k to pay back, which she doesn’t, likely without raiding her own pension.

so any value increase is only above the 800, otherwise she’s either broken even or lost money.

but it is fixable, she needs to pay off anything she can now, without penalty and then move to a repayment mortgage,