Paying off Mortgage Early

Readers Question: My husband and I will recently be getting a cash settlement. We currently have a 30 year 250,000 mortgage. Is it a good idea to pay the mortgage off completely? We’ve been getting mixed responses.

One thing you can do is to work out how much interest you would pay on a 30 year £250,000 mortgage.

If you assume interest rates are 6%, then you will be paying £1,531 a month. For 30 years this will cost you  a total of £544,680

Basically, you will be spending £294,680 just on interest payments.

If you kept the mortgage and invested the £250,000 would you be able to get a better return? I think you would struggle to get sufficient dividends or capital gains to justify the opportunity cost of not paying off the mortgage. Also some investments might be risky.

Something else you could do is to pay off the mortgage now and then invest the monthly amount that you used to have to pay towards a mortgage.

Reasons Not To Pay off  A Mortgage Early

The only reason to keep the mortgage would be if:

• There was a very high exit fee.
• You were wanting to set up a business and required a loan to get started. If that is the case a mortgage on your house might be the best way of going about it.
• There might be some tax advantages of keeping the mortgage.

See also: Should I pay off my Mortgage Early?