Is it worth paying a portion of the mortgage off?

Discussion in Mortgage & House Payments started by GemmaRowlands • Sep 10, 2014.

  1. GemmaRowlands

    GemmaRowlandsActive Member

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    A friend of mine has just come into some money, and she plans to use it to pay off a portion of her mortgage. The way her plan is set, it won't charge her a fee for doing so at the moment, however I would wonder whether there is anything that could do with the money that could put it to better use?

    She has inherited £20,000 and owes just over £40,000 on The House that she's in at the moment, as she is a fair way through her mortgage term. She likes the thought that she could either decrease the monthly repayments or finish paying it earlier, so is planning on putting the money to use that way.

    If it was you, and you had that amount of money, what would you do? Would you want to pay off your mortgage, or would you prefer to do something else with it altogether?
     
  2. helpingcollier4

    helpingcollier4Member

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    It really depends on a couple of things, at least in my opinion.

    First, what other types of debt foes your friend have? Depending on the interest rate of her mortgage versus other debt, it would likely be a better idea to pay off higher interest debt first. If she has no other debt, I would encourage her to fund an emergency account before paying off her mortgage. She needs 3-6 months' worth of disposable income in an easy-to-access savings account in case she loses her job or becomes temporarily disabled.

    Second, what is the interest rate on her mortgage? If the mortgage has a high rate, then she should get out from under it as soon as possible. If it is a lower rate, she might be better served by investing at least part of it into a retirement account or other investment vehicle.
     
  3. Sunshine

    SunshineActive Member

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    This is a good question and really depends on a lot of different factors. I don't think there is a universal right answer here. It depends on the interest rate she has, the type of loan, how much of her monthly payment is pure interest, if her payment adjusts when she puts more down on the principal, what guaranteed rate of return she could get on other investments, and how much money she has set aside for savings and retirement.

    It used to be everything was so simple. Buying a house a was a guaranteed investment, getting a 30 year loan was best, and paying off your house was a goal. But everything has changed so much these days that there are so many variables, there is no longer one right answer.
     
  4. Jessi

    Jessi<a href="http://www.quirkycookery.com">QuirkyCooke

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    It definitely depends on interest rates.

    As HelpingCollier mentioned, there may be some other items to put some of the money into first regardless. She needs to have that money put back just in case she needs it. Once she puts the money toward the mortgage, there's no getting it back if she needs it.
     
  5. ScipioPro

    ScipioProMember

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    Why immediately pay it off with her newfound inheritance if it isn't doesn't pay it off fully? She now has 20,000 euro, she should be making smart investments to grow that money. Turning 20,000 into money that will help pay off your mortgage AND THEN provide you with future funds for other ventures is the best approach. I hate this mentality that we must spend everything we earn to get things "out of the way." We should invest our money at EVERY opportunity.