Pay off your mortgage, or don't

You’d think it makes sense to pay off your mortgage, but for me, it doesn’t.

Back in 2004, I’d switched my mortgage to a floating rate, something with no early repayment penalties. At the time, I was considering moving to a new country, so I wanted a mortgage that was very flexible with no tie-in even if it meant paying a higher rate.

Since then, the BoE have lowered the interest rate to 0.5% and my mortgage has dropped with it. I pay about £1.20 a month for every £1000 on my mortgage. Great position to be in, but why does it not make sense to pay it off?

Well, with Self Select Share ISAs, I’ve been earning £8.30 each month for every £1000 invested. That’s tax-free goodness right there.

Admittedly I don’t do anywhere near as well with Premium Bonds. I get about £1.25 a month for each £1000 ‘invested’. Thankfully that breaks even when compared to the mortgage costs. If my mortgage went up and the Bond return was the same, then it’d be worth cashing them in. But it’s nice to leave them in there for that infintisimally small possibility of winning something bigger. My version of the lottery.

The crucial point is to look at what each pound of debt costs you, or earns you and get rid of the highest costs, using savings that don’t perform as well.

It always amazes me when people have credit card debt at some horrendous interest rate, yet are proud of having savings at the same time. Makes no sense whatsoever!