Special: DON’T Pay Off Your Mortgage?

One of many investors’ regrets in property investment (apart from “not starting sooner”) is paying down their mortgage on their first property. That may sound strange or surprising – after all, it’s the aim of many a property owner to own their property outright – however, if you are looking to get into Property Investment, here are some reasons as to why it actually may be a really, really bad idea and seriously slow you down – particularly if you are starting out.

Best Laid Plans. When it comes to financial planning, the age-old advice of “pay off your mortgage as soon as possible” is ingrained in many of us. The idea of owning your home outright, without any debt hanging over your head, is understandably appealing. However, in the world of property investment, holding onto your mortgage rather than rushing to pay it off can actually be a strategic, wealth-building decision.

Note: This article is an opinion piece only, and DOES NOT constitute financial advice, which you should seek independently, particularly if you are skittish about debt.

Leverage. One of the most powerful tools in property investment is leverage, which simply means using borrowed money (your mortgage) to increase the potential return on your investment. By keeping your mortgage and using that capital to invest in additional properties, you can multiply your wealth more quickly than if you focused solely on paying off one property.

UTILITY OF THE WEEK (Part 2 of 3!). Gas Supplier / MPRN Finder. In a hurry and need to find out a Meter Point Reference Number, or which Gas supplier (the company you pay your bills to) is CURRENTLY assigned to your property (they can change)? This handy little tool could save you alot of time, as utility companies can be incredibly tedious to work with.

Example. For example, imagine you’ve sacrificed many holidays over the years and managed to save £100,000. You’ve used this over the years to pay off your existing mortgage. Now you own your property outright, which is great – but you’ve tied up all your capital in one asset. Instead, you could have used that £100,000 as a deposit for two, three or even four additional properties – each with a mortgage. Over time, as property values appreciate, you’re building equity in multiple properties rather than just one – accelerating your overall net worth increase. And yes, this is almost always true even taking mortgage interest into consideration. See our previous Newsletter on ROI for an illustration of this, and why buying outright in cash almost always results in a LOWER return on your initial investment.

Opportunity Cost. Paying off your mortgage ties up a significant portion of your capital in the property. This means that while you own the property outright, you lose the liquidity or flexibility to use that money for other opportunities that may arise. Realise though that nothing here means that you’ll NEVER pay off your borrowings – it just means that it’s quite probably a good idea NOT to whilst you are in the GROWTH PHASE.

Who are M2P? Married2Property are a family-run property company that aims to build social good through property.

Inflation works FOR you. Over time, inflation decreases the real value of money, meaning the amount you owe on your mortgage becomes less significant as prices and wages rise. Essentially, you’re paying back your loan with “cheaper” money. This is especially beneficial if you have a long-term, fixed-rate mortgage where your interest rate stays the same despite inflation. Imagine a pint of milk 20 years ago that might have cost about half as much as it does now. Did milk get more valuable in 20 years? No, it didn’t – it’s the money that got LESS valuable due to inflation. It’s the same if you have a mortgage debt – it becomes (all other things being equal) LESS of a big deal as time goes by – i.e. easier to pay off, either through rent payments or through selling. Ask the person who bought a property say in 1982 for £9,000 with a £1,500 deposit and £7,500 mortgage (that they NEVER paid down AT ALL) if they’re worried about the interest payments, or not having paid it off yet, or the multiple housing crashes since then. They won’t be worried. Money has lost alot of value since 1982 and house prices rise intrinsically due to the fact that land is finite, supply of housing is limited, people always want the best locations, more people are choosing to live on their own and populations rise. So they are sitting pretty. Ask the person who kept their £1,500 in a bank account since 1982 the same question to see if they’re just as happy. Yes they’ll have made some interest, but, all other things being equal, won’t have done nearly as well as the person who invested in property.

Be ready. In property investing, having access to liquid funds can be crucial. Whether it’s for emergencies, renovations, or seizing new investment opportunities – maintaining mortgages allows you to maintain cash flow and flexibility in your portfolio. Having access to cash can also help you weather any market downturns or unexpected expenses without being forced to sell your assets. Remember that even if the market downturns, as long as you are not forced to sell (i.e. can cover the mortgage), then you should be able to just wait it out.

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