Should You Pay off Your Mortgage?

Paying off your mortgage is seen as a major financial milestone. However, if you’re aspiring to retire early, then this might not be a smart move.?

Let's explore why leveraging your mortgage can be a more strategic approach to building wealth.

1. The Conventional Dream vs. Strategic Investment

Most people dream of the day they can say they've paid off their mortgage.

However, let's take a look at what you could be missing out on. For this example, we are going to assume you have paid off your mortgage and own your property outright worth ￡400,000.

In this instance, you've decided to re-mortgage the property releasing ￡300,000 in equity whilst still leaving a 25% downpayment of ￡100,000.

2. Leveraging Equity for Greater Returns

With a ￡300,000 mortgage, you’ll incur interest costs. Assuming a 5% interest rate, this amounts to around ￡15,000 a year.

Now, consider the ￡300,000 you've released. Instead of paying off your existing mortgage, you invest this money into three more properties, each worth ￡400,000.

Let's take a conservative approach: each property, whether a House in Multiple Occupation (HMO) or serviced accommodation, generates ￡1,000 monthly profit after expenses and mortgage payments.

This adds up to ￡12,000 per property. Or, ￡36,000 total profit per annum.

Even after accounting for the interest on the new mortgages, you're left with a substantial net gain.

3. Long-Term Benefits: Building Wealth Over Time

Critics might worry about the remaining mortgage after 20 years. However, property values have historically doubled every 20 years due to supply and demand dynamics.

If this trend continues, your four properties (including the original one) could be worth ￡3.2 million collectively. With mortgages totaling ￡1.2 million, your net worth would be an estimated ￡2 million..

Plus, you will have earned an additional ￡20,000 annually in profit.

The key takeaway is that paying off your mortgage isn’t always the smartest move if you're looking to grow your property portfolio and increase your wealth.

By strategically leveraging your equity, you can maximise returns and build a more robust financial future. Remember, it’s about making your money work harder for you through smart investment strategies.