Investment planning, Mortgages

Should I pay off my mortgage or invest in another property? Top tips for high earners

16 May 2023

Paying off a mortgage – and clearing outstanding debts – is often one of the first things that people tackle when their earnings grow, or they receive an unexpected windfall. But it is first worth taking a step back to make sure that it is financially prudent.

We explore some of the pros and cons high earners need to weigh up when considering ‘should I pay off my mortgage or invest in another property?’

How we can help

For all of these options below, it is worth getting some expert help. By choosing a wealth manager you can trust and working through these pros and cons, you can decide whether you should pay off your mortgage or invest in another property or investment opportunity. Find out more about growing and preserving your capital [6] with our new guide.

What to consider when deciding if you should pay off a mortgage or invest in another property

Making a decision on how best to manage your finances and investments will depend on a range of factors that will be unique to you. When deciding if you should pay off your mortgage there are a number of questions you should ask yourself:

  • Are you coming up to retirement age?
  • What is your current financial situation?
  • What is the current loan interest rate? How much interest will you save?
  • How much longer until your mortgage loan ends?
  • What is your risk tolerance?
  • How does this fit with your wider pension/retirement plans[1] ?

You should also consider how much money it might be wise to keep in reserve – for example, should you retain at least six months wages for an emergency fund, or a rainy day?

Should I pay off my mortgage? Reasons to pay it off

There is no doubt that peace of mind is a major reason for people to pay off mortgages at the first opportunity. Freeing yourself of a mortgage means one less thing to worry about and it is reassuring to see an expensive debt paid off.

A change in your personal circumstances might be another reason to pay off a mortgage as quickly as possible – perhaps a divorce or split of assets would be simpler with a property fully paid off.

And, freeing up your monthly cash outflow can be a wise move if you are cash poor, as you will have more money to play with each month if you are no longer making payments.

Should I pay off my mortgage? Reasons to reinvest additional money

However, for higher earners, who may already have wealth management priorities or financial goals in place, deciding whether or not to pay off a mortgage may be less emotional, and more of a strategic decision, involving looking at how your investment/time horizon dictates risk.

Mortgages are always low risk in terms of investing, but if beating inflation is the main goal, you need to consider how quickly you are looking to take out the money vs current market movements.

If you are going to reinvest any additional money you have – perhaps a bonus payment or an inheritance – there are plenty of other options. These include:

  • Adding to your pensions and other retirement options
  • Investing in ISAs
  • Buying a second property, a holiday home investment [2] or investing in commercial property [3] 

You might also want to consider paying off any debt (such as credit cards) that has a higher interest rate, and it is worth comparing these with your mortgage interest rate before making any decisions about paying off your mortgage or investing in another property. 

It may also be more prudent to pay off chunks of a mortgage instead of a lump sum, or to increase monthly payments to decrease the length of loan, as your mortgage provider may also demand a prepayment penalty if you are paying off your loan far earlier than expected.

Your home or other property may be repossessed if you do not keep up repayments on your mortgage.

Commercial and some buy-to-let mortgages are not regulated by the Financial Conduct Authority.

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