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Got you.
When you pay off the mortgage, though, you are freeing up the mortgage payments, which you can then invest.
[Edit]
Ignore this - double counted a column!Worked example time!
£1000 boomer mortgage that you either pay off now, or pay each year at 5%
Your house increases in value at ~6.85% pa (based on historical growth).
Investments grow at 6.16% (based on historical growth for allshare accumulation index)
You earn, conveniently, the same amount that your mortgage costs. And you either spend that on investments each year, or on your mortgage.
Year house mortgage balance investment Total house mortgage balance investment total @ 6.85% @5%=£71 pa -71 @ 6.16% @ 6.85% @5%=£71 pa @ 6.16% 2021 1,000 -1,000 -1,000 0 0 1,000 -1,000 -1,000 0 0 2022 1,000 71 1,071 1,000 -1,050 -979 1,000 -29 2023 1,068 146 1,215 1,068 -1,103 -957 1,062 71 2024 1,142 226 1,368 1,142 -1,158 -934 1,127 177 2025 1,220 311 1,531 1,220 -1,216 -910 1,196 291 2026 1,303 401 1,705 1,303 -1,276 -884 1,270 413 2027 1,392 497 1,889 1,392 -1,340 -857 1,348 543 2028 1,488 599 2,086 1,488 -1,407 -829 1,432 683 2029 1,590 706 2,296 1,590 -1,477 -800 1,520 832 2030 1,698 821 2,519 1,698 -1,551 -769 1,613 992 2031 1,815 942 2,757 1,815 -1,629 -736 1,713 1,162 2032 1,939 1,071 3,010 1,939 -1,710 -702 1,818 1,345 2033 2,072 1,208 3,280 2,072 -1,796 -666 1,930 1,540 2034 2,214 1,354 3,567 2,214 -1,886 -629 2,049 1,748 2035 2,365 1,508 3,873 2,365 -1,980 -589 2,176 1,972 2036 2,527 1,672 4,199 2,527 -2,079 -548 2,310 2,210 2037 2,700 1,846 4,546 2,700 -2,183 -504 2,452 2,465 2038 2,885 2,031 4,916 2,885 -2,292 -459 2,603 2,737 2039 3,082 2,227 5,309 3,082 -2,407 -411 2,764 3,029 2040 3,293 2,435 5,728 3,293 -2,527 -360 2,934 3,340 2041 3,519 2,656 6,175 3,519 -2,653 -307 3,115 3,673 2042 3,760 2,891 6,650 3,760 -2,786 -252 3,307 4,029 2043 4,017 3,140 7,157 4,017 -2,925 -193 3,510 4,409 2044 4,292 3,404 7,696 4,292 -3,072 -132 3,727 4,815 2045 4,586 3,685 8,271 4,586 -3,225 -68 3,956 5,250 2046 4,900 3,983 8,883 4,900 -3,386 0 4,200 5,714 Paying off your mortgage now gives you a combined wealth of 8.8k, versus 5.7k if you invest in a lump and pay your mortgage off over time.
In this example, it's only when you have super low mortgage rates that it's better to invest. With rates of 1.55% and below, you end up with a higher overall worth if you invest everything and leave the mortgage alone.
Edit]
Ignore this - double counted a column!
NotThamesWater-
You've omitted mortgage amortisation from that calculation. £71 is the principal and interest payment so the 2046 mortgage balance should be zero. Correct figures to compare are £4.2k investments versus £3.98, so better off borrowing to invest.
This makes sense intuitively - obviously you make money if you borrow at 5% and invest at 6.16%. However, a 116 bps spread seems skinny to me when you consider risk and tax.
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EDIT: mistake in my reply
NickCJ
andyfallsoff
Just saying that comparing property price increases with shares doesn’t really help with the OP’s choice. If property does well, they get that gain whether they pay the mortgage off or not.