RetireJapan

I have one question about repayment of mortgage. I will get into background a bit, so bear with me please.

I took a mortgage when building a new house 8 years ago with a period of 25 years and rate of 0.95% ( I have managed recently to renegotiate the rate down to 0.82%).

Recently starting the investment journey and taking closer care of the finances, I started to be uncomfortable with payments for another 17 years and I started to consider options how to speed up the payment process.

We do not have any issues currently paying the mortgage payments (they come to 86k a month), though in a few years I`m thinking to start my own company and during the transition, there might be time when we will need to dip into savings to cover it, which is something I want to prevent.

That`s why I`m thinking how to repay the mortgage at a faster pace.

One thing I`m considering is using the life insurances which my wife took a while ago and which have already been paid up and currently only appreciate as we keep the funds with insurance company.

The fund from life insurance appreciate 1.3-1.4% a year, still better than having the money in the bank, but there not being such a major difference between what we pay on interests in house loan and what we get from these life insurance funds, I`m considering to use the life insurance funds towards payment of house loan via lump sum payments.

I understand that will make those particular life insurance void (both me and my wife still have separate life insurances - yes, we have a LOT of life insurances; it was a go-to for my wife when she was handling finances initially) , so there is that demerit. Also, if my understanding is correct, if I would pass away during the payment of the house loan, the house loan would be void, so in that way in that scenario paying off the house loan ahead would be not beneficial either, but that`s naturally extreme case.

Now, this is a tad emotional topic for me, since rationally I understand that any available funds shall be rather invested in stocks ( I do currently already max out my NISA, IDeco as well as NISA/Junior NISA for my wife and kids) , especially long term, but I do feel that sense of discomfort by having to generate certain income during the possible transition to my own company and the house loan payment does take considerable portion of our monthly payments, so it would be much easier to go independent at a time when our monthly payments are lower.

I`m sure there are some additional things that I might be overlooking so any advice on the topic would be much appreciated.

I understand your feelings. Many people are uncomfortable with debt.

I'm sure you have considered this, but in the case of a Japanese mortgage at 0.82% I would be inclined to keep the loan and either invest the money or even just set it aside to have a larger emergency fund when you start your business.

If you repay the mortgage, you will no longer have access to the funds, even if you run into difficulties later.

If you invest or save the money (or leave it in the life insurance policies), you will be able to use it as you wish -even to make the mortgage payments if you run into cash flow difficulties. Plus the life insurance for the loan should be considered as a positive.

Anyone else?

If you are happy with a 0.82% return on your money you use to pay down the mortgage...

When you pay down the mortgage that is the equivalent of getting a return on that money of the rate of interest on your mortgage.

If you invest the money elsewhere you should get a much better return on your money.

Also, if you pay down the mortgage, you will not have that money, but if at some time in the future you can't pay the mortgage payment for whatever reason, the bank won't thank you and give you credit for the extra payments you made...

If you had that money in a NISA, you can withdraw it to pay the mortgage payments at that time.

You have probably already used up all your Mortgage Interest Tax Relief, which was based on the outstanding balance at the end of the year, so if you had paid down, you would have less outstanding balance and less tax relief...

Your mortgage is covered by Life Insurance. If you die, your beneficiary will receive the house free and clear with the mortgage paid off by the insurance, AND the NISA with the extra money invested in it to pay funeral expenses, inheritance tax, and living expenses... If the house is paid off, only the house, with nothing to pay funeral expenses, inheritance tax, and living expenses...

Put the money into a NISA, and/or iDECO.