Pay off mortgage or leave money in savings?

Pay off mortgage or leave money in savings?

Author
Discussion

HOGEPH

Original Poster:

5,249 posts

185 months

Tuesday 18th October 2016
quotequote all
I have about 35000 remaining on my mortgage with a fixed deal of 1.89 for the next 12 months. The early repayment fee is £330, and the best savings interest I can get is 0.95 gross.

Could someone smarter than me show me a formula for working out whether I'm better off carrying on with the mortgage and not paying the repayment fee, while earning small savings interest, or just bite the bullet, pay the early repayment fee and save on the mortgage interest over the next 12 months?


The Beaver King

6,095 posts

194 months

Tuesday 18th October 2016
quotequote all
Unless I've got this horribly wrong, you're better off paying off the mortgage.

Chucking £35k into the savings account gets you around £333 over the 12 months. The interest on the mortgage is £360 over 12 months.

You'll be £27 better off over the year clearing the mortgage, so you can buy you and the missus a nice Chinese to celebrate.

ETA - Forgot the early repayment fee.... rolleyes

So in fact, you'll be £303 better off slamming it into the savings account; meaning you can now take the missus away for a semi-fancy country weekend.

Edited by The Beaver King on Tuesday 18th October 10:44

rsbmw

3,464 posts

104 months

Tuesday 18th October 2016
quotequote all
12 months interest at 0.95% is, er, £330. Interest on the mortgage in that time depends on what you are paying each month, if there is say 60 months remaining on the mortgage, it would cost you about £600 over the year in interest. Realistically, you are talking such small amounts of money difference either way, that you should just do what your gut tells you.



The Beaver King

6,095 posts

194 months

Tuesday 18th October 2016
quotequote all
rsbmw said:
12 months interest at 0.95% is, er, £330. Interest on the mortgage in that time depends on what you are paying each month, if there is say 60 months remaining on the mortgage, it would cost you about £600 over the year in interest. Realistically, you are talking such small amounts of money difference either way, that you should just do what your gut tells you.
Indeed; the remain length of the mortgage makes a big difference. It could mean you're saving £300 as per my comment above or £3000 if you have 10 years left....

CaptainSlow

13,179 posts

211 months

Tuesday 18th October 2016
quotequote all
The numbers are so small I wouldn't bother paying it off. Think of £27 as a loan facility fee as you can get your hands on the cash quickly and cheaply if you need it in the future.

Zoon

6,654 posts

120 months

Tuesday 18th October 2016
quotequote all
What is the remaining term?

rsbmw

3,464 posts

104 months

Tuesday 18th October 2016
quotequote all
The Beaver King said:
Indeed; the remain length of the mortgage makes a big difference. It could mean you're saving £300 as per my comment above or £3000 if you have 10 years left....
I think the gambit is to pay it off once the fixed rate / ERC's expire, so it's only one years interest either way. Even with 25 years remaining, it would only be about £700 interest.

Personally, I'd be happy to take a bit of risk with the £35k to earn a bit more, and keep the mortgage going for a few years.

55palfers

5,893 posts

163 months

Tuesday 18th October 2016
quotequote all
Was in a similar position.

Decided to pay the mortgage off, it's a very nice feeling.


HOGEPH

Original Poster:

5,249 posts

185 months

Tuesday 18th October 2016
quotequote all
Zoon said:
What is the remaining term?
4 years 11 months.

bmwmike

6,918 posts

107 months

Tuesday 18th October 2016
quotequote all
If that's the only savings you've got I'd be keeping it, personally, and invest it. Inflation is coming and thatll help with your debt as long as your wages go up thereabouts.



cossy400

3,153 posts

183 months

Tuesday 18th October 2016
quotequote all
55palfers said:
Was in a similar position.

Decided to pay the mortgage off, it's a very nice feeling.
This and we had a similar time scale left on ours.

But we had double (inheritance) so wasn't as such putting all our eggs in one basket.

Great feeling and we now just bank what would be the mortgage money.

Yes it's not earning a great deal but "we" are earning it rather than giving it the bank.

Well that's my logic anyways

Ari

19,328 posts

214 months

Saturday 22nd October 2016
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Reverse it. If you were mortgage free but had no savings would you take out a £35,000 mortgage and pop it all in a savings account? Because that's where you are.

Everyone's different, but my feeling was that I had no savings while I owed money, so I ploughed it all into mortgage overpayments till it was cleared and then began saving.

It's very freeing having no mortgage, you lose that monthly commitment.

stevensdrs

3,208 posts

199 months

Saturday 22nd October 2016
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I paid mine off 12 years early. Best thing I ever did as the feeling of having that burden lifted from your shoulders is great. With current interest rates there is no point in having cash in the bank.

55palfers

5,893 posts

163 months

Saturday 22nd October 2016
quotequote all
stevensdrs said:
With current interest rates there is no point in having cash in the bank.
That was my reasoning too.

Welshbeef

49,633 posts

197 months

Saturday 22nd October 2016
quotequote all
Put it this way

Option 1.
Pay it off you'll feel great totally worry free.
Risk you have no backstop so if you lost your job what would you do to pay the bills?

Option 2.
Don't pay it off - you can get a fee free and the cheapest loan you'll ever have.
If job is lost then you have no cash flow worries plus the net cost to do so is £27 ...


Getting a new mortgage for extensions etc will be far stricter than legacy mortgages worth keeping

cossy400

3,153 posts

183 months

Saturday 22nd October 2016
quotequote all
Our option 2 was to set up another account and put the exact amount in it that would cover the mortgage to the end of its term.

This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.

Welshbeef

49,633 posts

197 months

Saturday 22nd October 2016
quotequote all
cossy400 said:
Our option 2 was to set up another account and put the exact amount in it that would cover the mortgage to the end of its term.

This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.
But as someone has calculated the difference over the term of he mortgage is £27 a who cares amount of interest differential.

cossy400

3,153 posts

183 months

Sunday 23rd October 2016
quotequote all
Welshbeef said:
cossy400 said:
Our option 2 was to set up another account and put the exact amount in it that would cover the mortgage to the end of its term.

This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.
But as someone has calculated the difference over the term of he mortgage is £27 a who cares amount of interest differential.
Yes but my option 2 has nothing to do with interest does it??

Welshbeef

49,633 posts

197 months

Sunday 23rd October 2016
quotequote all
cossy400 said:
Welshbeef said:
cossy400 said:
Our option 2 was to set up another account and put the exact amount in it that would cover the mortgage to the end of its term.

This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.
But as someone has calculated the difference over the term of he mortgage is £27 a who cares amount of interest differential.
Yes but my option 2 has nothing to do with interest does it??
Well that option isn't paying off the mortgage instead continue to pay it at the same level required and then match that payment into savings - might not be possible to all.

cossy400

3,153 posts

183 months

Sunday 23rd October 2016
quotequote all
Welshbeef said:
cossy400 said:
Welshbeef said:
cossy400 said:
Our option 2 was to set up another account and put the exact amount in it that would cover the mortgage to the end of its term.

This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.
But as someone has calculated the difference over the term of he mortgage is £27 a who cares amount of interest differential.
Yes but my option 2 has nothing to do with interest does it??
Well that option isn't paying off the mortgage instead continue to pay it at the same level required and then match that payment into savings - might not be possible to all.
The point im trying to get across with the other account is the OP will still be mortgage free in terms of having to find the money every month.

But they moneys there if the st hit the fan as such.

You could say its looking at it from a different angle, and as you ve said £27 interest is not a lot to write home for is it??