Pay off mortgage or leave money in savings?
Discussion
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?
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?
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....
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.
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....
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
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.
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....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 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. Decided to pay the mortgage off, it's a very nice feeling.
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
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.
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.
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
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 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. This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.
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. This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.
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. This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.
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. This would then mean "if" we got stuck we d always got some where to tuen to etc for "spare" cash.
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??
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