Just how important is paying off the mortgage early?

[Dr Jekyll]

I've got a mortgage a bit large for my income, especially since I've passed 50. It has 14 years and about £90K to go.

But, if I raid my savings accounts, cash in my shares ISA and individual shares, I can pay it all off with about £4K left. I need more than £4K in a rainy day fund (I'm an IT contractor) so I won't pay it ALL off, but I do want to pay off good chunk with a view to paying the rest off in say 3 years max. If using my savings to pay off the mortgage meant I ended up getting a loan to buy a car or whatever I wouldn't mind because of the piece of mind of knowing that at worst my house wouldn't be repossessed.

Is it worth running my savings down to a minimum to get rid of the mortgage? My pension arrangements are separate from my savings and ISA and I've got no other debts.

On the other hand my shares ISA (about £40K) might actually make more than £40K of mortgage interest is costing me so I'm nervous about cashing it in.

I know there is no definitive answer to this but I'm interested in the range of opinion.

[Quattromaster]

I'd start by looking at what interest rate you are paying, and getting.

I've enough savings to pay off my 110k mortgage , yet only pay 1% interest at the moment, so I leave the money in savings and shares! earning me 3-4% , so quids in all round.

[Mal001]

It's a really good feeling being mortgage free. We are considering upsizing and one of the reasons that puts me off is mortgaging to do it. Currently, if I lost my job I would need to earn £450 a month to pay all my bills, a mortgage would put another 6-700 on that!

Also considering interest rates on savings are rock bottom and the mortgage interest rates are around 4%?? Wouldn't it make sense to pay it off and put that amount in a savings account considering rates are predicted to rise?

[Mal001]

Quattromaster said:

I'd start by looking at what interest rate you are paying, and getting.

I've enough savings to pay off my 110k mortgage , yet only pay 1% interest at the moment, so I leave the money in savings and shares! earning me 3-4% , so quids in all round.

Good point re shares, you could drip feed the money monthly into a share fund to take advantage of dips in the market.

[TwigtheWonderkid]

If your mortgage rate is more than your savings rate, but you like to have money to fall back on, convert to an offset mortgage. Then you will pay no interest at all as your savings outstrip your mortgage, but the whole amount is there should you need it. Pay the mortgage capital repayments (£535/month, £90K over 168 months) out of the offset savings account to keep the 2 in balance.

Edited by TwigtheWonderkid on Friday 26th September 20:22

[Elysium]

Dr Jekyll said:

I've got a mortgage a bit large for my income, especially since I've passed 50. It has 14 years and about £90K to go.

But, if I raid my savings accounts, cash in my shares ISA and individual shares, I can pay it all off with about £4K left. I need more than £4K in a rainy day fund (I'm an IT contractor) so I won't pay it ALL off, but I do want to pay off good chunk with a view to paying the rest off in say 3 years max. If using my savings to pay off the mortgage meant I ended up getting a loan to buy a car or whatever I wouldn't mind because of the piece of mind of knowing that at worst my house wouldn't be repossessed.

Is it worth running my savings down to a minimum to get rid of the mortgage? My pension arrangements are separate from my savings and ISA and I've got no other debts.

On the other hand my shares ISA (about £40K) might actually make more than £40K of mortgage interest is costing me so I'm nervous about cashing it in.

I know there is no definitive answer to this but I'm interested in the range of opinion.

Switch to an offset mortgage and place as much of your savings as possible in the offset account. That will dramatically cut the interest you are paying and if you keep the monthly payments the same you will very quickly pay it off.

This means you can still get to your savings if you need to.

If you include the ISA's you will lose the tax benefits, but you can always build them back up over time.

Edit: Twig beat me to it!

[Stevemr]

Depends on your mortgage rate.

Depende on your attitude to risk.

If on a normal mortgage rate ie not 0.195 above base, and your savings are in cash not shared, repay the mortgage.

If you are on a cracking mortgage rate and prepared to take a risk on shares, or can get better in cash ISAs then keep the mortgage until rates stat to go up.

Dont borrow to buy a car EVER.

Do keep enough rainy day fund.

[Fittster]

http://www.fool.co.uk/investing/2014/09/11/pay-off...

[Dr Jekyll]

Stevemr said:

Dont borrow to buy a car EVER.

Do keep enough rainy day fund.

I generally agree with no borrowing to buy a car. But if I had a choice between having no debts but possibly having to borrow for a car if I needed a fresh one before I'd replenished my savings, Or definitely having a mortgage. I think I'd prefer the former situation.

On the other hand, the way the market for my skills has fluctuated in the last couple of years means I don't want a rainy day fund so much as an Ark.

[Sir Bagalot]

Check if your mortgage Co will allow you to claw back your overpayments if necessary.

Nationwide for example, a few years ago, allowed me to claw back over £20K in overpayments. Just took a call and I had a cheque in 7 days

[Dr Jekyll]

Sir Bagalot said:

Check if your mortgage Co will allow you to claw back your overpayments if necessary.

Nationwide for example, a few years ago, allowed me to claw back over £20K in overpayments. Just took a call and I had a cheque in 7 days

Very interesting idea thanks. Almost like an offset without having to remortgage.

[Sarnie]

Some lenders will also allow you to 'underpay' your mortgage or make no payments at all until your overpayment credit runs out.....

[anonymous-user]

Whilst it's a financial decision, never underestimate the emotional feel good factor of being mortgage free.

I remember when I became mortgage free - it's a great feeling knowing your home really is yours

[Froomee]

Pay it off... If you ever get stuck remortgage... Job done

[Welshbeef]

garyhun said:

Whilst it's a financial decision, never underestimate the emotional feel good factor of being mortgage free.

I remember when I became mortgage free - it's a great feeling knowing your home really is yours

This x1000 suddenly you don't have to worry about anything really. Health wise a great upside, family life stress would go work stress would go as in you are there because you are enjoying what you do not that you have to be there.

The other thing I'd highly recommend for maybe 6 months post clearing it is use the £ you would have spent on monthly mortgage payments to have amazing holidays weekends away and maybe a special something for you and the wife - that boost would be great (then you can put what would hae been mortgage payments into retirement savings over and above what you do now)

[Dr Jekyll]

Welshbeef said:

This x1000 suddenly you don't have to worry about anything really. Health wise a great upside, family life stress would go work stress would go as in you are there because you are enjoying what you do not that you have to be there.

The other thing I'd highly recommend for maybe 6 months post clearing it is use the £ you would have spent on monthly mortgage payments to have amazing holidays weekends away and maybe a special something for you and the wife - that boost would be great (then you can put what would hae been mortgage payments into retirement savings over and above what you do now)

I can appreciate all that, but there is also a comfort factor in having high 5 figures in liquid assets when I'm between contracts. But yes, I will pay most of it off and maybe leave a token amount in so I can hopefully borrow money back without starting a new mortgage.

[Seight_Returns]

Factor into your thinking that remortaging at some point in the future if you pay it off now may not be an option depending on your employment situation. If you're between contracts or have had a patchy couple of years, you may struggle to get someone to lend exactly when you need it most.

My situation is not dissimilar to the OP's - significant mortgage, significant savings and good but variable income - and an offset mortgage suits me well.

[Welshbeef]

Seight_Returns said:

Factor into your thinking that remortaging at some point in the future if you pay it off now may not be an option depending on your employment situation. If you're between contracts or have had a patchy couple of years, you may struggle to get someone to lend exactly when you need it most.

My situation is not dissimilar to the OP's - significant mortgage, significant savings and good but variable income - and an offset mortgage suits me well.

Offset is the best bet - what we have. So you can be mortgage free but still have a mortgage open for the whole term renaming meaning you can borrow money in the future without any applications and at low rate up to what the mortgage balance would be at that point in time. Its portable too so great.

[BoRED S2upid]

Froomee said:

Pay it off... If you ever get stuck remortgage... Job done

Pay the vast majority off surely then it's much easier and cheaper to release some money and remortgage. If he pays it all off it would be reapplying for a mortgage and all the hassle that goes with it.