Good or bad idea?

Unfortunately got made redundant, but fortunately in a position to pay mortgage off and have some cash reserves plus my wife works, so our monthly operating costs, etc can be covered.

Psychologically, having our home protected will help us, but want to do things in a way to avoid paying cash where we don’t need to.

So….was thinking of paying off the majority of our mortgage but leaving a nominal outstanding balance of say £100 thus avoiding the early penalties.

Still 10 years of it to pay if we just continued paying monthly.

Thoughts?

Is there a large redemption fee?
The old idea that you pay it off but leave a nominal amount in there so that they keep the paper deeds and it gives you a better credit rating is now not true.
The Land Registry hold electronic copies of all deeds and credit ratings are done on the web now.

If you can afford it why not do it? It will remove the largest monthly bill from your household and remove any associated stress. If money is tight then the cash freed up from not having monthly mortgage payments couldbe ssignificant

how much interest are you earning on your savings?
how much interest are you paying on the mortgage?

Do you want all your capital tied up in a property?

What sort of interest are you paying on your mortgage? Probably more than any return you would get on investing the equivalent amount of cash.

So unless you think you will need a large chuck of cash in the near future its probably cheaper for you to pay of the mortgage.

I’d just pay it off, huge weight off your shoulders you never realised you had, as without a mortgage you don’t really need a proper job ever again (unless you want to).

Couple of threads on this recently. What you could get by investing the money will be less than the interest you are paying on the mortgage, and it will help massively sorting your short term budget and psychological security.

The “leave a small amount for the deeds” no longer applies.

Only reason to keep a small mortgage going is if you think you might need to borrow cheaply by extending it again.

We went mortgage free just before xmas. It feels great. Apart from when MrsMC starts wishing for changes/repairs to the house that would have been better funded by extending the tiny mortgage she was adamant she wanted rid of 👿

Once paid to the bank to clear some of the mortgage you will not easily get it back. Look at the interest rates of savings available and the rate you are paying. Fill your ISA allowances each year could be the simplest way of keeping the money accessible while earning more interest than your mortgage costs

It’s all about the rates…..

Switch to an offset, and offset the lot till you make your mind up?

Do it man.

You’ll manage without the lump sum, especially if your missus is working.

It’ll help focus your mind on finding something else to do as well IME.

Once paid to the bank to clear some of the mortgage you will not easily get it back. Look at the interest rates of savings available and the rate you are paying. Fill your ISA allowances each year could be the simplest way of keeping the money accessible while earning more interest than your mortgage costs
It’s all about the rates…..

Saving rates at the moment are desultory. You’ll struggle to earn more than the mortgage costs.

We paid ours off early and just stomached the early repayment fee, worked out cheaper than waiting till the term was up.

In the days of the offset mortgage I’m not sure why you would pay off your mortgage.

1/ there will ba a fee to pay I expect
2/ Why give up the flexibility of having the capital sat there, you might need it in 5-10 years.

Do you have a mortgage that you can get your overpayements back if you need to (called an overpayment draw down), may provide peace of mind in case you may need it in future. I think you generally need to give a decent notice though (also worth an ask).

You could set it aside until you have another job, and then start paying it off.

Are you likely to need a new kitchen, bathroom or car in the next 5 years?

Even if you pay the mortgage off, you still have ongoing costs of living – include those relating to the property – so being mortgage free is not (always and exactly) the Holy Grail it is portrayed as.

it is worth considering that, unless you breach the terms of your mortgage, it is a very ‘safe’ for of lending, in that the bank has to honor it until the end of the contracted term.

Mortgage lending is now far more highly regulated and tighter than in the past. If you drop this particular line of credit now, you might potentially find difficulties in borrowing in future. (Age also plays a large part, but also security of employment.)

Not a cut and dried decision.

Given your situation I would hang on to the cash until you have a clear idea of what your future will be.

Also getting another mortgage will almost certainly be more difficult or even impossible, just image you remain unemployed for a while or start your own businesses, both things will not play well with the mortgage companies.

Interest rates are currently low and likely to remain so for a while yet, if / when they start going up perhaps then pay mortgage off but I would say not before.

Even if you pay the mortgage off, you still have ongoing costs of living – include those relating to the property – so being mortgage free is not (always and exactly) the Holy Grail it is portrayed as.

Pretty tiny though. I could just do odd jobs for neighbours and make enough to pay the rates / utility bills. Which is exactly what a neighbour has done, just retired at 45 and potters about doing very little…

Also depends on the sum in question
If it’s £125k then it requires a lot of thought, if it’s £5k just do it

Even if you pay the mortgage off, you still have ongoing costs of living – include those relating to the property – so being mortgage free is not (always and exactly) the Holy Grail it is portrayed as.

Certainly works for us
Much more freedom and flexibility in what jobs we decide to take and even deciding to take a couple of months off.

I paid ours off two and a half years ago. To me it was a fairly easy decision since we had no early repayment fees and we wanted the feeling of being a owner rather that mortgage owner. Plus not having to deal with a mortgage company was a positive. I buy and pay stuff off on our credit card (fully each month) to keep up our credit rating.

Part of it depends on your attitude to money & risk etc.

I hate having a mortgage. I know all the arguments about putting it into ISA’s if you can find accounts that out-perform the interest you are paying on the mortgage etc.
A mate of mine who works in pensions used to tell me when I was over-paying the mortgage that I’d be much better off paying that money into my pension, as longer term it will be worth more etc.

But, I would love to be able to pay the mortgage off and not have to worry about it. Regardless of rewards from investing in other options, I would prefer the lack of stress/worry that a mortgage gives.

The only thing that would stop me paying it off given the opportunity would be as mentioned above, the ability to extend it if required for an extension, new kitchen or whatever.

If it’s £125k then it requires a lot of thought, if it’s £5k just do it

Opposite way around in my opinion.

If I owed £125k and someone handed me that much, it would be paid of instantly.

At £5k your options are far more flexible.

Put it this way, it’s easier to find £5k reasonably quickly than it is to find £125k

My mortgage allowed overpayments with limits in the fixed period (3 years I think) and then whatever I liked after that with no penalty and no early redemption fees. It also allows me to borrow back the overpayments if I want to. Overpayments can be set to reduce the term or the monthly payments. I just cut the term.

Anyway, got to the point where it’s basically paid off, but I want to be able to borrow more if I move house in the next 5ish years, so have arranged it to tick over with a few quid left and paying a couple of quid a month to keep it going. Essentially they just extend the term.

It’s still better to have an existing mortgage you can remortgage with than to start fresh, and credit is always good (if you are a good payer that is).

As for investing instead, if you look at mortgage companies many are withdrawing interest only mortgages because the risk to them is high in the current climate that people won’t be able to make enough with their own investments to be able to pay the mortgage off.

I’d pay the mortgage down to zero – you just can’t beat the feeling of shutting yr front door & knowing the place is yours not the banks.

Also, with any change I’d prepay any big annual running costs (service charges, health ins etc), then I’d start speculating with the balance.

Good luck, sorry to hear about the redundancy though.

Thing is, if you have the capital to settle your mortgage it makes not one iota of difference if the bank have an interest in it as you are mortgaged.

I’d pay the mortgage down to zero – you just can’t beat the feeling of shutting yr front door & knowing the place is yours not the banks.

Is exactly the same as at any point you could write a cheque and pay your lawyer £100 to get the title changed to dispose of the security.

Being mortgage free means all your capital is in one object – which might be fine if you have other capital to support you and you don’t envisage any expense that you can’t fund. One option is if you have an offset then your capital is working against your mortgage anyway so you essentially are interest free for that purpose but have flexibility with that capital. I do this all the time and have a mortgage entirely for that purpose as its a very simple line of credit at a very low rate. If you have enough to pay your mortgage and also a bit of capital then you can ignore all that really. Depends what you want to do in the next 5 years i suppose – if you are still working or will be back in work then once that is settled you might pay it off and build up an alternate investment portfolio. A massive chunk of cash in one building is only useful if you can liquidate it – either moving to a cheaper property and freeing it up or selling altogether and investing it in coke and hookers.

Pay it off.
While you can do the sums, and look at saving interest rates vs mortgage rates, it’s very hard to put a cost on the feeling you get when you know you’ll always have a roof over your head. Finding money for food, heating etc is easy compered to the mortgage.

But conversely knowing you’ve got £60k in the bank that will cover your £50k mortgage at any point in time is a pretty good feeling too.

And knowing you could get that new boiler, or car if required without actually having a job might be a good feeling too…

OP – in your situation I’d pay off the mortgage, but check with your mortgage provider if you can borrow back the overpayments in the future. If so, keep the account open with a nominal balance as a few have already suggested.

I’m working to clear our mortgage ahead of schedule. I’ll get a lot of peace of mind from it.

Get it paid off.

Without knowing the sums involved it’s hard to say however if it was me I’d be setting aside contingency money (say £15k per year you expect to be out of work) and then pay off as much of your existing debts as possible starting with the highest interest. If you have enough to do the mortgage then go for it, contrary to what Phil, Kirsty, Flick the Bean and whoever the latest consumerist tosspot is thinks your house is first and foremost a home, not an investment. A warm solid roof over your head is more important than a new car or whatever other luxuries people imagine they need.

Classic heart v head scenario.

We have been in a positon to pay off our mortgage for years, but never have. The interest/dividends that we have received on that capital has far outstripped any savings we would have made on interest by paying the mortgage off (and ours has been offset anyway so we haven’t paid any interest).

It’s never crossed my mind that the property isn’t ‘ours’ rather than the bank’s, but I guess if it is an issue that troubles you then by all means pay it off. Otherwise the financially smart thing to do would be to invest the capital instead (don’t just leave it in the bank though). Returns of 5-9% should be achievable.

We are just considering moving house, and again wondering about just paying cash for the new house or getting a mortgage. Money is so cheap at the moment a mortgage makes total sense, but the attraction of just paying cash and being done with it is very strong indeed.

its probably a case that if you can afford to pay it off easily, then there is probably little point doing so and you won’t be that fussed about it, but if cash is short then paying it off must seem like the holy grail.

Some of the wealthiest people I know have huge mortgages, and lose no sleep over it whatsoever.

As has already been stated above, get an offset mortgage as you may need some easy access to cash in the future. Fill your ISA quota with any remainder.

Offset – as above. See if you can switch to this if an option.

Best of both worlds – pay no interest on mortgage so you can either overpay or reduce monthly payments and you still have accessible cash.

Gives an effective savings rate way higher than otherwise available even with long lock ins (if a taxpayer), and as commented above mortgages getting far harder to get – so if you change your mind down the line could be tricky if paid off.

Mortgage borrowing likely cheapest borrowing you will find…

A word on offset mortgages, I had one and was asked to repay it in full after a year after the bank concerned decided to withdraw from the market. Check the documentation as they are not like normal long term mortgages.

Otherwise the financially smart thing to do would be to invest the capital instead (don’t just leave it in the bank though). Returns of 5-9% should be achievable.

Very optimistic numbers there! You could easily lose 20% in a year if we have another crash or whatever your safe bet turns out to be not so safe….

Returns of 5-9% should be achievable.

Would you care to enlighten us where we can find this financial Brigadoon?

I’d be happy to see the back of mine – currently just shy of 20 years to go, sigh!

If I was in your situation, I’d pay it off!

I’ve had a lot of (depression induced) debt in the past, and I’ve just cleared it after giving all my spare cash to the bank for for over 4 years!!.

I already feel much ‘lighter’ without any debt, but no mortgage on top of that would be amazing! after that, I’d just hammer the savings until I had a nice retirement fund.

Just the fact that if anything every goes wrong work wise, you have a home that is yours, would appeal massively to me.

Returns of 5-9% should be achievable.

Would you care to enlighten us where we can find this financial Brigadoon?

presume he/she’s talking about sticking it in a stocks and shares ISA. shares (i.e. a diversified index like the FTSE) typically return 4% over cash/bonds over the long term.

“Returns of 5-9% should be achievable”

After tax, with no risk ? I think we’d all be VERY interested in this.