Paying Mortgage off best option in this situation?..

Hedge

Hedge

Hedge

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Somewhere in the middle.
Mam only owes about £9000 on a mortgage.. 240pm payments..

She has the money to pay this off in one lump.

This would free up the 240 from her wages.. Ontop of this 240 she pays critical illness cover or something. This would no longer be needed since she has the cash available.

Now it seems best Idea to me to pay this off asap because Savings arent worth jack these days. But I also think her mortgage is low interest too.

So potentially putting the 9000 into a savings account and having the mortgage payment come out of their each month might have the same effect but work out cheaper.


Any ideas any sensible folk?
 
Given the current climate, this is indeed a viable option. Alternatively, what type of mortgage is she on? She could swap to a tracker rate, probably reduce her monthly payments and put the £9k into a savings account which returns better interest than the interest shes paying on the mortgage.

To be fair though, If I had the cash and nothing else was looming that needed paying, I'd pay it off
 
Yes, definately - pay it off.

You don't mention how long she has left on the mortgage, but interest rates are at an all time low. They may not be this low for the remainder of the term.

She will also save a fortune in interest.
 
Does she need to clear the whole thing or can she just pay a lump sum?

My mum and step-dad cleared their mortgage down to £1 (18p per year in payments required...) when retiring due to payouts on pensions and this has allowed them to borrow back when needed at a much lower interest rate than any available loan.

This quick and easy borrow back feature allowed them to release capital for investments in 2 buy to let properties without having to go through the rigours of low deposit buy to let mortgage application etc.

If she has no requirement to need money at a future date then paying it off entirely will still save her some interest versus paying it over any length of time.

The only upside to paying it from a savings account versus clearing it outright would be if the paid interest rate on savings was greater than the rate on her mortgage otherwise you are only offsetting a part of the interest payable on the loan and could instead just clear it and avoid paying it.
 
Seek independant financial advice.

It all depends on a lot of factors.

What rate of interest is the mortgage?
What rate can she get on her savings?
Does she still have other savings for a rainy day if she did pay it off? (much harder and longer to draw down on a house if you need a lump sum in a hurry)

For example my boss only pays BoE base rate so is paying 0.5% but he is earning 3% on his savings so no point him paying his mortgage off even though he could.

Oh and one last thing, if you do decide to pay off the mortgage, don't pay it off in full. Keep £100 owing. Reason is mortgage companies look after your deeds for free but if you pay off your mortgage you will pay a solicitor to keep them. Oh that used to be the advice, not sure if anything has changed there.
 
My parents have £6k left on their mortgage and have no intention of paying it ahead of time, they put their cash into high interest accounts and leave their mortgage well alone.
 
If she moves the money into a savings accout (that <> ISA) then she is going to have to pay tax on the interest.

Just pay off the mortgage, apart from £100 leave that in there, otherwise they'll post you the deeds to the house which are so important they are a liability to look after, and you lose some various protections the mortgage people offer!
 
The mortgage has 4 years left on it.

The interest rate on the mortgage is 2.5% which might be quite high? maybe swapping is best?

She has the money but is scared she makes the wrong decision.

She has enough money for a rainy day etc. I mean its nice to have no mortgage over your head but if savings interest works out the better option then it would be silly to clear it.
 
Compare net cost of the mortgage with net returns on investment. 2.5% is around the same returns you get on a cash ISA although obviously she may have maxed her allowance already this tax year. Medium term investments such as 3+ year bonds are worth looking into since she has 4 years left on the mortgage - these pay around 4% gross so unless she is a higher rate tax payer this could work out a nice little earner compared to paying back the mortgage.

As mentioned look into any early repayment / redemption fees that may apply, and consider leaving a token amount left on the mortgage so that the bank keeps her house deeds in a vault somewhere.

Personally at 2.5% my temptation would be to keep the mortgage going simply because it is no more expensive that what she can get on savings; the thing about debts is that once you have paid them off you have no guarentee of being able to get that cash back on the same terms in the event that you suddenly needed money (a "rainy day"). Whereas if she keeps the mortgage going and is disciplined (i.e. makes sure that £9k is going into savings not being frittered away) she has covered herself.
 
Gilly said:
My parents have £6k left on their mortgage and have no intention of paying it ahead of time, they put their cash into high interest accounts and leave their mortgage well alone.
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Which accounts are these then? (I mean where?)
Are they ISAs or do they get taxed on them?
 
I would pay it off. Can't put a price on piece of mind!

I'd do anything to be mortgage free, although I'd need a healthy 6-figure balance in my account to do so :-(
 
paid mine off last month ,taking 9.5 years in total ,my biggest lump sum was £12k from redundancy and 3 months in leu ,i had no early repayment fees so thats worth checking.
from my point of veiw it was well worth it, it feels amazing for that big lump to be not going out every month ,plus the deeds are in my(our) name not the bank but mostly feeling very secure after losing afew jobs ,theres a dedicated forum for this on monysaving expert that i used quite a bit.
next house is going to be cash:)
 
Thanks for the input guys Ill tell my mam to read some of these points when she gets home later.

Shes very diligent with money, not much risk of her dipping into savings etc.

But we shall see what seems best option
 
She might have a cap on how much she can pay in addition to her normal monthly payment and there could be a penalty if she goes above this, it's worth checking first. I know I'm only allowed a 10% overpayment per year.
 
HangTime said:
No, no it isn't. ALWAYS is a very dangerous word to use as it depends on the individual. My savings interest is more than double my mortgage interest for example.
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Bingo.

I'm using my mortgage as a savings account - interest on ISA was less than interest on mortgage - so overpaying mortgage, can withdraw the money at any time, and whilst its not 'interest earned' its more like 'interest not paid'
 
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