Good time to clear mortgage with savings?

Ljc80_2 · 19 October 2017 at 12:27PM

Hi

I've been pondering what to do with our savings for a few weeks.

In a fairly well paid job an have managed to save £32k in last 2 1/2 years. This is all currently in a Nationwide easy access ISA at 0.75%

Also currently have a mortgage with Nationwide of 37K at a rate of 1.49%, this will expire in April although there are no ERC so I could change it any time.

I know im not getting a great interest rate in the ISA but not sure I can be bothered with the hassle of lots of current accounts to maximise the interest on lots of split up small amounts.

With the mortgage rate likely to rise soon would it be a good time to just about clear the mortgage in one chunk of say 30k and start off saving again, or leave savings and at current amount and start making bigger overpayments of say 700 per month?

Its a quandary as I quite like having a savings pot, but I would also like to be mortgage free!

jamei305 · 19 October 2017 at 12:51PM

If you were mortgage free would you take out a mortgage for 37K at a rate of 1.49% in order to keep some spare cash in the bank?

AlanP_2 · 19 October 2017 at 1:05PM

You could consider an Offset Mortgage, that way you retain access to the savings pot in an emergency whilst paying minimal interest.

Effectively you get Mortgage Rate as your Savings Rate.

bowlhead99 · 19 October 2017 at 1:24PM

jamei305 wrote: »

If you were mortgage free would you take out a mortgage for 37K at a rate of 1.49% in order to keep some spare cash in the bank?

We're all different, and it depends on how much you earn and what your lifestyle costs, but I would much prefer to have £32k in the bank and service a £37k mortgage that's costing me only half the rate of inflation, instead of having £0 in the bank while I owe £5k secured on my house. The former option gives you way more flexibility for whatever life throws at you.

If you are concerned about interest rate rises on the mortgage, Nationwide would let you fix five years at about 2% or even ten years at 3%.

I get the fact that you don't want to "mess about" with a quest for the highest interest rates by dripping money through regular saver accounts or high interest current accounts, but in your position the interest bill on your unpaid-off £32k mortgage of something like £40 a month (less whatever you earn on your £32k savings; maybe £20 a month where the savings currently are, with potential for quite a bit more elsewhere) is a small price to pay for a massive stack of ready cash.

If the reason you have been able to save up so much so fast is that you have a decent high-tax-rate paying job, you could look at putting some of that stack of cash into a pension to get the high rate tax relief.

enthusiasticsaver · 19 October 2017 at 1:29PM

I think I would look into investing if I were you as if you have saved that much over 2 and a half years you obviously have around £1k disposable income each month which is a lot. Have you explored upping pension contributions? In your situation I think I would pay off a lump sum off the mortgage (maybe £17k?) and leave £15k in savings for replacement car, home improvements etc etc. Going forward I would explore additional pension contributions, overpaying mortgage and maybe look into investing depending on your attitude to stocks/shares.

Ljc80_2 · 19 October 2017 at 2:16PM

Thanks for all your responses.

Yes I do like having the security of having some in the bank, especially now I have a young family.

Does anyone know if its likely the ISA rate would go up at the same time there would be any mortgage interest increase?

I did consider, as enthusiastic mentioned, nocking a sum off the mortgage of 12k, leaving me 20k which I could get more interest on in a Santandar current account than I do with 32k in my ISA.

I guess another thing is it would reduce my current mortgage payment of £224 per month when I renew in April, which would free up more monthly money to save. This year I have already made £3.5k overpayments with this aim in mind.

Pensions are something I know very little about, I am currently paying approx. £120 per month and my employer double this into a Standard life pension. Have been for about 2 years. TBH I don't even know when I can draw this or anything!

chockydavid1983 · 19 October 2017 at 2:36PM

Any ISA rate rise is likely to be less than any mortgage rate rise.
Moving to Santander would be better than atm but basically the same rate as your mortgage. It's really not that much hassle to get 4/5% on a lot of that money.
It's a good idea to have some emergency fund in cash of 3-6 months living expenses.
It's a good idea to pay at least enough into your work pension to get the max employer contribution- otherwise you're throwing away free money. Private pensions can currently be accessed from age 55 (soon to increase to 57) so about a decade before you get state pension currently.
Aside from that, a S&S ISA is also worth a look.

grandst · 19 October 2017 at 5:08PM

Pay off debt while we have the lowest rates ever. QE has distorted investment markets, returns have been borrowed from the future.

jimjames · 19 October 2017 at 5:20PM

grandst wrote: »

Pay off debt while we have the lowest rates ever. QE has distorted investment markets, returns have been borrowed from the future.

I disagree. In my mind there is zero point paying off debt at such low rates when you can earn vastly more elsewhere. Pay off the debt if rates rise and they're then more than the return you can get.

dawyldthing · 20 October 2017 at 2:40PM

I paid mine off 3 years ago and it's the best thing I ever did.

Make sure you have 6 months money behind you then decide what you want to do with the rest. If the car is ok and you've not got a lot due out I'd pay a fair wack off as it will save you in interest payments and you'll get a better mortgage if you remortgage when this one runs out. Yeah you could put some in savings but you've got to decide whether it's worth the risk/ worth doing with the low interest rate we currently have as in most cases it's pittful

bostonerimus · 20 October 2017 at 2:55PM

With stock markets surging and interest rates so low you could argue it's a terrible time to pay off a mortgage. But for the very risk averse it's always attractive. Still I would always keep at least 6 months cash savings for emergencies and would not use that to pay off a mortgage.

Good time to clear mortgage with savings?

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