Should I repay my mortgage from redundancy money? Help please.

Nell51

I have just taken redundancy and have enough money to repay our mortgage. The outstanding debt is £46.5k made up of £21k on fixed rate of 5.74% due to expire in Nov 2009 and the remainder at base rate tracker.

Are we best to pay off the mortgage in full? Friends and family have advised us to keep a small amount say £10k as if we clear the mortgage this will affect our credit rating going forward. If we did this the repayments for the new £10k mortgage would have to come out of savings as I do not have any income at the moment. Others have suggested investing the money instead and keeping the mortgage as we would earn more from savings than the interest paid on the mortgage but I'm not sure about this. Any help and advice would be appreciated on the best way forward.

evab_2

HI Other wiser people than me will be along in due course I'm sure, but I was just wondering a couple of things:

* Do you have any other income to pay for food, utilities etc whilst you are looking for work?
* Do you think it might take a while to get another job?
*If you paid off most of the mortgage how long would you be able to make the remaining payments out of your savings?

OK that's 3 things lol, I'm sure someone will advise you on comparing savings accounts to the interest on your mortgage.

Whatever you decide, good luck Ev

Nell51

Thanks Ev. My husband's income will cover the day to day bills, etc, but not the current mortgage repayments, hence wondering if this is the best thing to do. I expect to get another job shortly but there aren't many being advertised at the moment so need a 'buffer' behind me. If we didn't repay the mortgage we would have the redundancy money to make the repayments from. I know we are in a fortunate position to have the redundancy money but I just want to know if we're making the right decision as it's very scary!!

lonestar1

Be careful having lots of cahs in the bank will mean you can only get contribution based JSA. When I put my name forward for VR last year I was advised to pay of my mortgage if I got the cash (I didnt) anything over 16k in savings and you get no benefits at all once the 6 months contributions based JSA runs out. Doing what I advise could be seen as trying to meaningfully spend the cash but the advice I received was that so long as it had been spent on paying off the mortgage and I hadnt enquired about it at the JCP interview and I claimed I hadnt relaised there was a savings limit it wouldnt be a problem and they would just process my claim based on the savings I had then

dwsjarcmcd

Just to clarify 1 point, whoever said that having repaid your mortgage had a negative impact on your credit rating is talking nonsense!

If it was me, I would repay the mortgage. You are paying interest to your lender at a higher rate than you are gaining it in savings. The only other point is to max out yours and your husbands ISA's (if you haven't done so already) and use the rest to reduce your mortgage.

David

dimbo61

Hi nell
check with your lender if there is early repayment charges for paying off
your mortgage before november 2009.
If you can pay part ( the tracker off then do so ) and check if you are allowed to overpay on the fixed £500/month or 10% a year !
As others have said having a large amount in the bank will effect entitlement
to benefits so pay as much as you can off the mortgage without paying
charges and save the rest into ISA,s £3600 each this year and consider
10% halifax regular saver and 7.15% fixed 1year bonds ( martins e-mail)
if you are now a none tax payer. GOOD LUCK

stevem999

I worked for a firm of independent financial advisers until a few years ago (not as an adviser though) and they always said that mortgage debt was cheap debt and they are broadly correct. Therefore often their recommendation was to invest a lump sum, in this case your redundancy, and use the interest earned to service your mortgage for the rest of it's term. That way you service your debt and at the end of your mortage term you still have your lump sum in cash to either provide the same income for evermore or for you to spend as you see fit. Kind of the best of both worlds really.

I haven't done your maths but you've obviously got more than 46.5k in redundancy. For ease, if you had 50k and you put it in a top rated savings account at about 6.5% at the moment, with simple interest you'd get about £3,250 per annum interest or equivalent of just under £271 per month. If that would service the mortgage then perhaps it's a way forward?

However I would see what else people on here say AND if you're looking at making major life changing decisions with that kind of money, try speaking to an IFA first (not an adviser at your local bank!!).

dimbo61

If any one can in todays market give me 6.5% TAX FREE from my investments please please tell me HOW.
I would want this return for the next 10/15 years
or you could just clear the mortgage with a guarenteed return of 5.74% TAX FREE and also pay off the tracker part at X% TAX FREE.
Put your money in bank shares HSBC ! NORTHERN ROCK ! BRADFORD AND BINGLEY ! need I say more.
Cash ISA,s paying 6/6.5% TAX free

stevem999

dimbo61 wrote: »

need I say more.

No you said quite enough.

So my maths is out but the principle still stands, she could still service a substantial part of her debt off savings interest. It's worth investigating with the guidance of an IFA.

Dithering_Dad

stevem999 wrote: »

I worked for a firm of independent financial advisers until a few years ago (not as an adviser though) and they always said that mortgage debt was cheap debt and they are broadly correct.

Well, they would say that because if they invest your money for you then they get a commission, if you invest the money yourself (in mortgage debt repayment), then they'll get nothing.

Gone are the days when mortgage debt can be classed as cheap debt. With interest rates climbing and arrangement and redemption fees increasing, its getting more and more expensive to service mortgage debt.

dimbo61

hi stevem999 ( not chasing ambulances ? )
still think nell51 would in her position be better off clearing the debt if she can