Repay or not?

johnsonr1

Slight twist on the old dilema of whether you should pay off your morgage if you had the money......

The economic decision is normally around whether you could achieve a greater return on your captial than you could save by paying off the mortgage. If you reckon you can make more than your morgage company charge - then invest the money instead of repaying.

Now a question: in a time of falling house prices does this decision process change in any economic sense (never mind sentiment or anything else......). Does the prospect of your house falling in value by 10% in the coming year present any aurgument for putting your mortgage capital repayments somewhere else - perhaps just holding them in cash? Can't quite get my head around the maths of this...... I don't think falling house prices change the decision making criteria at all - i.e. it still depends upon whether you think you can return more than the mortgage company charges - but I can't convince myself that this is true.

I havn't paid down the capital on my mortgage for several months (I am interest only but overpay to the equivalent of a repayment morgage each month) - but the payments are isolated and sat on deposit. Should I leave them where they are or give them to my mortgage company?

Anyone got a take on this?

opinions4u

Keep it simple.

If the net rate on the savings account (or gross rate on the ISA) is less than the rate charged on the mortgage, there is a case for reducing the capital owed.

Before you do this you need to consider:

(1) What else could you need that capital for if - you may still be wise to keep it liquid, especially if fees and rates for borrowing it back in future are high, or you may not be able to obtain new lines of credit.
(2) Are there any charges or penalties for overpaying the mortgage.
(3) Do you have a 'rainy day' fund just in case?

If the sum involved is particularly large compared to the overall size of mortgage, look in to offsetting and get the best of both worlds.

Alan_Cross

The above puts it as neatly as Martin's ever done. Well done!

The only thing it doesn't mention is the general case to be made for reducing the amount outstanding.

Debt is very rarely a good thing. A roof over your head is one of the few instances where there's something to be said for long term borrowing. I've just never been able to understand the people who have borrowed on credit cards for day to day living. That's just asking for trouble and many have now come up against the credit crunch buffers.

Enough of the sermon. Yes, I'd recommend the paying off situation, particularly if it's a monthly overpayment situation which you can vary/stop as desired. A capital lump sum scenario is slightly trickier but I'd still go for it.

cloud_dog

OP, we are in a similar position, had been saving our money as the gross rate (wife non-tax payer) was much greater than the fixed mortgage rate.

We have now started paying down our mortgage (in line with tht T&C's) rather than continuing to put money in the designated savings account.

One nice thing about our provider, Nationwide, is that you are able to draw on any overpayments in the future should you wish to without incurring any additional costs. Sooooooooo, should rates sky rocket within the next 3 years I will withdraw the overpayments and put them back in to a savings account.

cloud_dog