Should I pay off my mortgage?

dodgy

With interest rates plummeting I called to ask a redemption figure for my 5-year fixed rate mortgage.

It's a 4.5% fixed rate for another year, owe £88700 and would cost £90000 to redeem now (i.e. £1300 fees/penalties)

I'm sure the answer is yes, but as a higher rate tax payer making full use of my ISA it would be sensible to pay it off, wouldn't it? Savings rates have plummeted so low that I'm just losing money by not - that's my thinking anyway. I do have an Egg 1-year fixed savings account at 6.3%, but even so that's only 3.78% after tax.

Thanks

Lokolo

Do you have any overpayment charges?

If I were you I would keep the mortgage and savings but just instead of saving, put more into mortgage.

If you should lose your job or end up needing a new car or anything you can use savings for that, if you blow it all on paying off mortgage you could the end up in trouble.

How much savings do you have?

Farway

My personal view is yes, pay it off, assuming you do not have say large loan or credit card debts

For reasons you pointed out wrt savings rates, plus the priceless knowledge & comfort of knowing that should your life & job go t*ts up then at least you have a paid for roof over your head

FWIW I paid my mortgage off over ten years back, this turned out to be a good thing, as my employer stopped all overtime, thus reducing income, and rates [under Tories] continued to climb, both of which had zero effect upon me

Subsquently I was able to volunteer for redundancy and stop work 3 years earlier, never looked back since

cocktail

dodgy wrote: »

With interest rates plummeting I called to ask a redemption figure for my 5-year fixed rate mortgage.

It's a 4.5% fixed rate for another year, owe £88700 and would cost £90000 to redeem now (i.e. £1300 fees/penalties)

I'm sure the answer is yes, but as a higher rate tax payer making full use of my ISA it would be sensible to pay it off, wouldn't it? Savings rates have plummeted so low that I'm just losing money by not - that's my thinking anyway. I do have an Egg 1-year fixed savings account at 6.3%, but even so that's only 3.78% after tax.

Thanks

if u are thinking of paying off the mortgage in full(thats the impresion i get from the post) i would just pay off the mortgage rather than keep it in the savings,provided u have enough other savings to act as a back up--6months salary or more according to ur circumstances.
go for it

anselld

dodgy wrote: »

With interest rates plummeting I called to ask a redemption figure for my 5-year fixed rate mortgage.

It's a 4.5% fixed rate for another year, owe £88700 and would cost £90000 to redeem now (i.e. £1300 fees/penalties)

I'm sure the answer is yes, but as a higher rate tax payer making full use of my ISA it would be sensible to pay it off, wouldn't it? Savings rates have plummeted so low that I'm just losing money by not - that's my thinking anyway. I do have an Egg 1-year fixed savings account at 6.3%, but even so that's only 3.78% after tax.

Thanks

The £1300 penalty equates to about 1.5% of the 88700. So provided you can save at better than 3% net it would be better to keep the mortgage for another year and avoid the £1300.

Are you suggesting cashing in accumulated ISA savings? If so, the other problem is they would take years to rebuild again and as a higher rate tax payer they are a significant benefit when rates recover.

dodgy

Thanks .. but isn't that forgetting the mortgage interest that woudl be charged if I didn't pay it off?

I've got the money spare outside of my ISA and it won't exhaust my savings, so I think it's pretty sensible. Thanks for all the advice.

dwileflunker

dodgy wrote: »

With interest rates plummeting I called to ask a redemption figure for my 5-year fixed rate mortgage.

It's a 4.5% fixed rate for another year, owe £88700 and would cost £90000 to redeem now (i.e. £1300 fees/penalties)

I'm sure the answer is yes, but as a higher rate tax payer making full use of my ISA it would be sensible to pay it off, wouldn't it? Savings rates have plummeted so low that I'm just losing money by not - that's my thinking anyway. I do have an Egg 1-year fixed savings account at 6.3%, but even so that's only 3.78% after tax.

Thanks

The simple answer is YES, but there are some side issues you may wish to consider.

anselld

dodgy wrote: »

Thanks .. but isn't that forgetting the mortgage interest that woudl be charged if I didn't pay it off?

I've got the money spare outside of my ISA and it won't exhaust my savings, so I think it's pretty sensible. Thanks for all the advice.

Pay off now:
Balance 88700
+ Fee 1300
You Pay 90000

Pay off in 1 Year:
Balance 88700
+ Interest 4.50% 3992
- Savings Interest 3% 2661
You Pay 90031

Hence just over 3% net interest (actually 3.04) is break even position.
But as you say, achieving more than 3% net as a higher rate tax payer isn't easy now so it is fairly sound.

sloughflint

anselld wrote: »

But as you say, achieving more than 3% net as a higher rate tax payer isn't easy now so it is fairly sound.

The Egg account does so I'd wait the year.It works out at a saving of roughly £600.

Pay now, the penalty is £1300 so a 1.4656% fee

Pay in a year, s/he pays 4.5% mortgage interest which is offset by 3.78% net savings rate so like a fee of 0.72%

The difference is 1.4656-0.72=0.7456% which on £88700 is £661.34

(not sure I'd want to keep more than 50k in Egg though so calculation a bit academic unless joint account of course)

dodgy

Thanks to all for the help. I've decided to redeem it, as is mentioned above I'm only happy to have £50,000 in Egg, so with the remainder attracting 3.5% interest before tax at best it does work out better to redeem. It also will stop me chasing around for reasonable savings interest rates as the remainder of my savings will be in my ISA and Premium Bonds.