Help - Pay of Mortgage in full or keep the money in savings....

summerx

Hi all,

I wonder if you can help with the below.

I am in very fortunate position where I can pay my mortgage off in full in December this year (tracker deal finishes then)

Some of my savings is in a fixed term bond that finishes in 1 week.

1. Should I put the money in another fixed rate bond?
(4.5% for 1 year or 5% for 2 years)

Because the savings rate is higher than my tracker deal (currently 0.04% above the BOE base rate)

2. Or put it into stocks and shares or investments.

From my understanding if you savings rate is higher than your mortgage rate then it is better to keep the money in savings rather than pay of my mortgage?

Thank you for your help in advance.

DawnW

Not sure of the ins and outs re the interest rates etc, but if I were in such a fantastic position I would pay my mortgage off like a shot! At least as long as you would not have to pay an early repayment penalty that is. You can always use the money you would have spent on your mortgage to build up savings again, perhaps with a regular saver account - there are some quite high paying ones around still. After using up your cash ISA allowance that is

Stocks and shares/ investments can go down as well as up remember (in fact when I own them they they always go down) :eek:
I always think they are good only for those people who can afford to lose the money, ie not me! In fact not anyone who owes money on a loan or mortgage IMHO.

ailuro2

We did something similar, (we call it our savings stooze because instead of taking money from a credit card and putting it in a higher interest account, we took out our overpayment fund and put it in a fixed rate saver for a year, it's earning approx 5.75% nett, our mortgage is a tracker at +o.49% of BofE)

If you want the security of being mortgage free, then pay off the mortgage.

If your job is at risk from redundancy, then think how the savings would affect any claims for benefits if the worst were to happen.

Otherwise, if you are making money from your overpayment fund working harder elsewhere, then why pay off the mortgage early?

We make around £130 a month from our fixed savings interest, but pay around £50 a month interest on the mortgage - now why would we throw away £80 a month

Hope this makes sense!:D

Kavanne

I have put my savings into a halifax fixd rate at 6%, whilst I am only paying 2.25% on mortgage atm, if it stays like this after 12 months I will come out about £400 on top which will shave another month off my mortgage Worth it, I think!

StuartGMC

summerx wrote: »

I am in very fortunate position where I can pay my mortgage off in full in December this year (tracker deal finishes then)

Summerx
Just a point of clarification, your present deal is BOE +0.04% so comments on savings rates vs this rate are correct (although I would still look to pay off, then with full security of owning the home, build investments!).

However, what deal will you be moving onto? This is the crux of the question because if your new deal is one where interest rates are much closer then placing your money in the savings may not earn such a high differential as expected, and also depending on how long you would hold them in bonds, what is your prediction for interest rate movements?

As DawnW notes, Stocks & Shares can go down, our S&S ISAs are down 46% presently, but it is not required to pay off the mortgage. You should look at such investments over a long term 5yrs or more. That said, now is a good time to buy if you know the specific equities or funds you wish to invest in which match your risk profile. These should always be part of a balanced portfolio. In our case the S&S ISAs represent 30% of our savings.

HTH

summerx

Thank you for all your advice, it's really helped.

From your help I've decided to: Get a 1 year fixed term bond (4.65%) it will finish in January 2010.

And then once my mortgage tracker term is up in December this year I can pay it all off (or part pay) in January depending what is happening with rates etc.

Is there any tax implications from owning your own house outright?

Do you get penalised in anyway does anyone know?

dimbo61

Yes if its your home and main residence you have NO CAPITAL GAINS TAX to pay when you decide to sell and no mortgage company can repossess your home.
The 1 year bond at 4.65% is before TAX but this should still pay more than your current mortgage interest rate costs so good idea.
You will be mortgage free and have to worry over what to do with all that extra money each month ( dont tell the wife !!)

summerx

Thank you it feels good now, finally making a decision on it.

I just read your reply and you made me smile. I'm a 33 year old female.