Keep the 60K for future house move or pay off mortgage?

mumster

I have been logging on to MSE for over a year now and I am absolutely hooked on the chat forum. I've never been brave enough to post but thought, I'd give it a go as I would really like people's advice/opinions/experiences on something. So here goes:- I have 60K sitting in my bank account, which I have accumulated through cashed in endowment policies and savings which I have worked hard for and stashed away over my 18 years working as a secretary up the city (London). I took out a 90K mortgage 8 years ago and thanks to Martin's influence I have overpaid to my maximum limit every month for the past two/three years thus reducing my mortgage to 60K. Now here is where I am unsure. Should I use my savings to pay off my mortgage early and have the wonderful feeling of being mortgage free as so many of you on here have, after paying your mortgage off, albeit incurring a 1K penalty for doing so OR should I continue as I am, and plod along, overpaying every month and saving as I have been. I hope to move house in the future, to a nicer area and so will most probably need to borrow more money for the type of property that I am looking for. I'm not desperate to move but definitely want to move away from where I am at some stage (more greenery and open space for my two young boys) and I'm watching the housing market to see what happens. My current mortgage is 60K and the house worth approx 310K and I expect to pay about 400K for what I want in the new area (at current market prices). The interest I am paying on my mortgage is exactly the same interest I am getting from the savings account. The other thing to throw into the equation is that if house prices do fall, I may look into renting my place out and trying to fund the new house, thus I suppose making keeping the 60K as available funds a more sensible idea. Don't know, don't know!?!? Any advice/opinions/experiences greatly received. Thank you all!

roswell

As you have 60 k and your morgage is 60 K ... why not offset ? you wont gain interest on your savings but all the same you wont be paying interest on the morgage there for your over payments will be paying off capital only, slowly sipphon (SP?) off the differance to a high interest account so your not loosing out or an ISA, as your planning to move in the near future theres probably little gain in paying off the morgage if your going to need the funds to purchase the new property.

Alternatively you could look at saving another 30 K and when it comes to your next property buy it outright.

Just a few thoughts on the matter.

roswell

one benifit with offset in this case is you wont be paying tax on interest earen as you wont be earning any :-)

Jay1b

roswell, i believe she(?) would have to pay £1000 to end her current mortgage to take out a new one, unless its with the same company. So there would be no point in doing that, she might as well just clear the mortgage.

I would speak to your current mortgage and see if they would change your mortgage (free of charge - or with minimal fees) to another one of theirs which does have offset (like roswell said), or alternatively, maybe another product of theirs which may have a slightly higher rate, but no early repayment charges and pay it off 2 months later (check small print). Alternatively one which has a better over payment facility. Also i BELIEVE some other mortgage companies will pay any costs with transferring your mortgage to them (maybe these have great over-payment facilities?) - but i'm not sure on that one.

Either way your best bet would be to consult a mortgage advisor.

Hope this helps.

roswell

my thoughts on needing the funds are if she needs to make a deposit on a new property while awaiting the sale of her current property the fund would be available, this would put her in a greater buying position as she would not need to be in a chain.

I agree a morgage advisor will probably advise you better but those are some options.

Meeten

Savings in a bank that earn interest will be subject to tax, on the marginal rate of income tax ... so make sure that the interest payment comparison with the mortgage take that into account.

Some people reduce the mortgage to a minimal amount, and don't mind paying interest on a nominal amount - why?? So as NOT to have the deeds to the house, and ensure that they are kept safe. Don't know if that is so common now, but my dad kept a mortgage of £1, so the bank held the deeds, and he did not have to hire a safety deposit box to store them!

See if your current lender allows you to dip into the overpayments that you have made -that way, you will be earning the max interest (by reverse, as in not paying it on the mortgage) and if you were in need of a deposit for another place, you can access the monies.

It could also be worth talking to your lender and explaining that you are potentially looking to get a larger (more expensive property), and will potentially be using them to finance it - this may help out in them telling you the best option for the pile stash of cash ....

HTH