Mortgage repayment or wait....?

JuliaASmith

My partner has just been made redundant, his package will now enable us to pay off our £42,000 mortgage and leave a little as savings. As he is now nearly 61 this is an early retirement. I will continue to work for a while and I earn enough to cover our living expenses so he will be able to leave his occupational pension untouched as well.
Our mortgage is currently at 1.39% (0.89% above base rate) and has no early repayment penalty, interest last month was just £49.49.
Are we better repaying it now, or is there an account somewhere which we could use to make the regular repayments of £604 but pay a better rate of interest until such time as rates change and then it be better for us to pay off the mortgage at that point?

snarffie

JuliaASmith wrote: »

My partner has just been made redundant, his package will now enable us to pay off our £42,000 mortgage and leave a little as savings. As he is now nearly 61 this is an early retirement. I will continue to work for a while and I earn enough to cover our living expenses so he will be able to leave his occupational pension untouched as well.
Our mortgage is currently at 1.39% (0.89% above base rate) and has no early repayment penalty, interest last month was just £49.49.
Are we better repaying it now, or is there an account somewhere which we could use to make the regular repayments of £604 but pay a better rate of interest until such time as rates change and then it be better for us to pay off the mortgage at that point?

With such a large pot of savings, an offset mortgage springs to mind. You get access to your savings at any time at a low rate of interest (ie, the mortgage rate) and in the event of your needing benefits in the near future, the 'savings' in the offset would not be counted for means tested benefits. If you say you could pay off the entire mortgage, you would in effect have a 100% offset and would pay no interest for the rest of the term. Otherwise you can find a savings account that pays at least 1.39% after tax and effectively do the same.

As you husband is 61, and you are both close to retirement, I would imagine that this strategy is possibly a little pointless (fees for remortgaging, hassle, limited term), particularly as you are currently on a good tracker. There is a first direct fixed offset that seems to have only a £99 fee that you could look into though.

It's really swings and roundabouts and a simple case of whether you want to have a big chunk of savings or the feeling of having no mortgage. From a bottom line point of view you have three options which will have exactly the same outcome...

1. keep mortgage and save £42k in a savings account with at least 1.39% gross.
2. pay off mortgage.
3. get an offset and put all your savings into that, effectively giving you a £0 mortgage balance.

Hope this helps.

Snarff.