Would you pay off mortage or consider other options?

new_creation2008

Hi All,

New to this site and grateful for any suggestions you can give! The story is as follows:

Bought a property for £317,500 and have an oustanding mortage of £129,000.

The house is now worth probably £280,000

Have savings of £147,000 and trying to work out what to do with it.

The house was initally bought as a project (i.e. we were going to extend the back and sides) at a cost of approximately £110,000. If we proceed with this, the house will probably be worth at best £400,000

Ideally, i would like to sell the property in the next 2 years and move up the ladder if possible.

What would your thoughts be if this was your scenario? The options in my mind are:
- Pay off the mortgage
- Proceed with the extension
- Buy a second property outright and rent (this revenues could be used to increase my monthly mortgage payments on the current house).

Thanks everybody!
NC

dimbo61

Whats your mortgage rate and your savings rates ?
Why spend £110,000 to increase value by £120,000 and will this make your property the most expensive on the road/estate !
What kind of deal are you in ? any ERC charges for paying off the mortgage ?
Do you want to be a landlord with all that work involved and putting all your savings in property with a falling market.
Me I would clear my mortgage and carefully consider any building work which you could pay for in stages as and when you can afford to pay for in cash.
This is only my opinion

Barneysmom

I'd pay the mortgage off it is was me.
Then you're clear of debt and have a fresh staring place.
I wouldn't even extend if I could do without, though I don't know how many children you've got?

mike5678

I would also pay off the mortgage. Imagine if you was in the position where you had the equity and not the savings, you would never then choose to give up the equity for debt and savings.

The amount of money you can make from the savings is outweighed by what the debt will cost you. Unless you was to use it to start a more highly profitable business.

slickflick

paying it off is very tempting. for peace of mind if nothing else.

new_creation2008

Thank you one and all for taking the time to respond - i really appreciate it.

My savings rate are a mere 0.5% (don't laugh!) as i believed i would need the money at short notice - for the building work.

My mortgage rate is fixed at 4.99% and expires in November. In December, i willl automatically switch to the variable rate (which is presently 4.99%) and can pay off the mortgage in full (with minimal fees).

redb_2

Alternatively you could reserve an offset mortgage now which you can switch into in December. First direct rates would be less than the variable. This would allow you to offset your savings against the mortgage and you would pay no interest on your mortgage - you could then see how you enjoy living without the mortgage - take your time to think about the extension over xmas and see what the economy (and your finances )is like in the new year

this would also still give you option 3 as a possibility

it gives you flexibility in your move as well in 2 years - if you are looking to upgrade then you can just draw down on the offset to fund the purchase (so make sure its a portable offset )

Oh and get that £147k moved asap to a better instant access savings vehichle

red

dimbo61

If you are allowed to make say 10% overpayment each year then pay off that amount asap ( no point paying 4.99% if only getting 0.5% on savings)
Wait until November and as REDB has stated you could change to an offset mortgage with First Direct or other lenders doing offset mortgages( I am with YBS).
You could use the money in the offset to fund the big extension in stages and just dip into the pot as and when you need to pay for services/building materials.
Or you could just pay off the mortgage and save for retirement/ nice holidays.
GOOD LUCK

Thrugelmir

Every area has a ceiling price. Would your extension make your property far more expensive than neighbouring property ?

Pay off the mortgage and then save your mortgage repayments.

new_creation2008

Thanks all for taking the time to respond to this question.

Its seems that the overall consensus is "pay off the mortgage" although i'm interested by the comments re the OFFSET mortgage. I must concede that I wasn't aware of this product/option and will definitely need to scrutinise this possibility further. At present, i haven't quite got my head around it!

REDB/others, could you possibly expand on paying "no interest on your mortgage". Apologies for being ignorant! Would the money used to pay off the mortgage (probably 126,000 by December) gain interest? Is there a link that would explain this scenario further (i.e. when a mortgage could be paid off but the consumer decides for the OFFSET option instead?). I guess i'm really keen to know the advantages/disadvantages of both possibilities.

Additionally, is FIRST DIRECT considered the best option at present? What's the best comparion tool?

DIMBO, unfortunately my overpayments are limited to January only.

THRUGELMIR, if we proceeded with the extension, the house would probably be on par with most in the neighbourhood. Most homes are either detached or extended to a 4/5 bedroom (ours is a 3)

Again, thank you one and all for helping out here! I'm feeling much more at peace already!

NC