To pay or not to pay off our mortgage?

Beckipeg

We're in the fortunate postition of having enough to pay off our mortgage - just £9000 left now. It's currently on a variable rate interest only mortgage (currently 5.75%) with the Halifax. Our savings have been making around 3.5% in Fidelity PEPs. Is there anything I should know before we take the plunge and say goodbye to debt?
Is there any benefit in maintaining a miniscule mortgage for safekeeping of the house deeds?
Any advice welcome, thanks.

lisyloo

You may have to pay some fees to redeem your mortgage (usually about £150).
Sometimes these might be higher if you redeem early (IF do this) so this is worth checking.

You will also need to get a form filled out by a solicitor to clear the charge at the land registry so there will be a small solicitors bill as well (you can do it yourself but form is written is legalese so you might not understand it).

If you have a solicitor then they will most likely hold the deeds for you for free.
Also I believe that deeds are held electronically at the land registry these days so you could keep them at home if you like.

Are you likely to want to borrow any money in the short term?

Do you have credit cards that you pay off each month? (just thinking of the credit report aspect).

Do you have enough available cash for emergencies?

All in all, I would say that there is little benefit to keeping a small mortgage (unless extra fees apply for paying off early).
There is a psychological boost to having no debt.
Usually you have to pay the fees e.g. deeds release fee and sealing charge at the end anyway, so you will have to pay these fees sooner or later anyway.

You also need to take account of your view of the stockmarket. You are taking money out of equities and putting it into property.
What is your view on future stock market growth?
What period is the 3.5% over?
The stock market has not done too well in recent years, so this might be looking a bit unfavourable.

lowfatlinda

Hi

I have recently paid of my mortgage It cost me £50 in admin fees but this was better than paying interest if I didn't. Please remember to put the title deeds somewhere extremely safe as if they get lost or damaged they can cost between £1,000 - £1,500 to replace and take up to a year to sort out. I have photocopied the deeds and then paid my bank to place the originals in a secure place. It costs about £12.00 per year, far cheaper than if I lost or damaged them. Another option is to purchase a Fire-proof large envelope for security.

Well done on clearing your mortgage just before the interests rise again.

Lowfatlinda ;D

DiggingOut

Your £9K in PEPs is earning you around 3.5%. If that continues (who knows?) and interest rates go up again this week (almost certain) you will be paying 6% on your £9K debt. That means a difference of 2.5%, so your mortgage is costing you a net interest cost of £225 / year, or about £19 / month.

Should be easy to look at any costs of redeeming and figure out if it is worth it. I suspect it will be.

The above maths is obviously based on the assumption that your PEPs will continue as they have, but past performance probably means nothing. Future results can be far more or far less.

You are doubly exposed to higher interest rates. Equities often drop when rates go up. Your mortgage goes up when rates go up. Since it looks like rates are going up, I would be inclined to let those two exposures cancel each other out and pay off the mortgage.

p.s. congratulations, I'm jealous!