Chance to be mortgage free NOW! Advice Please!

idontdodogs

I have enough money to pay off my fixed rate mortgage. ( I will have to pay a 3% charge to do this). I have calculated that the way savings rates look at the moment, cutting my losses and paying it is the cheapest option. The bank has advised me that I might like to pay it all off save for £1.00 as this would allow the mortgage to remain active should I require any future borrowing(there would have been around 14 years left to pay it off). Does anyone know if there is any advantage to paying off the mortgage completely or should I hang in there and owe them £1.00 "just in case"???!!!

dimbo61

Do you have the money to both clear the mortgage and have emergency savings in case the car needs replacing/boiler breakdown ETC
If you dont think you will need to borrow money in the future then clear the mortgage !
Whats your mortgage rate ? some very good 5 year bonds and ISA,s now on the market 5% plus

getmore4less

With a 3% charge there may be other options.

What's the size of the mortgage

What's the interest rate.

How long before no ERC.

Any charges for changing term

Tax rate.

Are you using ISA allowances

Is any of the money in ISAs

How much free cash per month will you have after paying it off.

The £1 nominal keeps you with the current lender and saves a bit of legal work.

Do you think you may need to borrow again? that may impact the final choice.

george_jetson

I'm in a similar position to you - mortgage 100% offset with funds in a separate savings account. I haven't taken the final step of closing the mortgage for that precise reason: "just in case I need to get my hands on a substantial amount quickly".

I can't imagine the circumstances in which this would happen but I find it a comfort knowing I can. When I've built up my savings to a respectable level (and that's not high on my list of priorities at the moment ) I'll reconsider.

At the very least I'd wait until your fixed rate comes to an end so you can get rid of it and avoid the 3% "charge". Why give the bank a penny more than you need to?

idontdodogs

Wow - thank you for all your replies. I owe 142K (will be about 146K with early payment charges) at 5.63% . I've had about 150K locked away for 12months in various bonds and savings accounts the best being a 7.21% bond so have just about been able to make a small profit. However, when the bonds mature later this month there is nothing on the market to even come close to my last year saving rate so I would end up accruing more interest on the mortgage than the savings could ever do. So, I think I've done the sums right there - I just need to know if there are any legal advantages to paying off completely or keeping the £1.00 balance. It is nice to know that if I ever need money fast in the future.. it's there in an emergency.

WaxiesDargle

Same here...I've just received £34,000 into my current account. I have no ISA's yet, so I've just applied for a First Direct cash ISA at 3%

I have a £27,000 mortgage. I'm thinking of paying off £17,000 leaving me with a £10,000 mortgage and £17,000 for an ISA and the rest in Citibank at 3.3%

hendiman

Hi,

I was in a similar position to you in that repayment of the outstanding mortgage above the 10% annual capital repayment would incur a charge. I spoke to my mortgage provider on a number of occasions who confirmed that under my 5 year fix I could not repay any more of my mortgage without paying the applicable charge of 3% and they confirmed that there was no way to avoid this charge if I wanted to repay the mortgage.:mad:

However, when I specifically asked the mortgage provider if I could change the term of the mortgage they confirmed yes I could change it to any term duration but there would be a charge of... £32 to do so... alot less than the 3% charge! So much for their previous advice of not being to avoid this 3% charge.:rolleyes:

Therefore in my case I can beat the 3% charge by just changing the policy term to say 3 months or less - the monthly repayment goes up accordingly and I only pay the £32 charge.:T

If your mortgage provider is the same as mine they will not tell you about this method unless you specifically ask. Worth a try!

Best of luck.

idontdodogs

Your reply has excited me! Thanks for the tip. Fingers crossed my provider will agree to a reduction in the term. I shall be on the case this morning. . Watch this space!

co123456

I've decided to go a different route regarding the "Keep a £1 balance so you can benefit from a cheap loan" idea. Not saying that's wrong, but not for me.
Reducing the mortgage has been a real motivator for me and now that has gone, I need something else to aim for. I have 0% credit cards and a stooze pot so there is eash plastic/hard cash should I need it. I felt that having access to loads (85K) of readily available credit at mortgage rates was too much of a cushion and might hold me back from saving the emergency funds described above. So last Friday, I wrote a cheque for the balance of the mortgage and cut the umbillical cord. I'm comfortable with that, so it suits me. Worth considering, though as with all the advice on the site, not suitable for everyone.

nansenst

Brialliant! So glad you are now mortgage free.

Mum and dad left the pound in the mortgage and were glad they did when they essentailly needed a new mortgage to get a huge amount of work done on their old house - because they never closed the account, they could just borrow a significant amount under the old mortgage quickly and easily and at a low rate. So i guess its always a good idea if you have an old house!

idontdodogs

Ok - here's my update!

I spoke to the Building Society today and there is no way I can reduce the term lower that the fixed rate term without paying the full wack penalty. So, listening to all your advice on here I have decided to bite the bullet and pay it but just keep the £1.00 balance. I might even frame a pound coin and hang it on my wall!!

Thanks for all the comments and advice... good luck!!