Pay Back early?

Biplane

All

I am a new member, forgive me if this is old ground.

I owe £73k on a repayment morgage with 15 years to run. Monthly payment £600. I am about to take redundancy with a payout of approx £90K.
Question is, do I invest the £90K, or am I better off clearing the mortgage and thus having no debts.
Grateful for any advice.

hollie.weimeraner

I think this has got to be a personal preference. Have a look at how much interest you're paying on the mortgage repayments which I would suggest would be quite high. If you invest your payout are you going to be able to repay your mortgage on the ineterest alone and also have some spare?Personally I would pay off all or certainly most of the mortgage provided there are no redemption penalties as most people aspire to having no debt - myself included. With 90k in the bank I'd be tempted to blow it on fast cars and loose women if I hadn't paid off my mortgage.

Biplane

Thanks for the quick response.

Interesting you say, 'repay all or most of the mortgage'

Is there an advantage of keeping some mortgage?

hollie.weimeraner

Biplane wrote:

Thanks for the quick response.

Interesting you say, 'repay all or most of the mortgage'

Is there an advantage of keeping some mortgage?

Keeping a small mortgage means that the lender will keep your deed safe and sound for you. You may also have quick access to drawdown funds if required without having to go through loan application processes or taking out a new mortgage if you decide to extend or renovate in future. I'm sure if there are any other advantages someone on here will advise.These are only my personal views though as I'm not a financial advisor or mortgage broker etc etc

Robert_Sterling

I agree with the advice you have been given.
My personal choice would be to pay off a significant part of the mortgage.
However if there are draconian early redemption charges this might not be such a good idea.

However here is an example from the "proud to be different" Nationwide.

Someone took out a five year fixed rate mortgage in september 2001.
The rate was 5.89% Fixed for 5 years.
At first sight the Early Repayment charge was 5% in year one, 4% in year two, 3% in year three, 2% in year four and 1% in year five..
A closer look showed that the penalty went down on the first day of each month. I think in fact that it went down one twelvth of 1% on the first day of each month for 60 months.

Because of the use of this system and because early repayment saved you from having to pay 5.89% per annum on that part of your debt the saving in interest just about cancels out the early repayment penalty.
This only works because of the original interest rate of 5.89% is higher than the current prevailing interest rates.

The interest rate you are being charged, the early redemtion penalty terms, your income tax situation, your age, whether or not you quickly find new employment are all factors to be taken into account.

Good luck.

Biplane

Further to my last, having spoken to one bank, they are suggesting an Offset Mortgage.

This would mean a mortgage balance of £73k, with a deposit of £90k.

Therefore no mortgage interest to pay, similarly, no interest earned on £70k
worth of savings. But as payments are made each month, mortgage balance would go down therefore more savings eligible for interest.

I must confess to not understanding the formula.

Any opinions or recommendations would be appreciated.