Should I pay off my mortgage?

beecher2

I'm 1 year in to a 4 year deal but have received enough money to pay off my mortgage in full. Details as follows:

Amount outstanding: £37,100
Interest rate: 4.54%
ERC May 2010 3%
ERC May 2011 2%
ERC May 2013 1%

I intend to overpay by £3,700 in the next couple of days and so the ERC would be around £1000. If paid off now I'd put £300/month in my ISA which pays 2.8%

Does this make financial sense? To my mind it isn't worth waiting until 2011 or 2013 as I don't think the savings in ERC would be worth it. Also psychologically I'd like to be mortgage free, and would like to 'get rid' of the money I've received as it is through an inheritance and if I had one wish it would be to have the person still here rather than the money. So I know it sounds like I've made up my mind already, but just want confirmation that it isn't a completely daft move.

dimbo61

Getting rid of your mortgage is never a daft move!
What I am trying to work out for you is" whats best value for money "
What would the person who left you the money want you to do ?
My guess is to clear the mortgage ( if you have no other debts?)
If you have £37K sitting in the bank and lose your job the nice benefits people want you to live on your savings ( might not be important to you!)
I hate giving any extra money to the big banks/ building societies BUT hopefully ISA rates will rise in the next 2/3 years and so I would clear the mortgage and build up savings in Cash ISA, s £5100 EACH over the next 3 years.
Only my view GOOD LUCK

beecher2

Thanks. I think rates can only go up so I think I will pay it off and then start saving.

HappyMJ

At the very least wait till the end of May 2010 to reduce the ERC by 1%... Is there an amount you can overpay by each year usually it's 10% of the original balance without penalty.

beecher2

HappyMJ wrote: »

At the very least wait till the end of May 2010 to reduce the ERC by 1%... Is there an amount you can overpay by each year usually it's 10% of the original balance without penalty.

ERC goes down on 1 May to 3%. I'm paying £3,700 later this week which will be my maximum 10% as my lender allows you to pay 10% of the outstanding balance rather than the original balance. Waiting for a year would bring the ERC down by about £500 but not worth it in my mind.