Fully pay off mortgage or leave just a bit behind???

stevegos

Hi

I have a mortgage of around £82000 and due to inheritance will be able to settle the entire amount.

However, if in a few years time I wish to release some capital again for say an extention to the house, would it easier if I had a very small mortgage and add to the existing small mortage?

Another thought is to move to a flexible off-set type mortage and then off set all the money but still have the ability to dip in as and when I want. Do they work like that?

Advice and ideas please.

BTW, I am self employed so proving a regular income for a future mortgage / loan would not be easy even though I do have a reasonable income.

nomoneytoday

Does your mortgage lender offer such a facility?
The Nationwide for example will keep your debt open with a nominal £1, and you can draw back on what would be the future payments

stevegos

Actually I am with the Nationwide!

Explain that a little more please.

ginvzt

Why don't you give a call to Nationwide and listen to what they say?

Pincher

You borrow money when you are short of money,
but that is precisely when the lenders turn nasty and make you pay higher rate. So you have to borrow money when you don't need it,
and get the best deal for later.

Pre credit-crunch, draw down no problem. Post credit-crunch, you only find out whether you can when you try to, and then all kinds of excuses come out.

If you are on a low tracker, there's no hurry to pay back, otherwise you can try to get First Direct's 2.29% Tracker on an offset basis. Park your money there, and use it when you feel like it.

Making regular mortgage payments is also good for your credit core.

A lesser known benefit is, if you go to Africa to do some volunteeer work, and the tenant tries to sell the house, the lien on the house means the lender will stop the hanky panky before it goes too far.

jockosjungle

What sort of mortgage deal are you on? If its a low rate (say 3%) you might be just as well sticking it into a decent interest paying account and making a small profit

R

stevegos

its a 5 year 5.28% fixed rate with 20 months to go.

I've done my sums and it appears better to pay it off, even taking the early redemption fee into account

dimbo61

I think you have answered your own question.
If you have done the figures and your better off clearing the mortgage then do so.
Use what ever you have left to start a savings pot and add to this every month not just your normal mortgage payment but every single spare penny.
As someone who is self employed you should have at least 6/9 months of income in savings ( emergency fund)
When you do need a mortgage check out the low fees offset mortgage ( that way you only need to draw on the money as you pay for the building work ) and you can at the same time build up savings in the offset account.

Rallyspit_2

Maintaining a very small mortgage can have advantages:

1) You don't pay the "Mortgage Account Fee" - used to be known as the Deeds Sealing Fee. This is only due when you redeem the whole mortgage.

2) You maintain an open account with the lender and could go back for additional borrowing at any time without having to remortgage an unencumbered property (and thus needing to pay for conveyancing costs)

3) If you keep a tiny balance, it costs the lender more to collect the interest than it's worth, so many lenders won't even charge you for your notional £1 of mortgage debt. (Some lender's minimum is higher than this amount!)

Hope this helps.

stevegos

Thanks Rallyspit

Thats pretty much the info I was looking for.

Thanks to everyone else as well.

getmore4less

stevegos wrote: »

its a 5 year 5.28% fixed rate with 20 months to go.

I've done my sums and it appears better to pay it off, even taking the early redemption fee into account

Not for all of it.

Pay the fee outside the loan.

keep back a few £K to drip feed(£500pm?) without penalty.

Also shorten the term to maximise the penalty free payments for those months

at 5.28% thats about £0.44pm per £100

2% savings gets about £0.17pm

so net £0.27pm saving whats the penalty on £100?

If it is say 2% that £2 so you are better off keeping back about 7 months worth of payments and overpayments.