paying off full amount of mortgage or leave £1

snowmen

Just wondered what the thoughts were on paying a mortgage off fully or just leaving a nominal amount in the account to make it easier to borrow again at a later date if required.
Are there any other benefits of doing this or does it really matter?

pencekeeper

I guess it depends on your lender, but I'm with Nationwide, and certainly intend to leave a £1 nominal balance. It means I can borrow back if I need to without an expensive personal loan, and I won't have to apply for a mortgage again.

Plus if you tell them to close it in the future you don't have to pay the £1 :P (or at least I didn't need to when I closed a £1 second mortgage).

i suppose there's a mental benefit of having completely cleared the mortgage but given there's no interest to ever pay again and you can close it completely at any time it's not something that worries me.

RenovationMan

As long as you maintain your credit record with credit cards and interest free finance, etc. I dont see any real advantage to keeping a mortgage open. It's very easy to remortgage to release funds and its unlikely that your exisiting mortgage provider would lend at a market beating rate. You would therefore shop around and have the added complication of closing down your existing mortgage before you can arrange a new one.

Apart from paying for extensions to your existing homes, I cant imagine why anyone would want to withdraw equity, especially after working hard to become mortgage free. I certainly wouldnt be looking to buy a car, etc by using my mortgage equity no matter how much cheaper the lending was. I would either save up the money or I'd get an unsecured loan.

pencekeeper

RenovationMan wrote: »

As long as you maintain your credit record with credit cards and interest free finance, etc. I dont see any real advantage to keeping a mortgage open. It's very easy to remortgage to release funds and its unlikely that your exisiting mortgage provider would lend at a market beating rate.

It's not always easy to remortgage. I'll likely have a very low income in the next few years and I'd probably not be able to get one for any significant amount. Plus it's hassle, takes time you might not have and often comes with fees of it's own.

Also, in the case of Nationwide (I don't know about other lenders) the product I'm on is much better than any current Nationwide product available (within 2% of BOE, borrow back facility etc that aren't offered anymore).

I certainly wouldnt be looking to buy a car, etc by using my mortgage equity no matter how much cheaper the lending was. I would either save up the money or I'd get an unsecured loan.

If you can save to buy something then of course that's going to be better but the key issue is having to borrow, or at least maintaining the option to, and the best way to do it. The fact it's cheaper (an unsecured loan would probably be something like 200-400% more expensive) means many would consider mortgage borrow back a much better option (assuming the lender offers that).

i do agree it would be somewhat demoralising to suddenly have a mortgage to pay down again, but if borrow back is available keeping a nominal £1 balance offers significant advantages with no real downsides.

RenovationMan

pencekeeper wrote: »

It's not always easy to remortgage. I'll likely have a very low income in the next few years and I'd probably not be able to get one for any significant amount.

In many cases, this would be all the more reason to close a mortgage account and remove the temptation of being able to run up a debt. It is often difficult to adjust to a lower income and the temptation to ease that difficulty with easily accessible and 'cheap' debt is often hard to resist. My parents kept their mortgage account open and ran up £20k of mortgage debt in order to maintain a home that was too large and too expensive for them.

The bank is not just doing itself a favour by basing loan amounts on the debtors income and ability to repay. If your income level is so low that you'd struggle to find a lender, then perhaps this should be viewed as a good thing, rather than an incovenience?

pencekeeper

RenovationMan wrote: »

In many cases, this would be all the more reason to close a mortgage account and remove the temptation of being able to run up a debt. It is often difficult to adjust to a lower income and the temptation to ease that difficulty with easily accessible and 'cheap' debt is often hard to resist. My parents kept their mortgage account open and ran up £20k of mortgage debt in order to maintain a home that was too large and too expensive for them.

The bank is not just doing itself a favour by basing loan amounts on the debtors income and ability to repay. If your income level is so low that you'd struggle to find a lender, then perhaps this should be viewed as a good thing, rather than an incovenience?

Certainly closing a mortgage might be the right thing to do for some people - and for those that can't control their borrowing/spending temptation is indeed a bad thing. But of course such people may just go for unsecured high interest loans, or even remortgage their property on a less advantageous product/rate so it may not be as simple as that. Loans are available to most people at varying degrees of cost.

If you can't pay back debt then you shouldn't take it out by whatever means. Though I would say that just because a lender might not be willing to lend to you based on their assessment of your circumstances, that doesn't mean you are a risk or can't pay back.

If you can't control yourself then by all means close your mortgage as your home is on the line if you can't pay it back (though the typical person who pays back the mortgage early would normally be in control of their finances). If you are a sensible person and you are able to borrow back your overpayments then I would recommend keeping the mortgage open with a nominal balance of £1.