We have enough money, but with a very low tracker rate, should we pay it off?

southantrim3

jackieinedlesborough wrote: »

In about 4 weeks time, when a bond we have invested with Raphael's Bank matures (Thanks to an MSE tip-off!), we will have enough money to pay off our £53,000 mortgage in full. :T

However, our Santander repayment mortgage has a very low tracker rate - just 0.49% above base rate, which means that it is currently only 0.99%. It's also an offset mortgage. Before the rates dropped in recent years, all of our mortgage payment savings (and others) were in the tracker account, minimising the monthly interest payable to just pennies each month. When the bank rates plummeted we moved all money out of the offset tracker and into other savings.

So, the question now is "We have the money.....should we pay our mortgage off in full?". I've thought about 3 alternatives:

1. Pay it off.....forget about it .....enjoy (or save for retirement) the extra money available each month.

2. Don't pay it off, but re-invest the assigned savings elsewhere in an account that pays a higher interest rate net of tax than our tracker mortgage charges (ideally in a savings account that also tracks above base rate, so we can't be caught out if the rates do change. The current Santander Loyalty Tracker bond would be ideal, but subscription to it ends before our Raphael's bond matures ).

3. Keep back the amount that it would cost us to pay our mortgage for the next 12 months from the bond maturity amount, but re-invest the rest in a good 12 month tracker or fixed rate account. Use the withheld money to pay the mortgage each month, so that it "feels" like we've paid our mortgage off, even though we haven't! We can then save or spend the monthly-income money we usually use to pay the mortgage each month as we feel fit.

We have savings elsewhere both in Cash ISAs (maxed-out) and in various savings accounts, so the money we have available to pay off the mortgage is specifically assigned for this.

The only other cost of having the mortgage is a monthly life-insurance policy, which is just under £10 pcm.

I would imagine that you good folks out there have lots of good ideas of what we should do. I'd love to hear them........

Thanks in anticipation,
Jackie

Well done on the good investment! If I were you, I'd pay it all off apart from a nominal £1. This will keep the mortgage open for you which will mean it will be easier for you to make use of it if that was ever required in the future. It also means that the bank would hold on to the deeds rather than you having to.

I know I'd probably lose the deeds so would keep it more secure (just my thoughts.) Well done.

socrates

de1amo wrote: »

i am in the same boat as you--i am keeping the money loose at the moment for any possible rainy day'-i am in a situ that once i pay my mortgage off it would be hard in the present climate to get another mortgage of the same value--i keep my money in lloyds vantage accounts--they offer 4pc int less tax---well done in getting to your situ in life.

Best advice :T

insur

Looks like you have pretty much thought through the best options available to you at the moment. Personally, I woud definitely not pay off the mortgage. These kinds of deals which track the BOE base rate may not be offered in the future. As you suggest the best option is to deposit the money in a BOE base rate tracker, Santander's loyalty tracker being the best on the market at present. Where did ou hear that it is due to expire in 4 weeks time. I opened one yesterday and the person at the other end of the phone could not tell me when
the deal is due to expire? So definitely double check that news by cotacting them again. There are savings

insur

Looks like you have pretty much thought through the best options available to you at the moment. Personally, I woud definitely not pay off the mortgage. These kinds of deals which track the BOE base rate may not be offered in the future. As you suggest the best option is to deposit the money in a BOE base rate tracker, Santander's loyalty tracker being the best on the market at present. Where did you hear that it is due to expire in 4 weeks time? I opened one yesterday and the person at the other end of the phone could not tell me when
the deal is due to expire? So definitely double check that news by contacting them again. Alternatively look at the tracker deals from Nationwide and Coventry BS, not as good as the Santander offer but will still leave you in a profit each month. Secondly go for an easy access account which pays monthly interest and set up a direct debit to pay your mortgage from there, leaving you with the rest as profit. Finally, if you really want to pay off the mortgage then like the advice offered in an earlier thread leave £1 on the mortgage. You will not get a better credit facility than 0.49% above the BOE base rate on the market, and the base rate could remain low for some time, which will leave you with this super cheap credit facility at your disposal. Finally, chances are if decide to pay the full amount off your mortgage you will probably have to pay a fee, possibly upto £250 to have the deeds sent to you, which is an extra source of revenue for the banks at the moment.

In your thread you mention Raphael's Bank, I had alook at this and the rates at present are awful, I would be interested to know why you felt it was safe to deposit a large sum of money with an independant? Was the rate at the time that much better than those offered on the high street?

jackieinedlesborough

insur wrote: »

In your thread you mention Raphael's Bank, I had alook at this and the rates at present are awful, I would be interested to know why you felt it was safe to deposit a large sum of money with an independant? Was the rate at the time that much better than those offered on the high street?

They had a 9 month fix @ 3.52%. I did humm and harr about putting money with them 'cos I'd never heard of them before, but I checked and they were covered by the FSA Guarantee so just went for it. They have been fine. I received a letter from them a few days ago reminding me that my fixed rate was due to end in November along with various offers of re-investment opportunities (3% fixed for 12 months; 3.1% fixed for 18 months or complete withdrawal with a variety of payment alternatives - Cheque, BACS or CHAPS).

I would certainly deal with them again in the future should they have a product that was of interest to me.

Thanks for the other comments - very useful to me

The_Palmist

jackieinedlesborough wrote: »

Ooohhh....Thanks for that tip. We both bank with Lloyds TSB and have Classic (fee free) accounts, and it looks like we should be able to add the Vantage facility too if we decide to go down this route:).

I am thinking of getting a vantage account as well. I currently have about 10K in a 2.65% savings account and I am thinking if I move £7K to a 4% vantage account, I will probably be better off using a current account to hoard money.
It says £1000 deposit each month, does it matter if lets say I put in £1K on 27th and then move it out on 30th of each month.
Is there anything else I am missing ?

thanks for any advice.

jackieinedlesborough

The_Palmist wrote: »

does it matter if lets say I put in £1K on 27th and then move it out on 30th of each month. Is there anything else I am missing ?

Hi there. Apart from the high-level details on the LloydsTSB website, I've not looked in to the Vantage add-on any further. I plan to go into my branch on Saturday morning to talk it through with one of the staff there. At the moment I think that de1amo is best placed to answer your questions, although from what has previously been said about it I think the answer is "no it doesn't matter if you move 1K in on one day them move it out a few days later".

de1amo

there is a whole thread--or 2 about the looyds vantage account on savings and investments--as far as i know you only get 4pc on 7k max and you need to input 1k a month--you multi open accounts--using the online facility--you just transfer 1 k around the accounts to show the 1k transaction amount during the month and you get 4pc less tax--it doesnt have to be new funds--it isnt obligatory to have 7 k that is just the max--after 7 k the surplus just doesnt get any interest.--i hope this helps.

The_Palmist

Llyods are reviewing the vantage interest already and seem to be removing the dapper 4pc between 5k and 7k offer.