Mortgage Free vs Savings Account?

LBirney

I've recently received some money due to a payout from a Critical Illness Policy. It is sufficeint to pay off my mortgage but I am intending on moving house when all of my medical treatment is complete (perhaps a year from now). In the meantime would it make more sense to pay off my mortgage or keep the capital in a savings account and earn the interest?

morrisp6

Interesting this is the reason why i also wanted to post today, so please shout if you think i am wrong people, but in your case i would say pay the mortgage off. Depending on what the interest rate is that you have for your mortgage ( 5 - 6 % depending on product ), it's a tight call as far as I can tell, as the best performing saving accounts have the same sort of rates roughly..

I would say get rid of the mortgage, it's always better to have no debt than debt and savings as I see it.

The question i have, is similar, i have recently come into extra money, and as such am able to start overpaying my mortgage, what i wanted to know though, is it better to overpay into the mortgage straight away, or pay into a Lloyds regualr saver account at 8% pa ? my mortgage interest rate is 5.2%,

so is it better to accure the interest in the saving account and pay it off in 1 lump, or chip away at it ?

savedup

Hi

To get the full benefit from the Lloyds regular savings account you will have to let it run for the full 2 yrs. There is also a limit of £250 pm you can pay into it. So, although it's a very good savings account, the overall returns are capped by this restriction.

So depending on the size of your mortgage , and resulting monthly interest payments I will leave it to you to decide which option is best.

Personally if I were you - I would follow your own advice and get rid of the debt er mortgage A.S.A.P !!

It's what I did last yr, and it's one of the best decisions I have ever made.

Good Luck.

tomstickland

The savings rate after tax has to exceed the mortgage rate to make it worthwhile. This means you need an effective savings rate of at least 6%. You can make an "effective" 6% rate by movingmoney from a 5% account into an 8 or 10% reg saver, giving around 7.5% before tax, which is 6% after tax. So you'll make around 1% gain, which is £10 per £1000. Whether that's worth it or not, well, it's probably better to pay off the mortgage.

morrisp6

Cheers guys, i will take my own advice then, and go for the overpayments.

:T

Dead_Eye_Jones

yeah, personally id pay off the mortgage, maybe it's possible to manipulate the cash to yield a little more money - but is it really worth the time and hassle? To me - no. For me the satisfaction of being mortgage free would be worth it.

Good luck and get well soon

Cannon_Fodder

Just a couple of quicks thoughts...

- any fees to redeem mortgage?
- when you move, will you need a new mortgage? more fees...
- you should maintain an emergency fund, really, maybe put £3K in an ISA?

Lucky you!

lisyloo

You need to bear in mind your tax rate, whether you need access to the money and redemption penalties.

Also bear in mind that this is not one OR the other.
You can do several things with the money
e.g.
put 25% in pension
put 25% in cash ISA
put 25% in mortgage
put 25% in stocks & shares ISA

That's just an example and you need to find the right balance for you, but don't be constrained into thinking it all has to go into the same place because there is no reason why it does.