Clear mortgage or keep a bit?

chopper107

I hope to be in the position of paying off my mortgage in the next couple of months ( an inheritance sadly due to the death of my Mum ) but wondered if it was the right thing to do. Some people have said that it's wise to keep a bit because it will help keep my credit rating up.

I'd rather not have a mortgage but what do others think?

jamesd

You can get a fixed rate mortgage for 4.75%. You can earn tax free interest on a cash ISA at 5.40%. You can earn taxable interest on regular savers at 12%, 8%, both above that mortgage rate for basic rate taxpayers.

Then you can go on to the safer types of investment like bonds to use equity ISA to get tax free investing.

You can put quite a bit of money in places where it's sure to make more money in interest or income than the mortage interest rate. Whether you can do enough depends on the total amount of money you have available.

One possible option, though the mortgage is more expensive, is making part of the mortgage an offset mortgage and putting money in the offset account until you can invest or save it in tax free places.

It doesn't really make financial sense to pay off a mortgage if you can make more money from savings and investments than you can save in interest by paying off the mortgage.

save-a-lot

The NS&I Direct ISA is paying 5.55% and guarantee's to stay 0.55% above the BoE base rate, so if in the New Year we see another quarter percent rise then the ISA rate would be 5.80% tax free. Like the poster before said invest and save and earn more interest than paying off the mortgage if the mortgage rate is lesser than your savings interest rate.

matty2767

to be honest i would feel the same as you and not have a mortgage. at the end of the day the other posters are right that you will earn money if the interest rate is higher than your mortgage rate but how much do put on being without a mortgage at all.


the second best option (as mentioned) in my opinion, until you have time to decide, is to put it in an offset account with no tie in penalties. then you havent lost anything.

mountainofdebt

We're in the same situation - due to the death of my FIL.


We've decided to pay off the mortgage (may make things a little less stressful from when the interest rates go up!) and then save what we would have paid into the mortgage.

jamesd

mountainofdebt, that works. It's more profitable to use the interest and income from the savings and investments to pay off the mortgage, though, because you start with a higher value pot earning the higher income that way.

mountainofdebt

well that's what hubby wanted to do with the money and becuase of the source of the money, I didn't really argue with him.

The only stipulation I had with regards the money is that we could look back and could say what we exactly did the money, which we can do I guess.

jamesd

Hopefully it's delivering a nice feeling of security - that is one big benefit of paying it off!

A_Nice_Englishman

I would pay the mortgage off and use the spare income to invest.

Firstly, it's a great feeling to know that you own your home outright and that inability to pay the mortgage due to unemployment, ill health, accident or whatever will never be a problem.


Secondly, if you are looking to invest in equities, for example, it is probably less risky to put in a few hundred pounds each month than tens of thousands in one go.

badassmofo

I am paying off my mortgage very early but keeping £500 then stopping all payments.

This is so if I ever need another loan from the Nationwide, I just have to apply to them and don't have to go through all the bother of filling in forms with a new lender and having to arrange surveys etc...

Also, if they ever decide to demutualise then I get some free shares (I hope)

Cheers,

B.A.M.

basill

" I am paying off my mortgage very early but keeping £500 then stopping all payments.

This is so if I ever need another loan from the Nationwide, I just have to apply to them and don't have to go through all the bother of filling in forms with a new lender and having to arrange surveys etc..."


When we cleared our Coventry mortgage they offerd a scheme where the mortgage could be completely paid but a `reserve` account left open in its place, presumable for expensive emergencies.
The advantage as Badassmofo said was a paperwork free loan available at short notice.
Or it could be described as a temptation
As others have said we are now saving the amount we used to pay the lender in a Yorkshire BS regular.

B