Should I completely repay mortgage?

Choppit

Hi,

For the last 18 months I've been making overpayments (and shortening the term) on my mortgage and I'm now at the point where (if all goes well) it will be cleared in around 3 months if I continue to overpay as planned. In a conversation yesterday it was suggested that it may be advantageous to keep the mortgage running if I'll need to find a deposit for a bigger house purchase. There is a possibility that I may be looking to move into a more expensive property in the next 2-3 years (possibly sooner) and if I don't overpay on my mortgage it will come to an end naturally in around 2 years given the overpayments I've already made. Mortgage repayments are low and interest rate is 2.5%.

The choices I have as I see it are.

1) Pay the mortgage off quickly,then put my spare money into savings.
2)Let the mortgage run, don't overpay and put any spare money into savings.

Any thoughts/advice?

Any advantage to keeping the mortgage for the full term?

Thank you

darich

Not sure how valid this is but I was told many years ago that it's better to leave a small amount for two reasons:
1 - deeds are locked away safely in lender's vault.
2 - if you fall upon hard times, you have a mortgage and are more likely to receive help.

Not entirely sure the second one is particularly accurate but having a mortgage even if it's small, can help prove you repay loans, keeps your credit score up (obviously providing you don't miss payments) and may also mean you get a better deal on next mortgage since you're not a "first time" buyer.

Like I said - the advice was given to me many years ago and other parts are thinking off the top of my head.

ViolaLass

I don't see how keeping the mortgage running would help you find a deposit for a bigger house. Your equity is the deposit, isn't it?

lookingforideas

Don't know how your morgage supplier works but could investigage keeping the morgage going by paying it down to a nominal amount (Nationwide allow you to keep the morgage going with a nominal £1 which don't pay interest on). They would then keep the deeds (although believe this is less of an issue as Land Registry are going electronic so don't believe they are required any more).

Also means that you draw against the morgage again easily if required - assume this might be required for a deposit at the point of exchange of contracts. When I was in a position to pay off my morgage I left a nominal amount as I wanted the ability to raise funds if needed as I had to use all my savings at the time to clear the morgage.

Another option is to pay it down to a lower level and then see if your morgage supplier will let you change to an interest only morgage - keeps it going.

Better question to ask is could you earn more investing the money that you would use to pay off the morgage. If you can get more than you're paying in interest then worth considering that. If not then probably best to pay off the morgage or as suggested pay it down to a nominal amount.

Credit scoring is a reasonable arguement for keeping it going especially if you think that you will need to get a new morgage. Not sure if the nominal amount records it but potentially will do.

dimbo61

You could earn 3% tax free in many cash ISA,s at the moment so why not build up savings over next 2 years while making normal mortgage payments!
If the SVR starts to rise above your savings rate then pay a lump sum off !
If in 2 years you do want to move you have cash in bank to pay for legal fees, surveys, etc before your home is sold and you complete on next property

Choppit

Thanks all for the advice. I opted to put my next overpayment and future ones into a high interest savings account (3.05% with no withdrawal penalties) until I decide when to pay the mortgage off.

Thrugelmir

Remember the true rate of interest is higher than 2.5%. As mortgage interest is calculated monthly.

So the amount you are making by saving in an account earning just over 3% may not be worth the bother. Just for the sake of a few months.