Should I pay off my mortgage? Discussion area

Former_MSE_Alana

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Should I pay off my mortgage article

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michaels

I think their are two biggies not included in this basic model that should be highlighted:
1) Tax credits
If you are on tax credits and earn more than £300 interest per year (outside ISAs) then the interest will result in a withdrawal of tax credit at the rate of 41p in the £ on top of any tax on the interest so an effective rate of 61% for basic rate tax payers!!!
2) Re-mortgaging
Using savings to pay down a mortgage may allow a lower ltv band on re-mortgage which is likely to have a much greater impact on the mortgage rate and hence total interest cots than any earnings from savings interest.

dimbo61

If you have no other expensive debts then yes PAY OFF THE MORTGAGE ASAP
Only my opinion but I hang round the MF board alot Sad !!!

Kyser_Soze

So....

I have a flexible mortgage at base + 0.75%. Lots of headroom as I have had it for a while so there is spare cash if I want to play with it. Anything I do must be 100% secure and accessible so that if the rates rise I can get the money back.

Have taken a gamble and bought £30,000 of Index Linked Savings Certificates, 5.2% inflation this month and tax free, can't think why they stopped issuing them.

The next stage is to find the best ISA deal.

What did catch my eye was the Santander Base Rate + 2.5% account. Can I take the risk though?

I hadn't thought of the tax credit problem, I only get the basic amount anyway so there is not much to loose.

This has got me thinking though. Those of us with older mortgages are still borrowing at less than inflation. This means the value of the loan is going down in real terms just by existing. How long before the banks find a way to stop this?

MSE_Martin

michaels wrote: »

I think their are two biggies not included in this basic model that should be highlighted:
1) Tax credits
If you are on tax credits and earn more than £300 interest per year (outside ISAs) then the interest will result in a withdrawal of tax credit at the rate of 41p in the £ on top of any tax on the interest so an effective rate of 61% for basic rate tax payers!!!
2) Re-mortgaging
Using savings to pay down a mortgage may allow a lower ltv band on re-mortgage which is likely to have a much greater impact on the mortgage rate and hence total interest cots than any earnings from savings interest.

I dont think its too simplistic, i think its a detailed piece with a lot of elements.

You do make an interesting point on tax credits - i'll have a think about that and may add anote in the guide.

As for remortgaging, there's a large section of the guide dedicated to this you may have missed it. In point 3 of the things to look at you'll see there's links, click each and it opens up a new section - there's a big one on just this point

---lee---

Re the emergency fund.

I have overpaid my mortgage considerably over the last few years - too the extent that at last check, I had over 2 years worth of overpayments.

I am unable to withdraw any of the money from my overpayment fund (I was always aware of this) however, I am able to suspend my monthly contractual payments at any time and have these taken from the overpayment reserve until it's exausted - this is aside from other flexible arrangments such as payment holidays.

I think it's worth people checking this out with their mortgage companies as it means you need a much smaller emergency fund leaving you with more money to put towards overpayments.

Sensible_Jess

I'm surprised there wasn't even a mention about what Joint home owners should consider before one or the other makes mortgage overpayments.

Sadly they should consider what the implications are if they break up.

If you are married, then assets are out into a 'pot' to be split between the couple. If one of you has put a lump sum into the mortgage, this is considered as part of the 'joint assets' during the split and is not 'ring-fenced' or 'repaid' back to the person prior to the settlement.

If you are unmarried, then a 'Declaration of Trust' should be drawn up with the aid of a solicitor, detailing what each would be entitled to in the event of a split. The couple should consider how overpayments to the mortgage should also be funded and split.
e.g. if the house is owned 70:30 due to differing deposits, should any overpayment also be funded the same way i.e. 70:30?

In the common case of only one partner being in the position to make an overpayment (e.g. due to an inheritance, windfall etc), then this must be detailed in the Trust document, or else, in the event of a split, that partner with the windfall risks losing 30% of the overpayment to the other partner (in the case of a 70:30 ownership).

Of course, no-one wants to plan what to do if they break up. But I felt it was worth pointing out that if one person makes an overpayment, they should be clear on how that would be dealt with in the event of a split.

outofoakes

We are in a fixed deal at the moment which is at nearly 7%. The penalty fees halve on 1st October to around £300 and we are considering clearing the 26k owed at this point. We have been told that we would be better leaving a small amount still owing just in case we need to re mortgage for any reason thus doing away with valuation fees etc which a new mortgage would require. Is this advice correct?

Marksy

I've heard the same too, outofoakes, but I'm not so sure it's the best way. Surely, if a mortgage company know you won't default (despite them not making much money on you), then they know you're a "good" client?

outofoakes

We were considering buying my sons house which he is renting out at the moment and I thought we may be able to re mortgage ours to raise the money which shouldnt incur fees rather than start again with a buy to let mortgage which will incur £3k in fees before we start. If we dont go down that route there was the option to convert our loft space and as the newer mortage rates are better than personal loans we thought we would have the option to re mortgage to do these improvements. Or we clear the mortgage in full and just save the money we were spending each month on the mortgage till we have enough to do the improvements.

DMISER

I have a part re-payment, part interest only mortgage on a fixed rate.

If I were to pay off a lumpsum amount, which part of the mortgage would it be best to allocate it to ?

Any advice gratefully received.