Should I pay off my mortgage? Discussion area

Elfie4

I understand that when the mortgage is finally paid off Santander asks that you get a lawyer to remove Santander's charge against the mortgage on the property's deeds or alternatively Santander will do it. How much do people expect to pay for this legal formality? I guess this is standard practice.

micko

My mortgage will be paid off in 18 months (£5000),the interest rate is 2.5%. I have £8000 in savings accounts that are now earning 0.1%. I have £35000 in a cash isa paying 3.26 % A.E.R. instant access. Advice would be greatly appreciated to maximise the return,
thanks Micko,

pineapple

Elfie4 wrote: »

I understand that when the mortgage is finally paid off Santander asks that you get a lawyer to remove Santander's charge against the mortgage on the property's deeds or alternatively Santander will do it. How much do people expect to pay for this legal formality? I guess this is standard practice.

I just paid off a mortgage with Alliance and Leicester which became Santander and know nothing about this. There was however an 'administration fee'. I was then informed by the Land Registry that they had received a request from Santander to remove the charge and I could have a copy of the register entry if I wanted. Next I got a big envelope from Santander with the house deeds!

pineapple

micko wrote: »

My mortgage will be paid off in 18 months (£5000),the interest rate is 2.5%. I have £8000 in savings accounts that are now earning 0.1%. I have £35000 in a cash isa paying 3.26 % A.E.R. instant access. Advice would be greatly appreciated to maximise the return,
thanks Micko,

I was going to say I was in a similar financial situation to you but I misread the cash ISA as £3,500!
You have to factor in any early payment/administration charge though I would think you would still be better paying it off (out of your general savings of course). I had a similar amount in a low interest account and it was a bit of a no brainer paying it off. My only concern was the hit on the capital ie should the car go belly up..
Of course the other option would be to get another cash ISA if you have not used up this years allowance.
The main thing which persuaded me to pay off my mortgage was the global financial uncertainty. I know our savings are guaranteed but...
Also I was dipping into my savings for the occasional extravagance and I could see a time when I might not be able to pay off my mortgage.

Retire

I understand that when the mortgage is finally paid off Santander asks that you get a lawyer to remove Santander's charge against the mortgage on the property's deeds or alternatively Santander will do it. How much do people expect to pay for this legal formality?

My solicitor charged me £60.

Before I paid off my mortgage I was getting pension credit and therefore other benefits because of this.

I paid off my mortgage and my pension credits stopped therefore council tax benefits are reduced, now I am paying an extra £140 per month council tax for the next 3 months.

But it is still worth to be mortgage free.

dunstonh

The article does include this but its at the bottom so some may miss it. You should also include using tax free allowances when making a decision.

Things like ISAs are a use it or lose it allowance. Whilst one year in isolation isnt going to make a lot of difference, over time you can have hundreds of thousands of pounds in ISAs.

£20,000 income in retirement from ISAs is tax free
£20,000 income in retirement from taxable savings/investments would generate £4000 tax (above personal allowance).

So you have to weigh up not just immediate needs and gains but future needs and gains as well.

Personally, I have increased my pension contributions (significantly as volatile markets are great news for long term regular contributions), maxed out my ISAs and I am overpaying the mortgage. I dont see why you should limit yourself to any one thing but instead do a combination of things. If interest rates were higher, then my approach maybe more weighted to mortgage.

I thought it was a good article.

benchm

I might be wrong but I think there is a difference between the mortgage interest rate you think you are paying and the % interest you are actually paying month-by-month. I have about 9 years left on my 25 year mortgage and about £65k left to pay. I am fortunate to be on a rate of 1.7% and earning interest on my savings of around 3% net. At first glance you would think that the decision is obvious, namely don't pay off more of the mortgage than the monthly payments because I'm earning more on my savings (3%) than I'm paying on the mortgage interest rate (1.7%).
But when I looked at the yearly statement and the monthly breakdown I found that of the total payments I'd made in the year - roughly £6500 - around 10% of it, not 1.7%, is interest charges. If I've read this right then the interest charges and rate are high to start with, decrease slowly through the life of the mortgage and only really hit a minimal level in the last couple of years. This suggests you're almost always better off in the current environment to pay off as much as you can.
I'd be interested in Martin's views on this but unless I'm talking drivel the real comparison in deciding whether to pay down your mortgage is not between your savings rate and your mortgage rate but between your savings rate and the level of interest (%) that you're paying on your mortgage payments at the time. It also suggests that no online calculator such as the one on this website will help you because you need to do the calculations based on what's in your annual mortgage statement.

What do you think Martin?

Jilly100

HELP !!! 12 months ago we downsized and bought a bungalow which required full modernisation before we could move in; we have a 12 year mortgage with an interest rate of 3.79% fixed for 3 years initially, and are now tied in for 2 years with a remaining penalty of £1,819.15 if we repay early, on an outstanding balance of £90,000. We have just sold our former house; should we repay the mortgage and pay the penalty - we can pay 10% off per year without penalty but have missed the first year - if the best interest rate we can get (before tax) is 4.0% and we are basic rate tax payers should we open a 2 year bond and pay off in 2 years, in addition to paying off 10% capital repayment this year and next year, or pay off now and pay the penalty and then save the £835 monthly mortgage payments?

Sepa74

Hi Jilly,

the good news is you're in luck...there is an answer to your question, but the bad news is it will involve lots of maths!

You need to work out how much interest you will earn (less tax) by putting the house sale price in the bank over the next two years, vs how much interest you will pay on the mortgage in the same period of time.

If the difference between the two is greater than the payout fee, then pay your mortgage off. If the answer is less than the pay out fee, then you are best off saving your money and paying the mortgage off in two years when there is no penalty.

I hope that helps!

ghira

benchm wrote: »

But when I looked at the yearly statement and the monthly breakdown I found that of the total payments I'd made in the year - roughly £6500 - around 10% of it, not 1.7%, is interest charges.

Your rate being 1.7% doesn't mean 1.7% of what you
pay each month is interest. It means what you pay
in interest each year is 1.7% of the current value of the loan, or that each month you pay one twelfth of that
in interest. Is your monthly interest about 0.14%
of your mortgage value? That's what it ought to be.

It's perfectly possible for this to be 10% of your
repayment in a given month.

Indeed, since you say about 650 a year is interest, we can divide
650 by 0.017 to get 38 thousand and something which should be
in the ballpark of your mortgage. Doing this exactly involves
taking account of paying less interest later in the year on stuff
you pay off earlier in the year and so on.