Light bulb moment?

mrs_T

We received our mortgage statement today which spurred me to phone them so now as I understand the situation we owe £20k on interest only (5.95% so £99 a month) due for repayment 30/06/13. We have enough sitting in the bank (ISA and ltsb a/c earning 2.98%) to repay today but my husband has always told me this wasn't a good idea because of the early repayment fee (approx. £600). The man at the nationwide explained if we repay today and pay the £600 fee this saves us 18 months of £99 interest so roughly £1200 difference. Is there any reason not to repay? We would like to make home improvements as this is our forever home and we wont be moving again but if we need to borrow for that in the future would we be better remortgaging then? We have an endowment due out in October so may be able to use that for what we want.

Sepa74

well, If you are saving £600 over the term of the mortgage by paying it off, it makes sense to do it.

The ISAs will provide an interest free income stream in future, and if you use them you can't replace the previous years allowance, so it may be in your long term interest to leave them where they are.

For non-ISA savings, only reason you wouldn't is if you are earning more in interest on the savings than you are paying on the mortgage, although you should keep an emergency fund of 3 - 6 months expenses in case one of you is made redundant or if there is a major expense that you would otherwise need to take out a loan for.

Once you pay off the mortgage, the money you were paying into it and the endowment will be freed up and you can use that to pay for the renovations.

It's a matter of doing the maths and working out what is best for you, bearing in mind that it is often a good idea to NOT use the ISAs given the tax free nature of the interest they pay out.

Good luck working through your options. You sound like you are in a very sound financial position, congratulations!

blade68

Hi, why not pay off, say £19,000 and let the mortgage run? Thus not having to pay the early repayment fee and only paying a few pounds a month interest. Just a thought

downsizer3

Agree with last post.
Also - have you kept enough savings to one side to cover a few months of living if something goes wrong or disaster strikes and your roof blows off etc?
Definitely think its worth paying off what you can but keep a wee but so as not to incur the £600 fee.

mrs_T

£600 fee is incurred if we overpay by more than £500 in any month so paying most but not all to avoid the fee is not an option. We are unsure about situation regarding holding of title deeds. I have read in the past that it's a good idea to leave a few pounds outstanding on your mortgage so that lender holds the deeds thus saving paying a solicitor to do it. Is this still the case?

OH is very prudent so would not leave us with no back up. We are not as young as a lot of the contributors to this board who are trying to pay off quickly, it has taken us 25 years to get to ths stage.

ermine

it's a good idea to leave a few pounds outstanding on your mortgage so that lender holds the deeds thus saving paying a solicitor to do it. Is this still the case?

No. Land title is registered electronically with the Land Registry these days, and the electronic records supersede any paper documents.

When you discharge your mortgage, the mortgage company will initiate a transfer of title from their name to yours. You will get a (paper) confirmation of this transfer, plus probably a pack of interesting but otherwise worthless paperwork which will give you details of previous owners and stuff. It's worth looking through this to check for any planning registrations and guarantees on building works, but as far as title to your house is concerned the Land Registry update is the important one.

You can read more at the Land Registry

downsizer3

In that case I'd overpay by the max each month - with the amount you have left it won't take long to repay and then reassess the £600 when the time comes.

mrs_T

Thanks Ermine but that's for England and Wales only so i need to find out the situation in Scotland, http://www.ros.gov.uk/

Downsizer, the time has come. If we don't repay it will cost us approx. £1800 in interest over the next 18 months becuase the max overpayment of £500 a month won't make that much difference to the monthly interest we pay where as if we clear the mortgage now it will only cost us the £600 early repayment fee.

financialbliss

Nationwide. I have a mortgage with them too. May be able to offer a solution.

Don't pay ERCs - the banks make enough already.

What you could do with a small admin charge of £20 is alter the term of your mortgage to massively ramp up the payments and clear it in a few months, rather than pay the ERC.

May be worth speaking to nationwide again to discuss this option.

FB.

mrs_T

Cheers all, mortgage free ;-)

Colin297

Firstly try what financialbliss has recommended and failing that just pay it unless you really need the 20k

Being mortgage free is a special feeling (id imagine!!)