What would you do?

mtc863

OK, here's our position...

* Mortgage of £53000 with 14 years left to run at an interest rate of 0.17% above BoE base for life (so paying 0.67% at the moment).

* About £75000 in cash savings (mostly cash ISAs earning a reasonable rate of interest).

* No other debts

(We're in our mid 40's, both employed and both with reasonable occupational pension schemes)

My heart says pay the mortgage off once and for all and be done with it, but the more intelligent part of me says that as the interest on the loan (0.67%) is significantly less than we get on the savings (3.0%) then we'd be daft to pay it off.

Any thoughts?

Two9A

Go with your head, for the time being at least.

0.67% is a ludicrously low rate; one of my mortgages is about to drop to 2.5%, and I'm inordinately pleased about that. You can achieve 3% very easily in savings, and much better than that if you lock it away for a couple of years in a bond, or fire up some regular savers.

To do the figures: let's take that £75k and lock it away in a 5%/yr bond. After five years, you have £95,700. Your mortgage, meanwhile, is at 0.67% this and rises by 1% a year (say). In five years, £53k has become £60,400, assuming you don't pay anything towards it at all; the difference is how much you've earned: £35,300.

Alternatively, you pay the mortgage off and have £22k left over in savings. You sock it away in 5% savings again, and you end up with £28,000 after five years.

It makes financial sense to save it, for as long as you can find savings accounts that do better than your mortgage rate. Edit: You can do better than 3%, on that amount of money...

RosieTiger

Totally agree - unless you have an overwhelming urge to be rid of the mortgage, retaining your savings makes sense.

Spiggle

Hi,

My opinion, for what its worth, is that this is an easy answer if you just concentrate on the maths/earning potential: as Two9A and RosieTiger have said don't pay it off and maximise the interest gained.

As someone who has a 0.69% main mortgage and a much smaller 1.49% second mortgage (both lifetime trackers) I have been round the houses a number of times on this. :wall:

Personally, this is more psychological than mathematical hence the trips round houses! I will shortly be able to clear the second mortgage and until a few weeks back was in a right quandry as the savings rates would have easily outdone my mortgage rate. BUT I like to see my mortgage reducing AND I have a specific target date to get the whole lot paid off by AND my target calculations included clearing the second mortgage now-ish. (My own weird snowball-ish plan! :rotfl:)

The upshot is that I will clear the smaller amount (just under £5k) in a few weeks time. In a years time when there will still be two years to target date I will save lump sums as offset savings for two years on the best fixed rates I can get. This way I get the best of both worlds. :cool:

I suppose the thing is you do have to go with what is right for you. :think: I was getting more and more stressed because I knew what I intended doing wasn't the 'right' way to go mathematically/financially but sometimes you have to do what your heart says as well. I'd love to be in your position and know exactly what I would do if I were, pay it off financial sense or not. :dance:

To have our home be truly ours, to never have to pay another penny in interest on it and to not have the extra worry if the worst happened where one or both of us got made redundant is priceless as far as I'm concerned. But that's my heart talking!

I wish you all the very best in your deliberations and hope you come to a conclusion that satisfies both your head and heart!

All the best,
Spigs

Trentenders

You have nothing to worry about. If interest rates rise faster than savings rates (by a lot), then you can always pay the mortgage off then.

If you're made redundant, I still wouldn't pay it off! If that happened, you would use your savings to pay the tiny amount of interest that you are, while you look for another job.

You're in an enviable position, so make the most of it. Will your mortgage company extend the term of the mortgage to another 35 years?! :beer:

getmore4less

Your are net debt zero so mortgage free(if you want)

You are now looking at investment for the future

Focus on how you keep the ISA money and still manage to pay off the mortgage at some time in the future.

Any pension lump sums?

Mrs_Z

I know it's tempting to pay off the mortgage but as others have said, with such a low rate - just keep piling the money on the savings account and be smug that the bank is actually paying YOU to have it there!

It's good to have a bit of cash that you can get to quickly - you never know - you might be tempted to do something with it in a future, holiday home, etc and if you'd used it to pay off your mortgage you would need to remortgage.

Well done you!!!

mtc863

Thanks for all the comments. Despite it being really tempting to just pay it off, we're going to be sensible for the time being and carry on with the savings.