Why not pay off all of your mortgage?

ahockton

I have heard Martin state that it is sensible to keep a nominal £100 remaining on your mortgage and then convert to an interest only mortgage costing a few pounds a year.

Why is this sensible?

I can see that it keeps your title deeds safe and secure at a small cost and that having a mortgage is used in part by lenders to determine your credit worthiness. Are there any other reasons?

danlightbulb

Ive read this too but in the context of avoiding early repayment charges if you are on a tie in deal. Maybe its for that reason, rather than keeping your deeds safe.

JenniO

I can also tell you that by keeping a 'mortgage' on your property you will get better deals (more competitive interest rates) with lenders if you ever wanted to borrow more money against your property (say for an extension or a second home etc). If you pay off your mortgage completely, your property becomes 'unencumbered' and only a handful of high street lenders will accept an unencumbered property. I'm not sure why but I do know this to be the case as I work in mortgage sourcing.

Mr_helpful

Ive never found an unencumbered property a problem but I wonder if you have a mortgage then you may get any windfall benefits that may or may not come your way as a result of mergers or takeovers in addition to the benefits of deedstore.

KTF

Arent the deeds stored electronically these days so that doesnt apply any more?

Noz

KTF wrote: »

Arent the deeds stored electronically these days so that doesnt apply any more?

Not necessarily, deeds can only be stored electronically if the property in question is registered in with the Land Registry

PBA

As far as I remember, this was started when the building societies started converting into banks. If you had £100 outstanding on your mortgage you still counted as a member, so you'd qualify for free shares when the society converted to a plc. Probably worth doing if your mortgage is with one of the smaller societies, given the rumours of consolidation going round at the moment. Otherwise I can't see the point, may as well pay it off and then you're mortgage free!

MarkyMarkD

As most property is registered, the deeds security argument is generally irrelevant.

I believe that Martin's argument is based on the ease of getting money in future if you need it - it's very easy to get a further advance from your existing lender, not particularly expensive, quicker than getting a new mortgage on what would be an unencumbered property, and avoids the £25k (typical) minimum mortgage advance.

It isn't an effective way of avoiding ERCs with most lenders, as they will charge an ERC on substantial capital payments too.

nearlyrich

We owe the last £100, they don't charge us any interest or fees but we wanted to keep our options open for further borrowing if required whilst the children were at uni. Fortunately we haven't needed it and our property is registered at the land registry so the only benefit is to the Halifax who have an extra mortgage account to keep them the biggest.

kenshaz

KTF wrote: »

Arent the deeds stored electronically these days so that doesnt apply any more?

Exactly and that is another reason that they could not justify the charges when you paid off your mortgage.The vast majority are electronic ,exceptions yes ,but for most deed store is not a consideration.

Cute_'n'_Quirky

Our mortgage completed in 1994 with £1 still owing to Northern Rock.
We still got the shares. NR keep the deeds and still provide buildings insurance.