Should I pay off my mortgage now and live with no savings in the bank ?

Macce

Hi,

I currently have a flexible mortgage of £35,000 @ 6.2%

At the moment I also have exactly £35K in savings !!! (ISA and savings account).

Question is should I blow all my savings right now and pay off the mortgage or wait another 6months to build up a safety buffer ?

My current mortgage repayment is ~£480 per month. If I were mortgage free I would be able to save approx £1200 a month.

Ideally I would like to buy a car and possibly quit my job and take 2-3 months off later this year. Is this wise ?

Thanks for your input

Batgirl

I say YES because you will only have £0 in the bank for 1 month and then have £1200 in month one which is already a half decent buffer for anything to go wrong with. Also put your details in a snowball calculator and you will see how much you save, and much as you won't save thousands I think you will save hundreds, and that is hundreds for you and your pocket not some bank.

Best wishes for whatever you do

Batgirl

KarmaPolice

Go for it!!! You lucky thing

pantsmachine

no brainer. Financial advatages aside, there is no value that can be put on the feeling you get when you pay off the mort. Seriously, its a total buzz and its every single day!

May i also suggest that when you do it, do it in cash at your b/s branch. Its more memorable than a boring cheque or e transfer and it costs the same!

nearlyrich

Yes go for it no question, there is nothing better than having no mortgage, it's not as if you would be struggling to save again afterwards.

Little_Miss_Winner

Presuming you do not over pay your mortgage at the moment? And you are paying £480.00 @ 6.2% It will take you 7.5 years to pay off £35k.

The interest you will pay in that time would be £8,763.00

Who would you rather have that £8.7k ?? I know who i would....

ThankYouAndEnjoy!

sorry

I would have to say no ....

very pesimistic i know, but you never know what is around the corner ... If you become ill, and have mortgage insurances, you could have you mortgage paid off for you, and still have £35k savings.

I also think others have forgot about the interest you are making from your savings ... the interest on your savings would offest partially against the interest on your mortgage.

I do agree however that you should make overpayments(as your mortgage % is greater than your savings %s), but feel it would not be wise to pay off completely. Based on your calculations, you are currently saving £600 or so a month, could you make overpayments on the mortgage with this amount instead??

If you did pay off your mortgage in full now - 35k divided by £1.2k /month savings would take you 2.4 years to replenish fully.

Macce

thanks all keep your opinions coming in. My only concern is that I don't plan to live in this house for the rest of my life I would eventually like to sell and move elsewhere. I would also maybe like to study further and if so would need to have some cash to pay for fees

I suppose either way paying off the mortgage now makes most sense.

InMyDreams

I wouldn't use the ISA savings to pay off your mortgage. You're not going to be able to replace those at £1200 / month.

Is your 6.2% fixed? Hopefully your ISA is not that far behind with the interest rate, and if your 6.2% is fixed, interest rates wouldn't have to go much higher before you might even be beating it. Even as they stand, I suspect the difference is small and it would be a smll price to pay to keep that money sheltered from the taxman. My priority would be to max out ISA allowances otherwise you'll end up with no mortgage and then shortly find yourself with loads of savings on which you'll then be paying all that tax instead. Keep your savings sheltered.

Browntrout_2

Unless you can borrow at low rates and save at higher rates why have debt and savings?

It's down to personal circumstances, i.e. if you are looking to take out a bigger loan in future maybe it is more cost effective to keep an offset mortgage account open so can draw on it later without incurring new mortgage start up costs.

For me the bottom line is debt -6% + savings 4% = minus 2%

Cashing in an ISA is a last resort though as you lose that entitlement forever.

Dithering_Dad

I'm with ThankYouAndEnjoy! on this one, I'm also pessimistic and so would always prefer to have a nive large amount of savings available for a rainy day.
I would also hate to lose all my ISA allowances - if you cash them all in and start again, at only 7k a year it would take a while for it to build up again.

If you really want to reduce the mortgage, why not use the savings that are returning less than or similar interest rates as your mortgage and keep the rest going?