Paying off mortgage vs Saving

davidqu

I'm currently in two minds about what to do

I have enough savings that I would be able to clear my remaining mortgage, what are the pros and cons, my current mortgage is really really cheap.

innovate

As has been asked in your other thread: what is your mortgage interest rate?

Without that information, nobody can answer your Q in a meaningful manner.

Also, are you allowed to overpay? What, if any, penalties will be imposed if you do?

davidqu

I know what you mean, weigh up the mortgage interest rate compared to saving interest rate. I left all that too my fianc! as she works in the bank. Sorry for the vague answer.

torbrex

I went for the feel good factor and paid off my mortgage, I also reaped the benifits of not having to pay any interest at all ever again

As has been said, unless your payment interest is less than your saving interest then there is no contest.

R_P_W

davidqu wrote: »

I know what you mean, weigh up the mortgage interest rate compared to saving interest rate. I left all that too my fianc! as she works in the bank. Sorry for the vague answer.

Oh come on, you don't need to work in a bank, do it yourself and respond on here otherwise what answer are you expecting?

robatwork

Oh come on - she wouldn't leave the colour choice of your living room to you just because you work for Dulux.

So man up and tell us details - mortgage rate & amount outstanding, time left, penalty clauses to pay it off, interest you are currently getting on your savings, et al

wymondham

With savings rates so dire it's probably best to pay off your mortgage..

davidqu

robatwork wrote: »

Oh come on - she wouldn't leave the colour choice of your living room to you just because you work for Dulux.

So man up and tell us details - mortgage rate & amount outstanding, time left, penalty clauses to pay it off, interest you are currently getting on your savings, et al

As absurd as it may sound I'm not sure what mortgage rate were on now, we had to recently switch as the last tracker deal ran out, I've looked out the paperwork and we were paying 2.99% with the new deal which kicks in on September our payments are reducing slightly so I know it sounds daft I was quite happy with that. My misses will have the paperwork in work.

We currently owe just over 33k and the max charge we could pay if we paid back early is 1050.00

The mortgage still has 20 years to run.

I've got savings in santander 123 - maxed out
Also maxed my llyods vantage and flex direct nationwide
And got 5.5k in a stocks and shares isa and have another ISA with santander.

innovate

No savings or current account will pay you 2.99% these days. Best you can hope for as a basic rate payer is 2.4%ish now.

So may be look at paying some for your mortgage off (can you actually overpay? by how much?), putting some into a pension, and keeping some back in an interest-paying current account for a holiday, and for your rainy day fund (6-12 months living costs).

davidqu

Well on the paperwork it says if I paid the mortgage off before 31/8/13 then the max penalty would be 1050, what you say is sensible, shouldn't put all eggs in one basket, I do like the security in knowing that my house is completely owned by myself right enough.

Tbh if totally in two minds, I was looking at the saving rates etc and the thought of clearing my mortgage came up, I'm not entirely sure what ill do.

bowlhead99

wymondham wrote: »

With savings rates so dire it's probably best to pay off your mortgage..

I would say the opposite, as the returns on savings and investments can still beat a "mortgage that is really really cheap". Some people are on base plus half a percent, or less.

Of course, the OP had not previously told us how much money he's talking about, or what rates he's paying, or what he wants out of life in terms of goals and future aspirations. The bank employment connection might complicate things anyway, because perhaps they are on a preferential rate on non-arm's-length terms and she pays tax on the benefit of getting a sweet headline rate compared to the 'going rate'.

So, we could only speculate.

Now with some hard figures it is clearer. The amount we're talking about is not so high that it's impossible to mostly invest at reasonable interest rates or require spreading around to keep it under FSCS limits. So that's a positive thing for keeping it as cash. But the mortgage rate is not so low as to be ludicrously cheap like some deals, so it is tough to equal with savings rates. But back on the other side of the coin, the early repayment penalty of 3% ish is a deterrant to paying it off, and presumably does not last forever, so no need to dive into clearing it right now if you don't want to.

Personally, if the mortgage interest rate is not substantially higher than the return they're making after tax, I wouldn't pay it off. If you have the cash on hand to meet every future payment as it ever becomes due, it can never be a burden and a standard mortgage is unlikely to stop you getting credit cards etc, which you won't even need if you have pots of cash anyway. It only needs to be cleared if it becomes expensive in terms of interest cost against your available returns from elsewhere. I am presuming you aren't a high rate taxpayer so your 3% on the bulk of the savings at Santander is still 2.4 net which approaches the 2.99 charge on the mortgage. Seems like you won't be short of the mortgage interest bill by much over a couple of hundred quid.

Having a monster cash stash, even if it is costing you, net, something to maintain the mortgage, can be a valuable thing. Say you want an extension for your house, or some cash for some emergency that besets you or a loved one. A 'rainy day', if you like.

If you have used 100% of your savings to clear the mortgage, the only way to get the cash for the life-changing event, is to remortgage or borrow it. A loan for a new car might cost you 6-10% APR. A remortgage for a house extension at current rates might end up costing you 2.5-6% APR depending whether you can pay it back in a short term fix period or it ends up being a 25 year loan again and it ends up back on standard variable rate. Both of them will require you to have the salary to support it. It's conceivable that the reason you need emergency funds is that you don't have a salary, in which case if you deliberately voluntarily paid off the mortgage in the good times, you would be annoyed you had done so and could now not get someone to give you credit at super-low rates any more in the bad times.

So IMHO, one can be quite happy paying a few hundred quid more in mortgage interest than they earn in savings interest, for the insurance policy the large cash pile represents. Personally I might even gamble the cash pile on investments, if I thought self and spouse had the income stability to handle the future mortgage payments without issue.

One issue for OP is that the mortgage is with his fiance, not wife. Having joint ownership of a house, with the assets supported by joint borrowing, can be a tricky thing. You (collectively) owe 33k on a house. You (personally) have personal assets of that amount in bank accounts and ISAs and S&S investments. While not wanting to say anything about the quality of your relationship or what proportion of them statistically end in separation before or after you get down the aisle, I would offer the observation that staying in cash is not a completely reckless thing to do (it's economically justifiable as I outlined above, particularly when early repayment charges are considered) AND it gives you a bit of personal insurance against something going wrong.

Of course if you kept the cash, she might want you to buy an expensive wedding party or honeymoon, which is potentially a worse use of funds than tucking it away in a house.

So, as suggested in post #1, there are pros, and cons.