Pay off mortgage and save or re-mortgage?

Wah

My wife and I are after some advice, so we've decided to do our first post on MSE!

Our current mortgage is just under 100k and my wife and I have sufficient savings to pay it off. The current interest rate is variable at around 1.5%. Within the next two years we are looking to get a bigger house.

Our dilemma is, do we pay the mortgage off and start saving for a new deposit, or do we increase our current mortgage to use to purchase our next house?

The mortgage we had initially was for ~£200k and we are possibly going to spend ~£400k on our next home. We have yet to ask our mortgage company whether they will allow us to keep the current terms of our mortgage but double the amount we can borrow.


Also note that we are considering renting out my current home as a buy to let.

Any help/suggestions will be appreciated!

ch3101

What rate are you paying on the mortgage and what rate are your savings at?

Mortgage rate < Savings rate = KEEP SAVING

Mortgage rate > Savings rate = PAY MORTGAGE OFF

Yorkie1

Bear in mind that if your product is portable, and you are likely to want to port it to the new property in a couple of years' time, on that low rate it is worth considering not paying extra money off it now, so that you have the maximum amount to be ported when the time comes.

Wah

@ch3101

Saving rates at the moment are so poor, that once you've factored in tax on the interest, it's probably worth paying off the mortgage instead of saving. We could instead put the money into stocks and shares but thats a gamble too.

@Yorkie1

Yes, we need to find out whether we can "port" the mortgage to a different property. We assume that we will, but we will need to check the small print.

We are wondering whether it's worth paying off the mortgage whilst interest rates are at an all time low, and then we'll be able to save the £1.4k that we are currently paying on our mortgage to go towards our next home. When we then buy our next home, we'd need to work out whether to sell it, or let it out (if our council allows it - a question for another post!) and get some equity back to put towards a deposit.

Thrugelmir

Wah wrote: »

We have yet to ask our mortgage company whether they will allow us to keep the current terms of our mortgage but double the amount we can borrow.

Any new borrowing will be at current rates. So the more equity/cash you can inject into the new property the better.

Wah

Thrugelmir wrote: »

Any new borrowing will be at current rates. So the more equity/cash you can inject into the new property the better.

Thanks for the reply Thrugelmir. Do you mean that as we intend to move within the next two years, you think it's better NOT to pay off the mortgage and instead ensure that we have as big a deposit as possible to use on the next property?

Also you say "Any new borrowing will be at current rates.". We haven't asked our mortgage company if we can increase the amount we are borrowing. The mortgage was originally for ~£200k, we have no idea yet if they will give us an extra £100k with the same terms and conditions.

Yorkie1

You either a) port the outstanding mortgage balance on the old interest rate, and take the remainder of new borrowing on a new interest rate, or b) do not port, and take all the borrowing on a new product with the same lender or another.

The ability to port is dependent on you passing the affordability etc criteria at the time of applying for the new property. If you pass the overall tests, then the interest rates are as above.