Should I pay off my mortgage discussion

JayZed

dawn, paying off the mortgage is almost certainly going to be better than repaying it at 6.49%, especially if you're a taxpayer (which limits your net return on savings/investment products). However, if you decide that you don't want to pay it off, you should be able to remortgage at a lower rate - there are certainly mortgage products on the market that will beat 6.49%.

Dithering_Dad

dawntrace wrote: »

Hi - My fixed rate mortgage deal is due to finish at the end of august. The new variable repayment rate is 6.49 and the amount outstanding will be 90,000.00. I am able to pay the mortgage off, but not sure whether I should keep the savings and continue to pay the mortgage using the interest to pay part of the mortgage payments. I have currently some money with a 6.5 interest rate paid monthly and not sure what to do. Any suggestions?:j

Why not remortgage to an offset mortgage, and put your non-ISA savings into that to offset the mortgage interest. Then each year as you pay the mortgage down, you can move the money from your offset and into future ISAs until you've finally paid off the mortgage.

The advantage of this is that you're not depleting all of your savings at a time of financial uncertainty in the UK/world, yet you're still making the best use of those savings in the meantime.

StuartGMC

Dithering_Dad wrote: »

Why not remortgage to an offset mortgage, and put your non-ISA savings into that to offset the mortgage interest. Then each year as you pay the mortgage down, you can move the money from your offset and into future ISAs until you've finally paid off the mortgage.

The advantage of this is that you're not depleting all of your savings at a time of financial uncertainty in the UK/world, yet you're still making the best use of those savings in the meantime.

DD I'd second that, especially if within those savings are the "rainy day" funds that you do need to keep available.

expertnovice

I am not, I freely admit, hugely clued-up on money saving ways so I would really appreciate opinions on something.

I have been off work sick for almost 3 years and am on incapacity benefit. I will shortly be receiving £20,000 tax free from my former employer and I'm wondering about paying off my mortgage. It has 10 years to run, is £16,500 and 6% interest. I haven't been able to use up my ISA allowance since being sick.

Given that my partner is out of work currently and is also about to apply for income support, I'm tempted to keep it as a cushion/living fund but am attracted to the security of not having a mortgage anymore. I have no other debts, my partner has an overdraft and cc debt. If I don't pay off the mortgage it will no doubt seriously affect any benefits we can get, so I think I may have answered my own question here, but I'd appreciate others' thoughts on the matter. Thanks!

ailuro2

it may automatically affect the benefits you receive, so itmight be an idea to talk to the benefits people before you going paying off your mortgage.

Your partner's debts may be costing more in interest too, so it would be good to get rid of the costlier debts first too.

jamesd

The debts of your partner are probably more costly than the mortgage so those would be the first thing to pay off. The money that's currently being paid off them could be used to repay you if your relationship is not a share everything type.

Savings do not affect incapacity benefit.

Savings of a couple do affect means-tested income support, so they will affect you that way. Assuming that neither of you is over 60 then each £250 of savings over £6,000 will be treated as providing £1 of income a week up to a maximum of £16,000 of savings which eliminates all income support. This is equivalent to 23% savings APR, not really achievable in the real world.

So, getting down to no more than 6,000 of savings between you will be required if he's to avoid losing some income support.

If debt repayment doesn't do that then the next thing is to wonder if you have a flexible mortgage where you can overpay on the mortgage and take the money back later. If not, then overpaying on a standard non-flexible mortgage also works but does lock the money away.

I suggest not fully clearing the mortgage because so long as it exists you can get the money back out again if it's a flexible mortgage.

Do everything that you intend to do that reduces your savings before your partner applies for a means-tested benefit, to reduce the chance of deprivation of capital rules being applied. Those would count the money as still being there even though it's gone.

If you still can't find ways to get below the limit it might be worth asking your former employer to delay paying some of the money until your partner is no longer claiming income support.

billybiker

I've about 3 years left on my Woolwich mortgage at 5.75% I think and my savings are earning 7.06% after tax (none UK tax payer) so surely I'm better off with my mortgage or maybe I should re-mortgage for more?

jamesd

Yes, if you can get the same rate you'd make a profit. Do allow for any costs of increasing the mortgage, though.

Floxxie

I'm still very confused on how savings v mortgage overpayments will benefit my situation. Could somebody explain please?

If for example I have an offset mortgage of £100k at a rate of 5.48% (tracker) and £10k in savings - would I be better to put the savings in an offset pot (so I am paying interest on £90k) or in a high interest account i.e. getting interest on the £10k (as a non-tax payer).

My thinking is that the first option is better - am I correct?

Thanks in advance,

Floxxie

jamesd

The one that is best is the one that has the highest interest rate after allowing for any tax. If you can find a cash ISA paying more than 5.48% or a savings account paying more than that plus any tax you pay on savings you would make more interest on the savings than you save on the mortgage.

It's quite easy to do better than 5.48% at the moment, so today you'd be a bit better off by using a different savings account instead of using an offset account.

On 10k you'd pay 548 in mortgage interest.

If you could put all of that into the top paying cash ISA at 6.25% you'd make 625 and be better off by 77 in the first year, more in later years as the gain compounds over time.

With the 3600 per person cash ISA limit you could do it with two people if you have a partner, else you could use the 3600 cash ISA allowance and perhaps use the 10% taxable Halifax International regular saver account. You'd put in 2,000 in the first and second months, 1,500 in the third month and then 100 in the remaining nine months. The combination of ISA and regular saver, after basic rate tax, would pay about 668 in interest. That would leave you 120 better off after the first year.