Seeking Advice Please

MFWunsure

Hubby and I have a remaining mortgage of £24000 and have just shy of the same in savings.
Hubby wants to clear the mortgage using our savings but this makes me nervous as then we have no fall back if either of us lose our jobs or become ill.
We have two dependent teenage kids who obviously are expensive and the thought of having no savings fills me with absolute dread.
As a compromise I have offered to take out a loan for £7500 over 24 months which leaves us this still in savings but he is adamant that he wants to be debt free also as he does not want to be paying any interest to anyone.
We are obviously both savers to have built that up but thoughts appreciated from anyone on whether it would be foolhardy to leave ourselves with no fall back whatsoever.
Apologies in advance if this is in the wrong section.

jodles16

Hi,

I'm not the best person but is this where an offset mortgage would come in handy? Therefore keeping your savings, but you would be mortgage neutral as well? Hopefully someone who actually knows will be along soon!

Jodles

ZTD

Why don't you re-mortgage to an offset mortgage? You can then dump your savings into the offset account, and be paying no interest (assuming 100% coverage) - but it's there to withdraw should bad things happen.

Also check that you can borrow just £24,000 on a mortgage - but if you have to borrow more, it's not the end of the world, you'll just have to stuff that excess into the offset too.

There are costs associated with re-mortgaging (as there would be with getting a loan), so check those too.

Mrs_Soup

Personally I'd want to pay it off too. How much do you normally put into savings and on the mortgage each month? Once the mortgage is gone all of that can go into rebuilding the savings. Or as a compromise maybe pay off 20K leaving yourselves with just a tiny mortgage and some savings. I wouldn't be taking out a loan instead

midnight_child

What is your interest rate charged on the mortgage and what do you earn on your savings? What band of tax are you and hubby paying?


I would imagine that you have a high level of equity in the house so you should be able to get the lowest rates possible. There are savings and current accounts available where you can get 3, 4 , or even 5% (before tax), and while it may seem to be counter-intuitive you may actually be better off paying off the mortgage more slowly (which also keeps it if you need it). These accounts often require you to pay in £1000 per month and have 2 direct debits, you may need several different accounts (with different banks) and cycle the same grand round them, and set up a £1 direct debits to a charity or your kids in order to fulfil the rules.


Check out Martin's advice on top paying savings accounts


MC

theoretica

If you are looking, as other posters have suggested, to change your mortgage make sure you take the fees into calculation. With such a low mortgage sum the feels can overwhelm any interest savings.

Taking out a loan just to have the money sit in savings is not a way I would go - how much would you be paying for that privilege?

How much are you paying to the mortgage a month? How long would putting those payments to savings take before you feel safe again? Do you have any things you could mentally earmark as 'to be sold if money urgently needed'?

Have you considered insurance against loss of income from illness or job loss?

racing_blue

The way I would approach this, the starting point would be what amount of easy access cash- call it an emergency fund- would allow me to sleep easy.

As a home and car owner with teenage kids, I personally set the bar at £10-20k but the level will vary from person to person.

Say you go for £10k, and the interest you get on your savings is 2% less than you pay on your mortgage: then that emergency fund facility is costing you £200 per year.

If instead you wipe out your savings paying off the mortgage, you save this amount each year BUT if you suddenly need cash you have a more expensive problem.

I agree that an offset mortgage could do better, but suspect it is unlikely to be a viable option for you at this stage because the arrangement costs would cancel out any savings.

midnight_child

Forgot to mention about the product fees.
Probably not worth moving to another lender but maybe OP could approach existing lender to try to see if they have a lower rate with no (or very low) product fee.


Hopefully it will be a moot point and OP has an old school mortgage running at near BOE base rate. If so, I would not be in any hurry to pay it off early!!

edinburgher

How long is left to run on your mortgage term? Nobody else seems to have asked that one.

A loan makes absolutely no sense unless it's at a lower rate than your mortgage.

Dr._Shoe

It seems to me that say you are paying one persons salary in mortgage payments then if you paid off the mortgage if one of you did lose a job then you'd be Ok. Even if the repayments are less than an earner you could still survive by making a few compromises and cost savings.

What I might do in this situation is to pay off some of the mortgage (say £15,000) so I still had 9 to 10K in the bank and negotiate a smaller mortgage repayment so its over the same term and use the difference to top up the savings. After a year or three I'd pay off another chunk. That way you have your cake and eat it.

I cannot see how taking out a short term loan is in any way beneficial.

Another way would be to pay off the mortgage and then remortgage if you need it.

enthusiasticsaver

I would decide how much you want to keep in savings - usually 3-6 months salary and then pay the rest off the mortgage as a lump sum repayment. Only exception to this plan is if your savings interest rate is higher than your mortgage interest rate. Makes no sense whatsoever to take out a personal loan to stick it in savings.