Is mortgage free the best for me?

fred246

I want to be mortgage free but feel it's better to keep a small mortgage going for years. I have a nationwide mortgage on BMR of 2.5%. It has 11 years to go. I can pay it off now. It costs £90 if I pay it off with more than 10 years left. It also would have an overpayment reserve of about £70K which I can access at any time. If I pay it off now I would lose the ability to borrow that amount at 2.5%. You would never get a loan at that interest rate. Should I keep it going and how much would you leave as balance for those years. Do Nationwide let you keep a £5 mortgage for 10 years?

msmoneypennyplease

I think you would be best to keep it open as it leaves you with more flexibility to take the overpayment reserve in years to come. I am in a smiler position with NW and only have £1 in it as a nominal balance. I decided to pay it off to £1 rather than put the money in savings as the savings rates and 2.5% rate are quite similar. Great position to be in!

fred246

Thanks for that. If I go down to one pound that will work out at 1p per month payment with a total interest of 37p over 11 years. It will cost the nationwide quite a bit sending statements etc. I suppose they won't be happy but they have no choice. And I still won't be mortgage free.

jamesd

There are:

1. Regular saver accounts paying 6% taxable.
2. Current accounts paying 5, 4 and 3% with various limits and conditions.
3. Peer to peer lending at 10%+ or lower from a range of providers, with some risk to capital and term lockins.
4. Conventional investing, with the long term UK stock market return being about 5% plus inflation.

It's not worth doing overpaying when you can make more money than you can save in mortgage interest. Paying extra money off a mortgage in that situation just makes you worse off than you could be.

Access to overpayment reserves is the sort of thing that is at the discretion of the lender. They would mostly say no at the times when your need was greatest, like due to unemployment.