Keep or close mortgage fully offset

sebtomato

Hi,

I have an offset mortgage that is now almost fully offset. I have on a linked savings account almost the same amount as what is due to be repaid on the mortgage.

I am thinking about just paying off monthly the capital from the savings account until the end of the mortgage term, as opposed to repay the mortgage now and close it down. I could also just pay no capital at all, and pay no interest because the mortgage is offset, and leave it as is until its term.

I think it could be always useful to keep some cheap money available, as opposed to more expensive borrowings if required. Possibly, I could probably invest that money at a higher rate than its cost (mortgage rate).

However, I am not sure if my credit rating would be better or worse if the mortgage was paid off much earlier than expected, and what other factors to consider.

ic

I'm in the same position - I cleared my mortgage about 9 months ago, and then arranged a freeze of payments. I've another 9 months until my ERC finishes, and I'm thinking I'll probably take on another two year offset account and continue. This will give me a cheap "loan" pot ready available should I need it, whilst I build up my savings. Once those two years are up, then I'll clear the mortgage. One thing to bear in mind is there may be a minimum amount you need to owe in order to extend the term should you want to. If I choose to end the mortgage, I actually have to pay £199, so at least I'm putting that off until inflation "reduces" it.

sebtomato

My mortgage has 15 years to go, so not an issue with having to extend in the short term!

Thrugelmir

sebtomato wrote: »

I could also just pay no capital at all,

Have you asked your lender if this is possible? Having a balance to offset does not guarantee the repayment of the mortgage balance.

sebtomato

Thrugelmir wrote: »

Have you asked your lender if this is possible? Having a balance to offset does not guarantee the repayment of the mortgage balance.

Sorry, not sure to understand?

My mortgage is interest only, and only has an end-date. There is no specification on the mortgage contract that I need to repay some of the capital before the end of the mortgage. Only commitment is to pay interest monthy, and have a repayment vehicle at the end.

I have been however paying it like a repayment mortgage up to now (capital plus interest paid each month), and could carry on paying the capital from my savings account.

getmore4less

If you are 100% offset that's the capital covered, just check any closing fees.

The only thing you have to watch is the benefits trap having the savings, not a problem if you have other money/assets or will have fairly quickly.

I would keep it sitting there no cost and you can use it if you find something.

eg if not already using ISA allowances you could use up 2 years worth between now and April and use earnings cash flow to top up the offset.

Spot an investment opportunity.

Want to move and the deal is portable, just save the difference.

it costs nothing to keep it and once it's gone that's it no going back.

what's the rate

sebtomato

Yes, 100% offset, so capital covered, and interest will be zero until the end of the mortage.

Closing fee I believe is £100, so small.

I have already used my ISA allowances.

Mortgage rate is 2.49% variable, so any investment of my savings offseting the mortgage would need to beat that rate + income tax @ 40%, and secure enough so that I don't lose my property! Investment would also need to be flexible, so that I can get out of it if my mortgage rate increases (1.99% + BR)

redpete

What circumstances do you anticipate that will depend on you having a the best credit rating you can achieve? It might be that you don't need to worry about it in which case I would keep the offset available as an emergency fund.

Thrugelmir

sebtomato wrote: »

My mortgage is interest only,

I thought it may repayment.

sebtomato

Yes, I guess keeping a good credit rating is an important consideration (if I need another mortgage for instance).

If I pay off the mortgage now, it will probably be worse, as I would have no credit.

If I don't pay anything at all for many years (since capital not due, and no interests), maybe would not look good either (as it could appear I am not keeping up with the mortage). I don't how credit rating companies treat IO mortgages.

Maybe the best option is progressively paying off the capital from the linked savings account, monthly.

Thrugelmir

sebtomato wrote: »

Yes, I guess keeping a good credit rating is an important consideration.

If I pay off the mortgage now, it will probably be worse, as I would have no credit.

A good credit rating is not determined by the fact that you owe money. Far more kudos attached to satisfactorily completing credit agreements.