PAying off the mortgage in it's entireity

Purplesky_2

15 months ago, we bought a house (£83,000) with a 10% deposit and due to a huge amount of work that needed doing to the house, we decide to just pay the minimum for the first couple of years and then overpay.

It was a 30 year mortgage (£74700), with a 5 year fix at 4.79% with Natwest.
I had an inheritance come to me in two parts, the first of which was within the first year. It wasn't quite enough to pay off the whole mortgage, but it still felt substantial. :j

We paid off the 10% we could for the first year, and then again for this year at the beginning of the lending period. I did this over the phone using my debit card. :T

By my estimation, we owe about £59k still and the repayment fee would bring us up to about £62k. :eek:

The last bit of inheritance has come through and we now have enough to clear the mortgage :eek:, but to make best use of our funds while waiting for it, we split up all the money into various accounts. We are waiting for the 4% interest on our Cash ISA that comes through on March 30th. :T Our mortgage payment would have been on April 8th.

I am aware that I need to ask Natwest for an exact amount and how much delay time they need. I also need to check whether they can take several small payments, so we can transfer from each of the individual accounts or whether I have to collate all the money together and pay it all off at once?:huh:
So the question is, has anybody paid off such a large amount all at once? Did you use a banker's cheque or a debit card? Did you send a test amount through?

Also, how did you deal with the sudden drop in bank balance? I know psychologically that I will be better off, but I will feel very poor for a while. My net worth is going to leap into positive figures, but I feel like it will be a massive change? I had only just got used to the !!!!!!!g mortgage!

Luckyinlife

I guess your in the perfect situation :]

I wouldn't for 1 second think i had less money I know what you mean tho it would feel like your security money just sitting there for what every you want it for is gone, But you can stand back look at the house think yes its all mine and nobody can take this off me now :]

I myself have saved around 40k for a house see my sig after putting 25k into deposit and solicitor fees broker ect i myself will feel like you say drop in my bank balance after working so hard to build that money up

Gd luck and stay mortgage free as long as you can :]

Purplesky_2

My situation is pretty good. I am FULLY aware of this.

The inheritance came from a lovely family friend, who died unexpectedly and TOTALLY unexpectedly left the proceeds of his estate (less 5k he gave to his sister) between me and my two brothers.

It's been a hard-won fight to get the solicitors to do ANYTHING and I've also been fighting pain and Scottish Power, alongside dealing with my parents divorce.

I (24 yo) live with my partner (30 yo) and we ensured that we could live on his salary alone (two pay-rises ago) with the mortgage interest rate doubled and the energy bill almost doubled! We did this calculation WAY before he died, never mind after we knew we were getting an inheritance or an idea as to how much it was worth.

So now, we can put all that money saved into personal pensions, saving on the interest and securing our future.

I know I'm in a very fortunate position and I try to pay it forward, regularly giving to charity and taking care of/giving a boost to friends and family.

Thank you for mentioning that I have done a similar thing not too long ago (by paying the deposit/fees etc). But then it was only a little over 60% of my total worth that went. This is going to be more like 85%. And we are having our roof and gutters redone at about the same time. A whole load of money gone in valuable ways. But then down to probably £1.5-2k. Fine as a basic emergency fund, but I get a quarterly stipend, and it takes AGES for savings to build on that basis.

Congratulations on getting all that money together. It's a huge accomplishment!

Luckyinlife

Sounds like you know what you have to do and that is very nice that you have been left some money i can imagine how much this means to you i myself am mid 20s :]

Thank you for the nice words stick around and let us know how you get on paying it off and what you have planned for the future :]

Purplesky_2

You know, though, the other difference is that once the deposit has gone , you get the house. If you pay off the mortgage, you still have the house.

This will be interesting!

getmore4less

Net worth won't change in fact it goes down a bit due to the ERC.

The one shot, pay the fees, clear the debt approach has merits but looks like it leaves you cash poor.

I would do a proper analysis of the cost of the ERC against what you can earn on the cash, the cost of having the cash buffer around might be quite small.
When is the next step of reduced ERC?

You could investigate a shorter term to increase the payment without penalty to reduces the costs.

Purplesky_2

Yes, you're absolutely right about net worth. I can only blame the headache I had last night.
The next reduction in ERC doesn't happen until October, by which time, we'd have paid more in interest than the ERC would have cost us (By virtue of being SO early in the mortgage and having a cheap mortgage).

The best savings we have are our 4% cash ISAs, but that rate we are losing at the end of this tax year. Our next best is our 3% 123 accounts, where the vast majority of the money is now. We would eb losing money at a rate of 1.79%.
We are saving at a rate of about £800 a month right now between me and my partner and were we to pay the mortgage off, that would free up another £400/month between us. It wouldn't take us very long to get up to a reasonable buffer again (We'd have £1.5k -£2k each, so about £3k-£4k between us and those are underestimates based on this month's balance, not the balance two months hence). Hereafter, we'd start paying the money saved into a pension.

We'd have enough to cover us for three months expenses (post-mortgage) with that buffer.

rara32

Hi Purplesky


We used our savings to pay off our mortgage last year once our high fixed rate ended (it was circa £70k). Like you I had gotten used to having the money in the bank and although I was paying off the mortgage for peace of mind I did struggle with the thought of not having the money in the bank.


I knew on a rational and logical basis that I was no poorer but it did make me feel more vulnerable. I think it was to do with the fact that having the money in the bank and theoretically available made me feel confident that I didn't need to stay in a job I didn't like if I didn't want to and that we could pretty much cope with any emergency that required cash as we had more than enough to last us several years if needed. Obviously, it is the same if you have no mortgage as the outgoings are less but it definitely was something that caused me anxiety when I thought about it at the time.


We went ahead anyway and because of the extra money coming in it really didn't take us long to save up again but if I am honest I didn't lose all of the anxiety until I had saved enough for a years expenses. Everyone is different and has their own point at which peace of mind kicks in for them this was mine and yours will likely be different again.


I guess I just wanted to say that yes I did feel similar, it didn't stop me going ahead (as I am sure it won't you) and I don't regret it - it was just a case of recognising how I was going to feel, sharing that with my husband and doing what I needed to cope with that. The anxiety wasn't all consuming either I still managed to enjoy being mortgage free - I just approached the savings as my next goal which helped keep me (hopefully) sane!


You are in a fantastic situation and I wish you all the best.


Rara

Purplesky_2

Thank you all for your words. I'll bear them in mind as we go through it!:beer:

gavted

Purplesky,

I did this about 10 years ago. Its horrible loosing what you think of as a vast safety net. But in reality, you will be more secure after its gone. You will have a home, no-one can take away, and no debts. And that makes you walk a little taller everyday.;)

My wife paid ours off with Nationwide by walking in and asking for a redemption figure. She then took that to the teller and paid it off using her debit card (we had transferred the funds to that account a couple of days before). She described it as the best trip to the bank ever! :j

Once its done, all the money you have spare can go intro savingsd for a few months, and when your happy with the safety net, then move to your pension. A safety net makes sleeping at night very easy.

Best of luck, enjoy the ride.

Purplesky_2

Thank you.

My partner and I categorically HATE being in debt. He managed (through an unfortunate set of circumstances) to not have any student debt and I have mine, but on a graduate tax based system:j.

This is genuinely our only debt, and I can feel the mill stone, but you're right - the loss of the 'safety net' is the biggest thing. You know, we wouldn't be totally bereft, but we had kind of got used to it. Fortunately, we have always saved regularly whatever we could, so we're already in the habit.

We'd just come to the conclusion that throwing money at the pension wouldn't happen for possibly six months ourselves, but it's nice to have that decision validated. My partner will be starting later than he'd like (at 31), but at least we can throw money at long term savings, hand over fist, and simply rejoice in any interest rate rises/other signs of economic progress:T