Worth paying mortgage off now, new one next year for extension?

Catatonia

I currently have a mortgage on my house for about £150k (about 50% LTV). I also have been saving up to do an extension, budget around £100k.

I cannot do the extension until next year, but I have saved up more than I need to complete it, so I could actually pay off my mortgage right now, and still have a stash of emergency funds.

Currently, my mortgage interest rate is 2.3%, and I don't think I'd be able to get much lower whilst retaining the flexibility (unlimited overpayments, tracker rate for term, no early repayment charges) without paying an arrangement fee. My savings are partly in ISAs, partly not, at an average rate of about between 1 and 1.3%. In order to keep the money accessible for next year, I don't think I could do much better (definitely couldn't get a rate of more than my mortgage for a considerable part of the savings).

So, it seems sensible to pay off my mortgage right now, and then reapply for a mortgage next year, when I am getting the work done. I estimate that I'll be able to save about another £25k by then as well, to act as a buffer.

The only potential problems I can see are:

1) Not being able to get a mortgage next year - I and my partner are both in secure employment, affordability is absolutely fine etc - the only time I could see this being an issue was if we both lost our jobs, in which case we would not do the extension.
2) Interest rates being much worse next year - I'm prepared to take this risk.

Can anybody see any problem with this approach? Or would anyone suggest that I keep the mortgage going even though I don't need it right now - if so, why?

Catatonia

I have thought about getting an offset mortgage, but the rates don't seem that great and it's only this year really that I would need the flexibility.

Thrugelmir

When does your current mortgage product expire? (That's if it does).

Catatonia

It's a tracker which lasts the full term (so another twenty years).

martinsurrey

I would pay off all but £2k of the mortgage and keep paying a tiny amount per month.

Then when you remortgage next year, take out what you need

This approach will save you fees, as you can do the legals of removing the existing mortgage charge on the property and adding the new one all at once.

dimbo61

You could pay off half the outstanding debt and keep the rest in savings.
With the £75,000 in savings and the £25,000 you can build up this year you have the money for the extension

Catatonia

Thanks. I hadn't considered that there would be fees for removing the charge.

Would there be any benefit from keeping £75k in the mortgage, as opposed to a token sum, apart from less hassle of applying for the money? I imagine I'd be remortgaging anyway, once I know the exact extension budget, as there's a few cheaper deals than my current one for a lifetime tracker.