Should I pay off my mortgage?

GrimlyFiendish

Hi Forum
I'm 40 and am lucky enough to have quite a low outstanding balance on my mortgage of £23,000 (at 2.59%).
I've been overpaying by £500 a month and if I continue to do so I will pay off the mortgage in about 3 years.
I have an ISA pot of £70,000 which is meant to be a Pension Pot, as I am not contributing to any other private pension (paying 1.5% interest).
As an emergency fund I have £15,000 in a normal savings account (paying 1.0% interest).
I've also got MPPI and life insurance.
As my mortgage rate is higher than any of my savings accounts I could in theory pay off my mortgage by dipping into my normal savings and ISA savings.
If I did pay off the mortgage, I would save an additional £815/month (the sum of monthly mortgage repayment and overpayment).
I have no additional debts (eg credit card debts etc).
I realise there may be no black and white answer here but all comments appreciated.
Cheers
G

saver03

I'm no expert and I have only started on the mortgage free journey recently but I will give you my opinion anyway.

I would have thought that paying off the mortgage would save you the most money as that has the highest interest rate. And then you can use the £815 a month, that would have gone on the mortgage, to replace the money from your savings.

phil7445

Why not switch to a cheaper mortgage? There are some very low rates out there at the moment. Fix for less than 2% for 2 years or something like that?

ourcornercottage

I'd pay it off if I was you then pay the mortgage money to replenish savings asap, but I here being in debt and a mortgage is a debt when it comes to it. :-)

GrimlyFiendish

Thanks for the feedback. i've done a quick check with the current mortgage lender HSBC and the best deal I will get is 0.01% less than my current rate. Have yet to look at other lender's deals, but any really low rates are usually accompanied by a high arrangement fee. For a small balance, paying large arrangement fee does not usually stack up.

edinburgher

I take it that you're quite risk averse? The mortgage is perhaps a secondary question to the elephant in the room that is your lack of pension provision.

As it stands, you have a pot of £85k all in to last you the rest of your days, and the relative value is shrinking year-on-year thanks to inflation. It's not a problem now because you're still in the accumulation phase, but if you were coming close to retirement you would find that your money buys you less and less each year.

You really need to be taking advantage of employer contributions/government tax incentives to grow your future provision. There are plenty of lower risks options that would still beat cash.

Even if you don't want a pension, a S&S ISA would offer you many of the benefits of one.

Please consider this, shortfall risk is a real issue and it strikes me that you're investing like someone who has already retired with a big pot

Southend1

Why are all your retirement savings in cash when you are c.25 years away from retirement? The value of your retirement pot is being eaten away by inflation. I think you should seriously consider moving some to a S&S isa or starting a pension. That way you would be able to grow your retirement fund. Are you making regular contributions to your retirement savings? Have you calculated how much income you will need at retirement and therefore how much you need to save to provide that amount?

GrimlyFiendish

Thanks Edinburger.
My employer has never contributed to a pension scheme. If they would have I would have enrolled as I know the benefits that this can bring long term. As a basic rate tax payer, I have read a bit on the ISA's vs Pensions debate over the years. I've just some some rough calculations and if I used my 70k ISA pot and continued my current savings contributions, assuming the mortgage is paid off in about 3 years, the ISA pot would accumulate to approx 400k in 25 years assuming an average interest rate of 3%. However as you say this may not be enough when you take into account inflation.
I've never really looked at S & S ISA's and would have a clue where to start investing long term. But this is something I should really look at.

GrimlyFiendish

Southend1- yes I'm continuing to put about £480/month into the ISA fund. Without any continued contributions I realise I would be falling well short in retirement.

abouttimetoo

Welcome to the board GrimlyFiendish and congratulations on all you have achieved so far


Just a couple of other thoughts from me. The £15k you have in a savings account at 1% could be working much harder for you, ironically current accounts are a much better place to have your money these days than most savings accounts. Just off the top of my head some options could be

• S@ntander 123 at 3% + cashback on any D/D's etc, £2 monthly fee but more than pays for itself
• T$B Plus 2k at 5%, i'm not sure if you are married etc bu if so, you and your OH could have one each and a joint I think so 6k at 5%
• N@tionwide current account, 12 months, £2.5k at 5%
• BOS Vantage - £5k @3%, you can have 3 of them
• MnS monthly saver £250 @6%
• H@lifax Reward - 2 DD's - £5 pm standard interest
• Club Ll0yds £5k @ 4% and then gives you monthly saver @4%, this account also gives you some freebies to choose from e.g cinema tickets, magazines, meals

Some of these accounts require monthly funds to be paid in but you can then move the money straight back out or even do it in multiples e.g H@lifax requires £750 per month to be paid in but you could use the same £250 three times to move it in and out. You can use S/O's to automate this process too




One other thought, and depends how much work you want to put into it is to look at a CC that gives you 0% on all purchases. You could put all your monthly spend through it and only pay back the minimum and save the rest, e.g. building up a pot of money that you can get interest on so that you can pay the 0% card off at the end of the period.


From memory, one of our merry band 'transferred' the final c.£20k of his mortgage to a 0% credit card like this whereby he had it so finally tuned that he used the money that he had saved up by not paying the CC's in full to then clear the mortgage balance with enough time left to also save up to clear the cards once they were due


Good luck with your plans


Regards
ATT

JCL

I would pay if off today. Debt = risk. Remove the risk and you can put your income into building up more wealth.