Am I doing the right thing?

debjam

Ever since I first got a mortgage I have dreamt of being MF, but now I am nearly there I am questioning whether it’s the right thing to do.

Current situation:
Married, no dependants, both in full time work paying basic rate tax, I’m in my mid 40’s OH is late 50’s. We have 7½ years left on our mortgage with a current balance of £17k at a rate of 2.5%pa. We overpay by £200 per month and are on target to pay off mortgage by early 2017. We currently have a £36k overpayment balance on account, but this is available for us to draw down if we require it.

I have only recently gone back to full time work after a 2 year break, during this period we swapped all savings into accounts in my sole name and completed R85 forms, these have now been cancelled. This allowed me to move money around and take advantage of a couple of better interest rate accounts, I opened a Nationwide Flexdirect account for the 5% interest rate and also swapped our bills account to Santander 123 and put as much in as we could afford to get the full 3% interest rate.
Now we have more disposable income available and we are both paying tax I have spent time reading up on here about where to place money to get the best rates.

Bank accounts open at present:
OH has Nationwide Flexdirect and we have a joint Flexdirect both at £2500 earning 5%
Both have TSB accounts at £2000 each earning 5%, going to look at getting a joint account as well
I have a First Direct account so I could get the Regular saver at 6%, have paid in max amount each month, this matures the end of this month
OH banks with HSBC so have just started a regular saver at 4% max contribution. I know they do the 6% regular saver but OH can be very stubborn so it’s better to leave sleeping dogs to lie.
I have SOs set up bouncing £1k around all the accounts over the month to meet the requirements.

When we sat down over the weekend, as he had one of his lightbulb moments and realised he didn’t know what I did with our money, I realised we could actually pay off our mortgage at the end of the month if we emptied all the accounts, this wouldn’t happen anyway this month as I would never leave us so short.

This then got me thinking – do we really want to “lose” our mortgage. Knowing we have the overpayment that we can draw down should anything go awry in the next few years should we pay off the mortgage with the rate so low. The rate we are on is not fixed or anything, just Nationwide basic rate, so I know that once rates move so will our mortgage rate. But if we only have a minimal amount on the account and pay a minimal amount monthly to keep Nationwide happy, would we be better off leaving the mortgage open as such?

I know being MF is what everyone here wants and works towards, and it’s thanks to everyone on here for giving me the inspiration for getting where I have, so I need some sound advice from you all - am I overthinking this?

shsm

I suppose you could continue to overpay and get the balance down to £50 for example and pay the mimimal repayment charges over the remainder of the term or until you decide otherwise 😃

edinburgher

You may be able to do more useful things with the money. For example, how is your pension provision? This question would seem to be pertinent for both of you, particularly for OH who's within 10 years of state pension age.

Teacher2

We have a Virgin One cheque book mortgage (which I don't think is available any more) but it basically works as if your mortgage account is your bank account. Interest is charged daily and you can overpay and draw up to the maximum amount borrowed up until the last day of the term when the whole sum is due.

We have piled two salaries into it to overpay our mortgage and have knocked years off the term and also thousands off the amount owed. We have also used it to pay for huge commitments like other property and school fees. So the sum has gone up and down and is currently low as our children have gone though university and are keeping themselves (at last).

I would say it is well worth paying off your mortgage. Use what you save to pay down even more debt. It worked for us. You get to a stage where the overpaying accelerates the benefit and the mortgage debt disappears before your eyes in a most satisfactory way. While interest rates are so low on savings while the mortgage rate is as yet nowhere near as low you are 'making' much more to pay down debt.

Good luck with your financial efforts.

debjam

Thanks guys for your advice.


Edinburgher - we both have personal pensions, I have several which I started during the 90's when I got was in full time work and was with companies that offered company pensions, not great balances on any of them really. OH has a company pension which has a very nice pot sat there. Pensions are something I know very little about so shall pop over to the pension board and seek advice there.


shshm & teacher2 - I think it's the comfort blanket effect of knowing that the amount is there should we ever need it, but I think if we have got it down to a minimum and interest rates start getting silly again at least we can decide to just pay off the small balance and start putting the money into savings.

gavted

debjam,

Do a quick calculation of how much you could save monthly without a mortgage to pay / OP. Then work out how quickly you can build up that nice nest-egg again.

I would try and avoid leaving yourself completely devoid of savings if you do pay it off, but once its gone, when interest rates rise, you wont be wondering what the best option is, you will just be counting the interest! :-)

Gavin