Almost there - but should I?

isthisjustfantasy

Hi

Not sure if this is the right forum as I'm a bit "late to the party" for the essence of this group, but hopefully you can help.

I'm in the position now where I can technically pay off my mortgage. I have: -

* About 12K balance mortgage (current interest rate 2.5%). Outside product time so no penalties.
* No other debts or loans.
* Enough savings to pay off the above, and still leave me with >6 months take-home pay easily accessible.

Now, my mortgage is with Nationwide. It's a flexible mortgage, which I have made overpayments to over the years. Not recently for various reasons, but I essentially have overpaid about 24K thus far.

So, in theory I could just pay it off, and live happily ever after. However, there are a few reasons in my mind for which I might not want to do this. I will of course be speaking to Nationwide, but I'm seeking opinion so I can speak to them in possession of facts so they don't tell me what's best for them rather than for me.

Firstly, I'm told that if you pay off your mortgage to the point you don't have one, then that can technically be to the detriment of your "credit score" [I know there's no such thing as a single entity and that it's a per-lender view on your report]. Is there any merit to this? i.e. does having no mortgage have a knock-on impact to any future borrowing requirements?

Secondly, as my mortgage is flexible (and I can choose "reduce payment" or "reduce term"), I'm thinking what if I pay off all but a couple of hundred quid, don't reduce my term and effectively pay "pence" to keep the mortgage. Theory being: -

* I'll still "have a mortgage" according to my credit report, but given I'm paying pence is that any more "valuable" than not having one at all?
* Given it's a flexible mortgage - does this give me the option to "borrow back" on that overpayment (which would be about 36K all told) between now and the end of the term in case of emergencies?
* If we were to choose to move house in a couple of years (a possibility as son gets towards high-school age for catchment purposes) we may have the option to port the existing mortage to the new house, and effectively have 36K of borrowing on what is a much lower rate than a new mortgage would likely be.

I know some people historically kept a tiny mortgage for deed-storage purposes, but mine were transferred online years ago and I have the historical documents in my safe.

I'm not sure if any of the above points are feasible or possible, so would appreciate any experience or pointers before I get on the blower to them.

Thanks in advance.

debjam

Hi isthisjustfantasy,


I'm in the same boat and asked nearly an identical question to this a few days ago. I had a couple of responses which helped a little, but still not really decided what to do.


I have maxed my savings/current accounts between OH and myself to enable us to have the amount to pay off the mortgage but wonder what the effect would be of not having the mortgage as you say credit score wise.


I know that I'm not gaining any interest on the money that is overpaid on the mortgage but as we are maxed on the better interest accounts I can't benefit at the moment from the money, as what I would get by putting that money in an ISA is negligible compared to leaving it as overpayment on the mortgage.


Good luck with whatever you do, I never thought of contacting Nationwide and asking them, might give that a try.

Notfarfromtheborder

You both are in a great position, one I managed to achieve last year.


I kept my mortgage facility open, and am able to do so for the next 20 years if I wish to, not with Nationwide but have an offset with First Direct with zero balance and making no payments.


Due to an expensive few months I occasionally dip back in to this facility, maybe no more than £1K a time, and pay pennies in interest, no need for credit cards which attract a far greater interest rate than mortgage rate.


Credit score is something I haven't considered, hopefully I will not need to consider credit scores again as hopefully I won't need credit.


I fail to understand why paying off your mortgage would have any determent to credit score, that said, I'm not too bothered if it does.

gavted

Hi isthisjustfantasy,
I was in a similar position to you a few years back (~2007). We paid off our mortgage totally.

When we purchased a new house in 2013, the fact we had good savings, no other debts and had shown a regular saving of more than the mortgage made a greater impact to our application than not having a mortgage. And all these events were with Nationwide.

Only you can make the final decision, but once the mortgage is gone, life seems better all round, and you can build a large savings pot very quickly, (we were paying about £350 a month, and £500 OP, so could save ~£10K per year once it was paid off). That is something to take into account.

HTH

Gavin

isthisjustfantasy

Hi

Just a little update to this. So earlier this week I paid down £12K to my mortgage - my balance is now £113.86 with 7 years remaining on my term (some previous over payments reduced my term), and I have up to £36K available to borrow back if circumstances change. In total it's paid off 10 years early (original term 25 years in 2000).

For the benefit of future searchers, this is with Nationwide and their Flexible mortgage. I spoke to them about the options for nominal balance, borrow back etc. Essentially they no longer do the formal "Nominal Value" mortgage where you keep £1 balance (as people used to do to keep deeds filed) - you have to have a monthly payment being taken in order for the mortgage to stay active, no matter how small. It's just a case of making sure your over payment preferences are set to "reduce payment" rather than "reduce term". My new monthly payment will be just over £1.

I also asked about how MMR and lending stipulations have affected the borrow-back process to ensure there was actually some value in retaining the mortgage active. I was informed that, provided financial status e.g. defaults etc don't change, it's basically a 10 minute formality to secure borrow back if required.

Time for a :beer: I think

atypicalblonde

That's wonderful news, well done you! Enjoy that drink

edinburgher

I also asked about how MMR and lending stipulations have affected the borrow-back process to ensure there was actually some value in retaining the mortgage active. I was informed that, provided financial status e.g. defaults etc don't change, it's basically a 10 minute formality to secure borrow back if required.

Hate to be a cynic, but that 'basically' would fill me with suspicion! I hope that's just you paraphrasing, not what they actually said.

isthisjustfantasy

edinburgher wrote: »

I hope that's just you paraphrasing, not what they actually said.

Correct, it was a much longer conversation than that, but basically the implication was that whilst new lending has become much more controlled, as this isn't "new lending" it's not bound by the same stipulations and can be arranged over the phone in a few minutes (in fact she specifically said it's now easier to borrow back than it used to be). I assume a credit-check would be done to ensure no bad debt etc, and I would also assume there would be some diligence depending on how much was being drawn down and how close to redemption to ensure affordability of repayments for any significant borrow back.

This should be moot as I hope to never have to use it, and as such I was happy with the response. If anyone else is in a similar situation and thinks it likely to want to borrow back large chunks they may wish to seek more detail and clarity themselves.