Opportunity to become Mortgage-free - should I?

jimwillsher

Hi all

We're within spitting distance of clearing our mortgage. On a house worth £350,000 our outstanding mortgage balance is about £800. We're paying £7.10 per month :-) This has come about through meticulous money-management and massive amounts of overpayment whislt rates were low. We saved and saved, and then a few months ago we made lump-sum overpayments to clear 99% of the balance.

Are there any pros and cons to us either redeeming the mortgage (£195 settlement charge, no early repayment fee) and being mortgage free, or continuing to pay £7.10/month for the next 15 years. Clearly we're effectively MF now, but is there any mileage in actually retaining the mortgage, or clearing it?

I'm thinking of things like: deed storage, options for future borrowing, Clydesdale still holding title over house, credit rating, etc.

Many thanks


Jim

[Deleted User]

At £7.10 a month, for 15 years, you'll pay £1278.

If you can pay the balance of £800, plus a £195 charge, that's £995 in total.

From those figures, you'd be £283 better off by settling it all now, all other factors discounted.

jimwillsher

Many thanks for your reply. Sorry I should have been clearer. We're offsetting 100%, and paying zero interest. At some stage (perhaps in a year or so) we'd have to get the loan recalculated (again) otherwise it would clear well within the 15 years.

What I'm really asking is: would clearing the mortgage be a good thing, or am I better to have a mortgage? Credit rating, future mortgage options, etc. Or does it make no difference.


Jim

Dalradian

It would depend upon your circumstances. If you are near 55, paying some into your pension would give you a big 20% boost from the government, and you can then draw it down at 55. But in the meantime, you can't access it.
If your mortgage rate isn't very high, a stocks and shares isa might be worth investing 15k each in per year, but again you should really think of leaving it for 5+ years.
I don't think paying it off would adversely affect your credit, since you would have a valuable asset, and as long as you have regular payments for mobiles, credit cards etc on your account. It is more that you might be able to make a better return, with higher risk, if you invested outside the offset. But it is a risk you would have to be happy to accept.
You may also want to consider the £85k max protection per account.

jimwillsher

Many thanks for your thoughts.

I'm 42, our mortgage would be 4.95% (variable) and I do have regular credit card payments (usually £1000 to £2000 per month, clearing the balance the whole time).

We've zero savings - everything went into overpayments.

Notfarfromtheborder

I'm in pretty much the same boat, and have been for the past 8 months.


I decided to keep my offset mortgage open, got a facility to borrow back on it as and when I need to, just done that in fact to help DS on the road. (Like you, had no savings whatsoever), but steadily increasing these over time. Recommendations are to have 6 months expenses saved in cash.


I know this wasn't part of your question, however, if you are still earning well, now is the time to think of your pension / longer term savings with the spare cash you will have with no mortgage payment. If you are a higher rate tax payer then 40% (for now) tax relief is hard to ignore


As for credit rating, not too sure, however, does it really matter.... Have just applied to Halifax to shift DS car debt from mortgage to a 0% card and got a £7K limit so mine can't be too bad leaving mortgage open. That was a wrench, I can tell you, after being debt free for 8 months, taking on extra debt doesn't feel right, but should have it cleared in 10 weeks so will be able to sleep at night again....


If you are paying big interest rates on credit cards then surely draw on mortgage facility to pay these off first, if on 0% then no issues there.


You are in a great position, my view is that the easy decision is whether to leave the mortgage open or not, your time should be focussed on what to do next with the spare cash you no longer have to pay to keep a roof over your head

jimwillsher

Many thanks, and good advice.

We've £800 left on the mortgage, no credit card bill, no other loans - a nice position to be in. I do have a pension pot - I contribute 5% and my employer contributes 5% - so I may look to increase that. I've had a pension in some shape or form for about 20 years so it's building up, but can always be improved. Yes I'm a 40% payer.

Thanks again


Jim

Notfarfromtheborder

Jim


You could be me, same pension contributions, same length of pension savings...


Is your pension scheme salary sacrifice, if so and employer will accept larger contributions, have a look. If not you can still do it through personal pension but will need to claim 20% relief through self assessment as you will only get 20% initial relief


I currently sacrifice down to a level where I am a basic rate taxpayer. Last tax year I sacrificed to below £50K income, got child benefit back.

jimwillsher

The company I work for is quite disorganised and, in the UK, very small - 500 people worldwide but only 6 of us in the UK. So they're not very hot on pensions. As such it's a personal pension I have, but I am claiming the full 40% rate for tax relief via my tax coding. Luckily HMRC haven't asked me to self-assess (I used to, but a few years ago they said I didn't need to).