Should I pay the mortgage off? Totally confused.

loveka

Hello!

We have an interest only mortgage plus an endowment. The endowment- Friends Life is performing well, although the current statement had an amber warning that we would be 3k short at the end of the term. It needs to achieve 3.5% to cover the amount borrowed.

Our mortgage is £125k.

The endowment is currently worth 65k if we were to cash it in. We have 60k savings, which are meant to represent 2 years earnings if I lost my income for any reason. I have had to be really really frugal to save this but as I am self employed it seemed the sensible thing to do. So if I were to cash in the endowment I would have enough to totally pay off the mortgage.

I have calculated that over the 9 remaining years of the mortgage I will pay£36180 in interest, assuming rates stay the same which I know they are unlikely to. I will pay £27000 in payments to the endowment.

Should I pay off the whole mortgage by cashing in the endowment and using my savings? I don't know if it is a really obvious decision, and I am missing something? I would be on 0 financially if I did this!

Just to add, I think it is unlikely I will earn what I do now for the next 9 years, due to my age and the stupid industry I work in that seems to chuck you when you get to about 55!

Thanks in advance.

enjoyyourshoes

Personally I would pay off mortgage because that is what I am doing but have a 2 year timescale not 2 weeks like you !


Caveat is what is the interest rate for your interest only ?


Could you get more net from an account providing interest ?


But there is also a psychological potential plus side in not having mortgage which could be inspirational (no millstone, free to do what you want with finances, opportunity to dream big and use finances to achieve these life goals etc )

dimbo61

Do you have your savings in ISA,s ?
Now you could cash in the endowment and pay that off the mortgage now.
Use the monthly endowment payment to overpay the Mortgage every month.
You still have the £60,000 in savings just in case your self employed income drops for a few months or you need to replace your car/boiler/laptop or other business tools.
The outstanding balance is reducing every month so the overpayments increase month on month.
Interest rate increases are not that important because you Owe less.

loveka

Mortgage rate is 3.25% fixed for the next 3.5 years. So I suppose I would have to wait until then to pay it all off anyway as there is an early payment fee.

Savings are in stocks and shares, 123 account and premium bonds. I will look at ISA's today, I have been meaning to. I know premium bonds are stupid, I did it thinking 'it's instead of doing the lottery!

dimbo61

You have to think Long term and pensions and ISA,s are part of that.
No point paying an ERC if you do not have too.
You can overpay by 10% ( check with lender) so cash in some of the Premium bonds and do that.
I would also put the £15,240 into ISA,s this year and same again next year