Should I pay off my mortgage?

bobbly

I've been overpaying my Nationwide mortgage as much as I can, but have always tried to keep around £10,000-£20,000 saved up separately for emergencies.

As of this month, my mortgage balance has fallen below the amount I have in my savings account.

So I am now in a position to pay off my mortgage completely and become debt-free straight away, but only if I use up all of my savings. Is this a good idea?

hcb42

Nice position to be in

If you can still pay the mortgage, personally I wouldn't, as would rather have some money in the bank for emergencies.

Financially you would save the interest and presumably the mortgage rate is more than what the savings are making, however I would always like at least six months salary/living expenses in accessible savings

I cannot wait for that day when the mortgage is paid myself however

McKneff

I did this and never regretted it for a moment.






Next month, you will have no mortgage or overpayment to pay so you could start from scratch with presumably a decent amount.


Going into your own house which you don't owe a penny on was a fabulous feeling.


But it has to be up to you.....

Mojisola

bobbly wrote: »

I've been overpaying my Nationwide mortgage as much as I can, but have always tried to keep around £10,000-£20,000 saved up separately for emergencies.

As of this month, my mortgage balance has fallen below the amount I have in my savings account.

So I am now in a position to pay off my mortgage completely and become debt-free straight away, but only if I use up all of my savings. Is this a good idea?

It depends how much of your emergency fund it will eat up.

It is a lovely feeling to be mortgage-free but not if it will cause other problems.

Neil_ABZ

bobbly wrote: »

I've been overpaying my Nationwide mortgage as much as I can, but have always tried to keep around £10,000-£20,000 saved up separately for emergencies.

As of this month, my mortgage balance has fallen below the amount I have in my savings account.

So I am now in a position to pay off my mortgage completely and become debt-free straight away, but only if I use up all of my savings. Is this a good idea?

Wow! I could have written this post. I've also been overpaying on my mortgage with the Nationwide - same level of savings as yourself and current mortgage balance is £8k. I've been hesitant to pay it off as I work in the oil industry and we're currently going through probably the worst slump since the industry started in the UK. I like the fact that I have an overpayment balance that I could draw upon at my existing SVR of 2.5% should I need it so paying it off removes that option without having to remortgage should things go tits up.

Thrugelmir

bobbly wrote: »

So I am now in a position to pay off my mortgage completely and become debt-free straight away, but only if I use up all of my savings. Is this a good idea?

How soon could you now rebuild your savings?

bobbly

Thrugelmir wrote: »

How soon could you now rebuild your savings?

Probably within 9 months comfortably, if nothing unexpected happens.

If I were to carry on paying off the mortgage at the current rate, without touching the savings, it would take about 12 months and cost around £200 in interest. I'd probably also save up a few grand in that time, too.

Eventually I need to buy a new car, kitchen, bathroom, driveway and garage roof. I've been putting off these things for a few years in favour of mortgage repayments, so waiting another year is not much of a problem. I'd feel much more comfortable if I were to start these projects only after I've paid off the mortgage and saved up a bit more.

Hmm, £200 of interest payments seems negligible in the greater scheme of things. My overpayments total nearly £100,000, so maybe it would be better not to pay off the balance immediately, lest I need to dip into that reserve at any point over the next year.

I was expecting this moment to feel great, as if having saved up more than my mortgage balance would effectively be the same thing as having no mortgage. But psychologically, it doesn't really feel like I've paid off my mortgage at all.

bobbly

Thinking about it slightly differently, is there any advantage to retaining a mortgage to keep a better credit score in case I want to buy a second house a few years down the line?

If I were to pay off all but £1,000 of my mortgage and let them recalculate the monthly repayments over the remaining 15 years, the monthly repayments would be very low.

ViolaLass

Get a credit card and pay it off in full each month - no need to pay interest to prove credit-worthiness.

davidmcn

bobbly wrote: »

Thinking about it slightly differently, is there any advantage to retaining a mortgage to keep a better credit score in case I want to buy a second house a few years down the line?

If I were to pay off all but £1,000 of my mortgage and let them recalculate the monthly repayments over the remaining 15 years, the monthly repayments would be very low.

I don't think this gives you any extra brownie points for your next mortgage application.

El_Torro

Having an emergency fund is sound and ultimately allows you to be riskier with your other investments and generate higher returns (at least in theory). I don't think paying off your mortgage 12 months early is a good enough reason to forgoe this.

And anyway, your emergency fund is already in current accounts earning 3% interest and above, right?