Keeping a small balance on your mortgage

Gillybean

Hi, we should be mortgage free in the next 2-3 years.

However we'd like to keep a nominal amount, say £1000 left on the balance, purely to keep that line of credit open to us should we ever need it.

Just wondering, is this a fairly easy thing to sort out with lenders? I guess what I mean is are they understanding in customers wanting to keep a small balance and keep their mortgage 'open' as it were?

Gillybean

Can anyone advise?

Goldiegirl

Previously, many lenders operated a 'Deedstore' scheme, where borrowers kept their mortgage open with a £1 balance, and no monthly payments were made. This meant the Deeds were stored safely with the lender, and it was easy to apply for a further advance on the mortgage if you wanted to borrow more money.


But these schemes have been withdrawn, for various reasons.


Generally, your lender will expect monthly payments, and will expect the mortgage to be fully repaid within the term of the mortgage.


When your balance reaches £1000, you could try asking the lender to extend the term of the mortgage so you just pay a small monthly payment - but to be honest, I'm not sure if they'd be agreeable. Also,the industry is very regulated these days, so you'd probably have to jump through so many hoops even if they were willing to consider your proposal.


To be honest, it'd probably be easier to pay it off in full, and apply for new finance if you needed it in the future

mikenolan

Just prior to paying off you could move to an offset mortgage of a value that you think you may need to borrow in the future but then immediately move the cash into the linked account thus eliminating the interest you pay. They'd still expect you to pay of the mortgage over the term and I imagine the fees would make this a non-starter unless you already have an offset account.

A better option is probably to ease off any overpayments you're making in the final year or so of the account such that you have a decent amount of savings already built up when your mortgage term ends. That way you should never require credit again (other than sensible spending on a cashback or 0% credit card!).

Jonbvn

OP,

Keeping a small mortgage balance and considering it an open line of credit is only really applicable if you have an offset mortgage. With a standard repayment mortgage, the lender is very unlikely to extend further funds without a new mtg application.

Gillybean

Thanks, your comments make a lot of sense.

Mikenolan I think your idea of taking repayments down to the minimum in the final year is one we will go for. While we could pay it off in full technically we'd have about 6 years left on the mortgage, more than ample time to build up our savings. Then when we eventually find our forever home we shouldn't need to borrow. Or if we do, it'll be a small loan.

So we'd have the best of both, savings and a mortgage that we can use to buy our next home if we need to.

Goldiegirl

If you're planning to move house, you'd need to apply for a completely new mortgage anyway - in those circumstances there's no real benefit in keeping the old mortgage open.