Pay-off fully mortgage or not?

where2save

I have an offset mortgage (with Egg) and have now built up savings more or less equal to the amount I owe so I could pay off the mortgage now if I choose to.

In future I am likely to take out another mortgage if I move to a bigger property and so am wondering if I may be better off just keeping this mortgage (with a small amount owing).

I see my options as :

1) Pay the mortgage off completely.

2) Reduce the mortgage to a few thousand (or even less) and pay interest on that or keep a similar amount in the savings element of the mortgage account.

3) Keep running the mortgage down slowly as I am doing now - i.e. each month I pay the interest from my current account but because I have enough in the savings element of the mortgage account, the balance of the mortage reduces each month.

Does one option stand out as being the most sensible?

kevinchapman82

2 things to consider:

1. Do you need to have access to your savings. If so, don't use to pay off your mortgage, as you'll only end up borrowing again if you run a bit short of cash.

2. Which interest rate is higher? Your mortgage or your savings after tax? Almost certainly mortgage will be the higher rate, so if you don't need the money, pay your mortgage off and save the difference.

silvercar

can't you keep your total mortgage amount in savings and so have a net balance of zero. Then you won't need to make any mortgage payment but the money will be there if you need it.

where2save

Thanks, I have no need for the cash but wondered if there may be advantages going forward if I kept a balance on the mortgage. The mortgage interest rate is significantly higher than anything I can get on my other savings (after tax). Is this relevant? As I see it, the savings amount is not really doing anything for me whether I keep it in the mortgage savings account or pay it off completely.

Silvercar - my net balance in the account (mortgage owed less savings balance) is close to zero. Therefore, I pay the monthly mortgage payment (on the total amount owed) from my current a/c and because I have the savings element, effectively this reduces the amount owed (rather than just paying interest). So the mortgage is slowly decreasing anyway.

djbd1973

If you have no need for the cash then personally I would clear the mortgage so that you are not making anymore payments as already suggested, especially as the mortgage is at a higher rate than your savings.

Your savings can carry on building up, and you can always borrow on the house if you ever upgrade, but the money will be yours with the mortgage gone.

Griptool

Hi
IMO the best way is to keep the offset mortgage. Its like getting your savings interest paid tax free, for example.
Mortgage 50000 @6.75 = monthly payment £281.25 (interest on savings)

If your mortgage is 100% offset the monthly mortgage payment will be used to pay down the capital so at the end of year one the mortgage will be less than 47000but your savings remain intact.

To make it fully efficient you need to set up a direct debt remove the surplus from your offset savings account as soon as the mortgage payment is taken and put it in a high interest account as the interest on any surplus savings in an offset account can be poor, you can also offset you current account for even more tax free interest:D

Even better, every time the mortgage rate goes up you pay more money which means more savings and you pay off your mortgage quicker:T