Paying off my mortgage - worth it?

ktracer

I can use my savings to pay off my mortgage if I want. I have 4 years left - it's part repayment, part endowment.
What I want to know is is it worth doing?
I can keep ~£40k of savings & collect the interest. Or pay the mortgage off & pay the monthly equivalent into a savings account. So I save some interest by paying it off now (at 2.25% interest), but lose interest on my savings (lower rate - say 1%, but bigger capital)
Is there a calculator which will show me which is best?

SuperSecretSquirrel

You don't need a calculator for this. Mortgage rate 2.25%, savings rate 1%, so long as there are no strings attached (early repayment charge etc) paying the mortgage off is the way to go due to it having the higher rate.

Jaffa_cake

I was at your same question about a year ago.

ie,
A) should we just be paying all our surplus money into the mortgage.
Mortgage is 1.6%,
or make some savings.

Our savings give us 5% gross, so should pay tax out of that interest earned, this is a Regular Flex Saver with Nationwide.
Only one account each, and maximum input is 500.00 per month

So we decided, rightly or wrongly,
1. To pay and extra 353 on top of our 647.00 makes a rounded 1000.00 (just sounds nice)
2. To pay 500.00 into my wife's flex saver
3. To pay 500.00 into my flex saver.

The difference between what we will earn in interest on the savings accounts will be more than the interest we pay on the mortgage.

5% interest, and both basic rate tax payers, so we should come out slightly better off, plus we have a savings pot, if one or both of us lose jobs.

When there is enough in the savings accounts to completely pay off the mortgage, then that's what we will do.

We have unlimited repayment feature on our mortgage.

JC

lincoln-potter

if the figures are similar its all down to personal choice, personally I would pay the mortgage for the sense of accomplishment and peace of mind knowing no matter what the house is yours. Having money in a savings account is always tempting to use on other items.

SuperSecretSquirrel

Of course what I failed to mention yesterday was that you should compare mortgage rate against the best savings rate you're able to achieve, not what you currently get. A 40k lump could be split between multiple savings/current accounts to improve the interest earned. 15k in bos 3%, 6k in tesco 3%, 1.5k in tsb 3%, 5k in lloyds 2%, 12.5k in santander at 1.5%. That would earn you pretty much exactly 2.25% on your 40k - exactly offsetting the mortgage interest (assuming 123 cash back cancels out the monthly fee exactly). You could go a step further and drip feed regular savers from the 123 account to earn a small profit.

Of course, there's a fair bit of effort involved in setting this kind of thing up. You need to open the accounts, set up lots of direct debits, set up round robin monthly funding standing orders, etc. It's worth it for some people (like me) due to differing situations (namely ERCs in my case), in your situation it would be a lot of effort to be no better or worse off than simply paying off the mortgage.

Maybe you might consider paying half of the mortgage and spreading the remaining 20k over the bos and tesco 3% accounts, fairly simple setup in this case, you would earn a little more interest than you'd be accruing on the mortgage, and you'd still have a hefty 20k of savings to fall back on if needed.