Pay mortgage or put on Premium bonds

rachyp

Hi all,
im in a lucky position in a few weeks to be able to pay off my mortgage in full. 

Drawdown is in 8 years if I don’t pay it early. The interest rate is half a percent above base rate and I’m currently paying about 18 pounds a month interest. 

So I am getting this lump of cash, around 22k which would clear my mortgage but leave with no savings. 

I am working and I have my flat rented out so potential is there to save. 

Am I better paying off the mortgage with this cash, or leaving it in premium bonds while the interest rates are so low?


thanks

BabyStepper

I can understand the temptation to pay off your mortgage early but need a bit more info to advise.

I'm using Dave Ramsey's baby steps to help get my finances in order. Saved up £1k emergency fund, paid off all debt except mortgage, now working on increasing emergency fund to 3-6 months expenses, roughly £10k.

What other savings do you have? How big is your emergency fund? If it's fully funded and you're contributing 15% to your pension, then I'd say pay off your mortgage. If not, then get those things in order first. The days when we can take our income for granted are gone for now, it's more important than ever to be ready for a serious change in circumstances. 

Galloglass

Mortgage, mortgage, mortgage.

Why have someone else (the bank) have an interest in your property when you can finally get rid of the overhang. Premium bonds is giving money to someone (the Treasury) with no guarantee you'll get anything in return other than your original sum.

sharpe106

As  above pay of the majority of the mortgage but leave a little bit for emergency savings, can leave that in the bonds. 

TheAble

Having no savings is a bit precarious, even with a paid off house. I'd probably keep it in savings and use continuing income to pay off the mortgage.

CapricornLass

Is the mortgage on your rented property?  (Sorry, but I'm not quite clear about that).  If it is, then you would need to keep at least some of the money back in case of major repairs. 
 You also need to have an emergency fund of 3-6 months worth of paying essential bills.  DWP can take ages to pay (one son had to wait 7 months for his money once, and other son is having problems as they keep getting the amount he should be getting wrong - or even not paying it at all. )
Anything over could be paid as a lump sum off your mortgage.

fatbelly

The headline rate for Premium Bonds is 1.4%. Assuming you're paying more than that on your mortgage, pay the mortgage.

rachyp

Thanks everyone. Yes I was thinking to keep some for an emergency fund and then overpay the mortgage. 

It’s on my rented property so I need a good couple of thouasand back up in case of any disasters 

Andyjflet

As above I concur with the baby steps.
Make sure you have 3-6 months of expenses put away as your emergency fund, then pay off your mortgage. 

ict_guy

If your mortgage is 0.5% above base rate, I would buy premium bonds for 6 months and see how it goes.....you may well get a couple of £25 wins a month, maybe more......just see how it goes for 6 months, then review the situation. Premium bonds are fun to have, especially in that quantity!

zwilcoxen

IMHO 5K for the premium bonds and throw the rest on the mortgage.

5K should cover most life issues and small emergencies. 

I would also let the bank know you want to keep paying the same amount so you will pay it off sooner anyways.