Pay off Mortgage or leave small balance?

Peerzy

Is there any benefit to leaving a very small mortgage balance? Provider are Nationwide and we've made significant overpayments (around £200k) so that the mortgage balance is now around £370. Monthly payments have automatically reduced so the term (23.5 years left) is still the same. Our fix ends in May 2021 at which point we'll move onto the SVR.

Would you leave the balance as it is, have the monthly DD collect £1.50 a month and pay the 4% interest (roughly £15 a year) in order to keep the account open? My understanding is we could easily borrow back our overpayments if required without any underwriting or checks at any point. Currently we are financially secure and would have no need to do this. We are not planning on moving for at least 7-10 years and are looking to extend the property in the next few years. We may consider a second property within this time though (either as a BTL or holiday home).

Head says keep it open - easy access to £200k, heart would like to pay NW the final balance and celebrate being mortgage free.

andys15

I am in exactly the same boat. I am mortgage free in 8 or 9 months. I currently overpay by £6000 a month and my interest is currently just over £2 a day. Some days I think I will stop overpaying altogether but I am excited to have no mortgage. 

I know I could have my money working better by not overpaying as my interest rate is only 1.19% but it’s almost like an addiction to get it paid off as fast as I can. 

Peerzy

Mine isn't really a decision based on the money being more useful anywhere else - rather if it's worth having the account still open, if doing so will have a positive or negative effect on my ability to get further credit (holiday home) etc.....

I remember reading that historically people kept a small mortgage balance as it meant the mortgage company needed to hold the deeds. After it's paid off you are responsible for them and could cause yourself some real pain if they were damaged or destroyed but I gather this is now not an issue with everything being electronic.

Basically am I overlooking anything obvious or is the decision purely do I want easy access to the money against having it all paid off and no charge on the property. What have other people done in this situation (or even when getting close to paying off the mortgage via traditional methods) and why.

Stenwold

It depends on your mortgage contract - most lenders will charge an early exit fee (separate to an ERC linked to your particular product), however this is usually a few hundred quid at most which sounds like small fry considering the over-payments you've made.

I'd also check your understanding with your lender - I don't think it will be as easy as you say to borrow back your over-payments, especially if the mortgage has been recalculated with your over-payments factored in. You need to prove you can still repay the mortgage so I'm almost certain there will be affordability checks to complete.

Seashell517

Peerzy said:

Is there any benefit to leaving a very small mortgage balance? Provider are Nationwide and we've made significant overpayments (around £200k) so that the mortgage balance is now around £370. Monthly payments have automatically reduced so the term (23.5 years left) is still the same. Our fix ends in May 2021 at which point we'll move onto the SVR.

Would you leave the balance as it is, have the monthly DD collect £1.50 a month and pay the 4% interest (roughly £15 a year) in order to keep the account open? My understanding is we could easily borrow back our overpayments if required without any underwriting or checks at any point. Currently we are financially secure and would have no need to do this. We are not planning on moving for at least 7-10 years and are looking to extend the property in the next few years. We may consider a second property within this time though (either as a BTL or holiday home).

Head says keep it open - easy access to £200k, heart would like to pay NW the final balance and celebrate being mortgage free.

My parents kept their mortgage open for a while after they could have paid it off, I believe because it would be cheaper to re-borrow against the house if something came up (new roof or similar) rather than take out a loan to cover it. 
With Nationwide could you not transfer to a tracker rather than going on SVR, to keep the rate down a bit?

andys15

I thought it was a very small amount of money to repay the mortgage. Like a tenner. 

I have asked the question before, as I knew about the trouble with holding the deeds yourself. 

Everyone advised that’s not the case anymore and just close the mortgage. 

I too have felt about the ability to get money if needed in an emergency and struggling to get it from the house. I am mitigating that by having more money saved up, due to not having to repay a mortgage. 

Peerzy

Stenwold said:

It depends on your mortgage contract - most lenders will charge an early exit fee (separate to an ERC linked to your particular product), however this is usually a few hundred quid at most which sounds like small fry considering the over-payments you've made.

I'd also check your understanding with your lender - I don't think it will be as easy as you say to borrow back your over-payments, especially if the mortgage has been recalculated with your over-payments factored in. You need to prove you can still repay the mortgage so I'm almost certain there will be affordability checks to complete.

I would exit the mortgage as the deal ends (May 2021) to avoid any exit charges. I believe there is normally a redemption fee of about £60-£100 but that's the case when you finish any mortgage and it's to clear the charge from the property.

Previously Nationwide told me that they wouldn't count my overpayments towards a LTV change (as part of a deal switch a few years ago) unless I wrote to them and asked them to 'commit' the overpayments. My balance and monthly payments always took into account the overpayments but they said as I could ask for the overpayments back at any point for it to be considered as part of my LTV I needed to in writing commit the money.

I think they call it an overpayment reserve and it allows you to underpay in future months if required.

https://www.nationwide.co.uk/support/support-articles/manage-your-account/mortgage-borrow-back/borrow-back-overview#tab:Overview

Seashell517 said:

Peerzy said:

Is there any benefit to leaving a very small mortgage balance? Provider are Nationwide and we've made significant overpayments (around £200k) so that the mortgage balance is now around £370. Monthly payments have automatically reduced so the term (23.5 years left) is still the same. Our fix ends in May 2021 at which point we'll move onto the SVR.

Would you leave the balance as it is, have the monthly DD collect £1.50 a month and pay the 4% interest (roughly £15 a year) in order to keep the account open? My understanding is we could easily borrow back our overpayments if required without any underwriting or checks at any point. Currently we are financially secure and would have no need to do this. We are not planning on moving for at least 7-10 years and are looking to extend the property in the next few years. We may consider a second property within this time though (either as a BTL or holiday home).

Head says keep it open - easy access to £200k, heart would like to pay NW the final balance and celebrate being mortgage free.

My parents kept their mortgage open for a while after they could have paid it off, I believe because it would be cheaper to re-borrow against the house if something came up (new roof or similar) rather than take out a loan to cover it. 
With Nationwide could you not transfer to a tracker rather than going on SVR, to keep the rate down a bit?

That's sort of my thinking - we'd be able to cope with any surprises like a new roof, boiler etc.... but I feel it could be handed to take back (for example doing so to raise money for a deposit on a holiday place).

I wouldn't have thought Nationwide would be interested in porting a mortgage of £370 onto another product, I always thought there was a minimum you borrow on a new product but I may be mistaken hence expecting to move onto the SVR (about 3.5%-4% currently).

Seashell517

Peerzy said:

That's sort of my thinking - we'd be able to cope with any surprises like a new roof, boiler etc.... but I feel it could be handed to take back (for example doing so to raise money for a deposit on a holiday place).

I wouldn't have thought Nationwide would be interested in porting a mortgage of £370 onto another product, I always thought there was a minimum you borrow on a new product but I may be mistaken hence expecting to move onto the SVR (about 3.5%-4% currently).

Ah, possibly. I could just pick a tracker online 5 months before my fixed term ended, and swap to it 3 months before, but that's on a balance of over £100k. I forgot that when you get into smaller figures there's less choice. Nice problem to have though.