Overpayment reserve - retain or not?

larkim

We're in the lovely position this month of having reduced our £160k mortgage down to an amount less than a single month's payments through overpaying ever since the interest rate crunch.  Our lender makes no charge for us accessing our overpayment reserve or for overpayments in general, so to all intents and purposes we have access to £159,500 cash in the reserve, and our regular monthly payments (including overpayment) have fallen from £1200 to £10 a month if we now revert to paying off the "minimum" amount until the mortgage end date in 10 years time at 2.1% interest rate.

Our initial thought was that we would now start to build up a separate cash reserve in an accessible savings account (as well as expand pension contributions) to create a suitable rainy day fund so that when the mortgage is redeemed we have rapid access to cash if we need it.  But having looked at the interest cost for for the remainder of our mortgage term, it would "only" cost us about £50 in interest to keep the rapid access to the mortgage overpayment reserve freely available.

When we've got (say) 3x month's cash reserve in a bank account, would you pay down the final few hundred quid in the mortgage and fully redeem it (thus losing access to the overpayment reserve), or would you maintain the mortgage until it's normal end date "just in case" so that we've got continued access to a large sum of cash at a relatively cheap cost?  I'm slightly loathe to lose the reassurance of having over £100k cash readily available (not that I can ever see us needing to use that), and conscious that when we've repaid the mortgage that's a "done deal" and we can only get access to that sort of cash again by borrowing against the house (which I never want to do).

Grumpy_chap

We are in much the same position as the OP and are keeping the facility available.  Only just reached this point, so it is possibly an interim state arising through inaction and the considered decision will be to change.

I feel, though, you never know when an emergency will materialise.  Why, only last month a good friend found they had a long lost Uncle in Nigeria who passed leaving substantial wealth and the friend only had to pay £150k international bank charges to release the funds

Of course, the bank allow you to keep the funds available in the hope you will spend and the bank make money from you.  A level of self-discipline is required.