Pay off mortgage now or later?

The day of paying off our mortgage is finally here! We came into some inheritance, and trying to figure out the best use of it.
I think I've confused myself with number crunching I wondered if someone else could confirm my thinking or madness.

We have a mortgage balance of £48300 on a fixed 5 year rate of 1.49% , 4 years remaining, we paid of the maximum 10% we could last year.
The Early repayment charge is £2400 (5%)

To settle it'll cost us £51250 (They add on £475 in fees if we pay it off early)

So we was thinking rather than pay it all off now can we invest the money & pay off the maximum each year till we can settle the final amount without a repayment charge or fee's, the bank still get interest but at least we can minimise the cost.

We worked out align off 10% per year until 2025 we can reduce it to £31700, the interest during that time will cost us £2273. However if we invest the £48k in a fixed interest account for 4 years it could earn more or less the same amount if not more. (top current 3 years fixed is 1.9%).

We'd have to juggle money a bit as we would need on average £4k per year to overpay the mortgage but that's only the next 4 years. even if I put those amounts in 1, 2 & 3 years fixed we would be left with £30k to lock away for 4 years.

Does this make sense?

One question I wasn't wondering if interest rates are to go up this year is it sensible to lock away so much money for 4 years?  ( 3 years was same value as 4 as far as I could currently find) or gamble with 1 or 2 years fixed hoping to switch to a higher one next year? Best 2 year was 1.6% (thats still higher than our mortgage interest.

It does mean waiting another 4 years to pay it off but the money will be committed to it and it'll hopefully save us around £3k ..

Appreciate any thoughts, especially on where best to invest. Or sod the expense pay it off NOW :)

PS we are also investing into ISA's individually. 

Comments

  • powerspowers
    powerspowers Posts: 1,110 Forumite
    First Anniversary First Post Name Dropper
    Hi boomish, I don’t know the answer but someone will ask… how good is your pension provision? 
    MFW 2021 #76 £5,145
    MFW 2022 #27 £5,300 
    MFW 2023 #27 £2,000
    MFW 2024 #27 £1,075 /£3,600


  • boomish
    boomish Posts: 152 Forumite
    First Post First Anniversary Combo Breaker
    Hi boomish, I don’t know the answer but someone will ask… how good is your pension provision? 
    Thanks for the reply, just discovered your mortgage blog, some great goals, haven't read it all but well done, I wish I had this insight when I was your age.
    The plan is to go and see a pension specialist as we have been told if we put a lump sum into our pensions it could really benefit us with the extra added by the government, which make me think of a another option, as I just turned 60 can I put the money into that  and draw it out in 4 years. I have 3 pensions all worth very little ..maybe I'll give them a call and find out.

  • Anakah6
    Anakah6 Posts: 13 Forumite
    First Post
    boomish said:
    The day of paying off our mortgage is finally here! We came into some inheritance, and trying to figure out the best use of it.
    I think I've confused myself with number crunching I wondered if someone else could confirm my thinking or madness.

    We have a mortgage balance of £48300 on a fixed 5 year rate of 1.49% , 4 years remaining, we paid of the maximum 10% we could last year.
    The Early repayment charge is £2400 (5%)

    To settle it'll cost us £51250 (They add on £475 in fees if we pay it off early)

    So we was thinking rather than pay it all off now can we invest the money & pay off the maximum each year till we can settle the final amount without a repayment charge or fee's, the bank still get interest but at least we can minimise the cost.

    We worked out align off 10% per year until 2025 we can reduce it to £31700, the interest during that time will cost us £2273. However if we invest the £48k in a fixed interest account for 4 years it could earn more or less the same amount if not more. (top current 3 years fixed is 1.9%).

    We'd have to juggle money a bit as we would need on average £4k per year to overpay the mortgage but that's only the next 4 years. even if I put those amounts in 1, 2 & 3 years fixed we would be left with £30k to lock away for 4 years.

    Does this make sense?

    One question I wasn't wondering if interest rates are to go up this year is it sensible to lock away so much money for 4 years?  ( 3 years was same value as 4 as far as I could currently find) or gamble with 1 or 2 years fixed hoping to switch to a higher one next year? Best 2 year was 1.6% (thats still higher than our mortgage interest.

    It does mean waiting another 4 years to pay it off but the money will be committed to it and it'll hopefully save us around £3k ..

    Appreciate any thoughts, especially on where best to invest. Or sod the expense pay it off NOW :)

    PS we are also investing into ISA's individually. 
    Personally I'd just clear the mortgage and be done with it, whether is cost a little bit more in the short term or not.


    Not having that debt hanging over you, you can then focus on earning and investing however you want.
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