What to consider before paying off the mortgage?

hanb2

Hi all,

I’ve posted in the MF wannabe forum too so apologies if you’ve seen this twice but hoping for some advice. 

We’ve finally got to a point of being ‘mortgage neutral’. We have 126k in savings across accounts and premium bonds and so we’re now trying to decide whether we should just pay it off? We’d no longer have a £980 a month mortgage payment to build a savings buffer back up but we’ve got quite used to the security of the large pot we have currently so it’s quite daunting that would essentially be wiped. 

OH is higher rate tax, I’m basic rate currently and both now in the tax territory on savings given amounts. We both pay in to pensions to get the max from employers (OH pays 15% and gets 12% employer contribution, I pay 8% and get 12% employer contribution). We’re mid-late 30’s. 

Is there anything else we should do with our savings or should we just pay off the mortgage and be done with it? 

Thanks in advance for any advice!

eskbanker

If you're viewing it solely in financial terms, then you'd need to weigh up the net interest you'd earn on that money versus what you'd pay to service the debt (assuming some of that £980pm is capital repayment?).

Of course, many take the view that, regardless of the purely financial analysis, the pleasure of being debt-free is worth it, but only you can judge that for yourself!

Does it have to be one or the other, or do you have the flexibility to mix and match, i.e. keep some of the pot as savings but pay off most of the mortgage?

The usual recommendation is to have an accessible emergency fund of three to six months worth of expenditure, so if you exhausted your entire savings paying off the mortgage, would you be able to cover emergencies via credit cards, etc?  

InvesterJones

As far as savings/investments go, it's just a numbers game. Can you do better after tax than the interest rate on mortgage? If yes, do that and keep the mortgage. If no, then putting money you'll never need into the mortgage is a winner - note that's money you'll never need because you can't get it back, not money that forms part of your buffer.

MalMonroe

Hi, we're not supposed to duplicate posts - per the forum rules - 

"Threads are easier to follow and read if they follow a conversation style pattern. With this in mind, please don't create duplicate posts on or across multiple threads. Flooding (repeated posting aiming to dominate or overwhelm a page) will be treated as spam."

Your question is probably better on the MFW board, where you posted originally.

@forumteam -  possible to merge?

Albermarle

MalMonroe said:

Hi, we're not supposed to duplicate posts - per the forum rules - 

"Threads are easier to follow and read if they follow a conversation style pattern. With this in mind, please don't create duplicate posts on or across multiple threads. Flooding (repeated posting aiming to dominate or overwhelm a page) will be treated as spam."

Your question is probably better on the MFW board, where you posted originally.

@forumteam -  possible to merge?

The problem is that the mortgage free board is largely populated by people whose main focus is paying off their mortgage as a priority/emotional goal.
In fact the OP would have been better just to post on this forum in the first place , where there is maybe a more balanced view on financial priorities.

hanb2

MalMonroe said:

Hi, we're not supposed to duplicate posts - per the forum rules - 

"Threads are easier to follow and read if they follow a conversation style pattern. With this in mind, please don't create duplicate posts on or across multiple threads. Flooding (repeated posting aiming to dominate or overwhelm a page) will be treated as spam."

Your question is probably better on the MFW board, where you posted originally.

@forumteam -  possible to merge?

Apologies! I posted in both areas, with slightly different questions, as I thought I might get different advice from people focused on saving than those focused on being mortgage free to give a balanced opinion with both sides of the coin. I’d prefer to keep them both if possible.

ToastLady

If you are paying more interest on your mortgage than you are getting in savings, it might be worth paying off mortgage, or at least some of it. You also do have to factor in what tax you are paying on savings.
It is good to have a big savings pot, but do you really need it to be that much? If you had no mortgage or a lesser amount, you could easily build it up again.
The other thing to think of, is if you suddenly came down to one salary and still had to pay the mortgage. I only bring this up as this happened to me when my husband died suddenly at a young age. His salary was much more than mine. I opted to pay off the mortgage as savings rates were rubbish at the time, but most important for me, was peace of mind that my home was mine. Appreciate that's an extreme scenario, and something that you really won't have to deal with.

hanb2

Thanks to replies so far, apologies but struggling to quote on my phone to reply directly. 

On the 6 months outgoings, our outgoings would be pretty small without the mortgage. Our other bills total c.£400 so the ability to save the mortgage payment equivalent would mean we’d still be ok. 

We have no other debt, no children although that’s potentially on the cards in the next couple of years (but have a decent maternity policy). 

We pay base rate on the mortgage so 4.25% shortly, highest savings currently 3.5% but any future savings need to be a tax free wrapper so limits options. Our current interest works out about £13.50 a day for the mortgage which we wouldn’t get in savings. 

As per the mix and match comment, we could definitely pay off a chunk of the mortgage and keep some savings which might be the better option whilst still saving to pay off the rest! 

AndrewSteele888

Also check what your allowed to overpay before penalty come in depending on your contract

talexuser

Nobody's situation will be the same as yours but paying off the mortgage after about 8 years was the best thing I ever did. All the money then went into maxing Peps and Isas for the next 25 years and moved twice to detached and then bungalow without a mortgage and still have a 6 figure Isa left for retirement. Rent and mortgage are dead money until you no longer have to pay. I despair for today's young people renting or having 30/35/40 year mortgages etc etc, life is not better in that respect.

Lomcevak

I paid off my mortgage a few years ago, and very happy with that decision - yes, it's something of an emotional choice, but there's a lot to be said for the security it brings, and savings build back up very rapidly afterwards.