What to consider before paying off the mortgage?

Hopingforthesimplelife

We are in a very similar position to you, late 30’s and recently crept into mortgage neutral position (£70k mortgage c£100k savings) with our low 1.5% fix ending in sept and wondering what to do next!

mix and match has already been touted and I think that is the route we are probably leaning towards at the mo, perhaps leaving c£20k mortgage. 

Whatever you do, try and remember it’s a nice problem to have and unlikely to be any *terrible* choices you make (as long as bearing in mind the minimum expenses rule)

Ocelot

I paid my mortgage off in December, although there was only 30k remaining. I could have paid it off years earlier, but was getting a better return than the mortgage cost, so I didn't bother.

When savings rates plummeted I still didn't do it, as the mortgage went to a tracker, and was something like £50 a month for years. I spend more than that on beer. Last year it went up every month, and ended up at something like £130 a month, so I thought I might as well do it.

If you do decide to pay off the mortgage, it might be an idea to keep 10-20k or so back in case of emergencies, unless you also have such a fund, although this might leave a small mortgage remaining.

surreysaver

Is it worth having an offset mortgage? That way you're mortgage neutral, using your savings to offset the interest, but with immediate access to the savings if you need them, or if savings rates increase to more than your mortgage rate.

Beddie

I'm in a similar position and could pay my mortgage off tomorrow. However, I like the flexibility of havignm money to save and invest. Sometimes I've done well compared to my mortgage payments, but as rates have risen it's now more sensible to pay it off, from a purely interest rate view.

I've made some overpayments this year, but am not gong to rush into paying it off. As others have said, why not do a bit of both? Pay off a chunk and see how that feels to you? Then you can take further steps along the way, whatever feels comfortable.

hanb2

Thanks, interesting to get some outside perspective. 

We wouldn’t have an emergency fund if we paid it off, well.. we’d have about 4k left but that would be it. All known work has been done to the house and we recently upgraded the car so all known ‘big’ spends are done. It’s obviously just the unexpected but we’d have the ability to save c.£1800 a month with no monthly mortgage payment so would build up relatively quickly. 

We are lucky that we won’t have any ERC whatever we choose so wondering whether paying a large chunk off now and continuing to save to pay the rest off next year is the right answer. 

Thanks again!

Oh and I agree, we’re in a very fortunate position

MX5huggy

40% tax relief on pension contributions is very hard to ignore. I prioritise pension contributions (and we don’t earn enough to pay 40%) over paying off mortgage, I don’t do it to the degree of having an interest only mortgage but for me having £100 sent to pension seems better than having £68 (Salary Sacrifice pension so 20% tax and 12% NI saved) paid off the mortgage. 

Here’s one example 

https://youtu.be/MWadHLKMgB4 

retiringtoosoon

the correct answer is pensions

hjghg5

I'm also in a similar position - my fix ends at the end of September, and I have more than enough cash to just pay it off. It will be about £30k by that point with 3 years to run. I already salary sacrifice 20% into my pension and make monthly s&s investments in an ISA, so it wouldn't be putting all my eggs in one basket. Plus holding too much in cash savings trips me over into paying tax on the interest (I have started moving money into ISAs but need to leave enough room for the S&S contributions). So at the moment I'm leaning towards paying it off, but I'll see what rates are available closer to the time.

Lomcevak

MX5huggy said:

40% tax relief on pension contributions is very hard to ignore. I prioritise pension contributions (and we don’t earn enough to pay 40%) over paying off mortgage

It's a fair point - I only overpaid my mortgage after maxing out my pension and ISA allowance

cloud_dog

For me I would look at this quite simplistically. 

You are paying 4.25% on the mortgage.

You are earning 3.5% gross on savings.

(Importantly) The savings has no specified purpose.

You have mentioned considerations on an emergency savings pot.

My solution would be to pay down the mortgage to leave £20k (giving you your emergency savings cash).

Utilise the realised (less than) £1800pm to support additional pension contributions and or building the savings back up / repaying the remaining £20k mortgage.