Mortgage - Pay off some now or not

badenmorgan

Hi, I wonder if you can help as I’m confused on my options.

I have 2 mortgages with the same bank, first has £27k and 8 years left, is variable tracker .095% above BBR so currently 5.45% and likely to go up.  It was great while interest rates were around 0.5% but recently has got more expensive. I pay around £340/month on this. My second mortgage (a further advance) has £220k/17 years left and is fixed at 1.7% until mid-2026 then goes to SVR. I can overpay by 10% but never have. Combined, I pay c.£1550/month on both. I have available savings of around £80k in various savings/investments (exclusive of a cash reserve for the unexpected).  I don’t expect to be able to afford a SVR or even a new fixed rate on both mortgages when my fixed term expires in 2026.

I’m considering options, but unsure on whether to act now, or wait. E.g. 1) doing nothing now and look to pay as much off of the bigger mortgage when the fixed term ends in 2 years, or 2) paying off the 1st mortgage £27k entirely or 3) a combination of 1)&2), or 4) look now to overpay the 2nd mortgage by 10% for the nest 3 years and pay a lump sum from the remainder of my savings when the fixed term expires.  I don’t want to hold onto my savings/investments as don’t have faith that they will outperform the interest rates that I’ll end up paying. I also would rather have less debt and less savings than more debt & more savings.

TheAble

Here's what I would do.

1. Pay off the 27k mortgage now, though bear in mind any possible early redemption charge. This is equivalent to a guaranteed investment return of 5.45%+ tax free. You have plenty of capital plus additional cash and still will have a good amount after this. You'll also free up £340+/month in cash flow.

2. For the larger mortgage, pay off a lump when the fix expires. In most cases it's sub-optimal to pay off cheap debt early when prevailing interest rates are higher, as well as during times of high inflation (and currently both scenarios apply)

kimwp

I agree with the above. NB, for more mortgage paying off advice, the mortgage free wannabe board is the best place. The debt free wannabe is for those with consumer, utilities etc debts.

badenmorgan

TheAble.- thanks so much for your view, that makes sense to me! Kimwp, noted thank you, and noted your agreement on TheAble's comments. Many thanks.

WYSPECIAL

If you save the £340 per month you free up by paying off the tracker mortgage into regular saver accounts you will be able to get decent interest rates. Certainly far in excess of what you are paying on the fixed rate mortgage. When the fixed rate ends you will be able to consider using it to reduce the amount outstanding on the mortgage if you wish.

badenmorgan

Thanks WYSPECIAL that sounds like a plan!