Pay off or new mortgage deal?

firsttimebuyer2017

Hi, advice needed. 

Our deal expires Mar 24. Been overpaying since we took out mortgage in 2017 and as it was a flat we have made good progress. So the balance by Mar 24 will be about £38,000 and our current interest is 2.09%. The interest rate is going to be a lot higher when we come out - easily more than double. 

I have £60,000 in savings and am wondering whether to pay off the mortgage. I have a public sector pension l am paying into and have potentially 10-15 years left before thinking of retirement. 

Thanks in advance for any views. 

jrawle

I would stop overpaying and put the money into savings as you can earn much more than 2.09% interest. Next March, use part of your savings to pay the mortgage off, as you are unlikely to find a new mortgage deal that you can beat with savings.

I say "I would", but actually it's what I'm doing, just with slightly different dates and figures!

hjghg5

I'm in a similar position and it's what I'm doing too. My deal expires in September and I will have about 30k left by then. For the last year or so I've been stashing everything I can into savings accounts with a higher interest rate than my mortgage (a big chunk of which is with the same building society!) and I'll just let it go onto svr and pay it off.

hjghg5

(when I say everything I can, that's from what's left after pension contributions etc, and I've deliberately tried to overshoot the amount of cash I need so I still have a mortgage fund even once the mortgage is paid)

simon_or

You're only 9 months off the end of your fix so you could just plonk 38k money in a 9 month fixed savings and then pay off the mortgage the day after the fix ends.

At 5% for 9 months that'd be around £1,400 in interest so could take you over personal savings allowance depending on your circumstances. Try putting it in a joint account so you can share the personal savings allowance (£500/person if higher rate taxpayer or £1000/person if basic rate taxpayer).

If you might still pay tax on some of it then might be worth plonking it in a cash ISA.

I don't see any sense in overpaying a 2% mortgage which is about to end in 9 months.

firsttimebuyer2017

Thanks for all replies. I have £20k in a 3.7% ISA and the rest in a Santander easy access at 3.2% @simon_or this was exactly to reduce the tax on the personal savings allowance. Our overpayment was to get the balance down for a potential scenario like this but l agree with everyone that more competitive interest rates for savings undermine overpaying if the money can do the work elsewhere. I will consider stopping the overpayments and just paying off the remaining sum next March while having a bit more interest in the meantime. Thanks for the help everyone:) 

dimbo61

Well done 😁
If you were a First time buyer in 2017 and you can clear the mortgage by March 2024 your Going to be a Mortgage Free Home owner.
You now have lots more options in life.
Your home is paid for 👍 👏
You can Save for your retirement instead of paying a mortgage every month.
Travel more
Buy that motorhome, motorbike or nice motor.
Consider part time work 
The world is your oyster as they say 
Or you could start all over again and BUY a bigger home ?🤔

El_Torro

I think one important thing to consider is: How much money in cash savings (i.e. an emergency fund) do you need? If it's less than £60k then you could use some of your cash to pay into the mortgage once your term ends. If paying off the mortgage in full means having an inadequate emergency fund then I wouldn't do it. 

firsttimebuyer2017

El_Torro said:

I think one important thing to consider is: How much money in cash savings (i.e. an emergency fund) do you need? If it's less than £60k then you could use some of your cash to pay into the mortgage once your term ends. If paying off the mortgage in full means having an inadequate emergency fund then I wouldn't do it. 

We'll have about £23k left after paying it off and would hopefully build it back up rapidly with no mortgage outgoings anymore. For a spell l would lose interest on savings but would not be getting hit with the bigger interest hike coming our way in Mar 24. 

dimbo61

Simple answer Pay it Off when your current deal ends 
Keep saving