Are there disadvantages of paying off a mortgage?

Huggy_Bear

Morning everyone

My mortgage rate is coming to an end in August (currently 1.5%). I only have a small mortgage (less than 10k) and have planned to pay this off but...as I'm only on a fixed term employment contract I wouldn't be able to take out a new mortgage in the future so wonder if I should keep a very small mortgage (just in case) - I'm not planning on moving anytime soon and hopefully don't have any big expenditures planned - probably over thinking this a bit.

Are there any benefits of retaining a very small mortgage with a lender?

darkcloudi

When you have a lender then chances of re-mortgaging (unless taking on more credit) with them is much easier as no credit checks done. Mortgages are cheaper then loans.

So if you not planning on a big expenditure then I would just clear it, as long as you got enough funds for a rainy day. Plus ensuring the interest rate on a savings account has a higher interest then a new mortgage rate. The reason I suggest this is that you would need to do a credit check / affordability check if you borrowed more regardless of which lender.

jackieblack

Retaining a small mortgage would make the process of borrowing additional money from the same lender simpler and eliminate conveyancing costs. Whether that is worth doing depends on the likelihood of needing additional borrowing before the end of the mortgage term.

ManiaMuse1

If you use your funds to pay off the mortgage you will not have that cash available to spend on other things. The only thing you are getting in return is more equity in your property (which is only really relevant if you are selling your property), less total interest paid over the remaining term of the mortgage and more spare cash in your pocket each month. But remember you would have used a load of your cash to repay the mortgage so it will take several months/years of income depending on your salary to make up the difference.

If savings/investment rates are similar to or better than the interest you are paying on the mortgage then you would be better off keeping it in savings/investments.

I guess it depends if you need the cash currently sitting in your bank account and if you have any big expenses/purchases/holidays planned + how much you need as an emergency fund. Personally I would probably just clear it but obviously depends on your circumstances. I would also think about what your employment situation is likely to be like when you get to the end of your fixed-term contract and whether your might end up out of work for a while in which case retaining the cash might make sense.

jj_43

No there is no benefit to keeping a small mortgage with a lender. 

FarmGirl78

If there's still a lender listed with the Land Registry as having an interest in your property then it makes it harder for scammers to steal your house from under you. Or something. Don't know, but that was what I was advised when I was thinking of paying mine off.

If you have ever overpaid your mortgage then you might have a borrow back facility. My mortgage balance is only £2,100 but I've got a £25k overpayment I can pull back if I ever need it. If I pay it off the remaining £2,100 I lose access to that money. I'm by myself so having quick access to a "!!!!!! hits the fan fund" is valuable to me. I can also port the mortgage if I need to, and borrow up to my original loan amount without going through all their full assessment again.

For me, not paying it off is worth the extra interest for the convenience. My monthly payment is £16.83 a month, an amount I hardly notice.