Is now the time to use savings to pay off the mortgage?

Tiggermad

We are currently on a mortgage interest fixed rate of 1.69%. This was a 2 year fix that ends in February. As our fixed rate was low and saving rates were going up over the last 2 years, we have been saving instead.

When our current fix ends in Feb, the best rate we can switch to is another 2 years at 5.99% however we have enough in savings to pay off the remaining mortgage (£15,000) but this would wipe out our savings.

Knowing the interest increase we would move back to paying off the mortgage instead of saving and could pay it off within the 2 years. Approx would be £1,000 in interest over the 2 years.

Or other option is to go onto SVR of 7.99% but pay it off aggressively, would take approx 18 months and we would be paying an additional £40 a month but no ERC, approx £700 in interest but this would decrease each month as more would come off the capital.

What would you do? I know there are lots of variables about job security, age, pension, debts etc, etc but curious what other people would consider doing.

Newbie_John

Tiggermad said:

What would you do? I know there are lots of variables about job security, age, pension, debts etc, etc but curious what other people would consider doing.

Exactly this. Depending on these variables people would go either way.
You need to decide what you feels right.

How much is your monthly mortgage now, how much would it be with 5.99%, do you both work, does either of you earn enough to cover all bills, how long is the mortgage left?  

Tiggermad

£109 now, will go up to £140. Yes, both work. My job is more secure (NHS) and we could manage on just my wage but wouldnt be able to save much. Currently 15 years left on mortgage but if needed could increase up to 19 years.

Newbie_John

Ok so it's only £30 more.
I would put the £15k savings to an easy access account that pays over 5% (best on MSE is 5.2% Ulster), fix mortgage for two years at 5.99% and then pay it off when the deal ends.

Your interests on the mortgage over 2 years will be around £1800 but the interests earned on 5.2% savings account £1600 - so keeping mortgage open really costs you £200 (£100 a year) - and as you say these are your only savings - it's worth keeping them for such low fee.

saucer

Newbie_John said:

Ok so it's only £30 more.
I would put the £15k savings to an easy access account that pays over 5% (best on MSE is 5.2% Ulster), fix mortgage for two years at 5.99% and then pay it off when the deal ends.

Your interests on the mortgage over 2 years will be around £1800 but the interests earned on 5.2% savings account £1600 - so keeping mortgage open really costs you £200 (£100 a year) - and as you say these are your only savings - it's worth keeping them for such low fee.

I’m not sure I understand the logic of that. Why would you pay 5.99% interest when saving only 5.2% in interest? Even less of a good idea if you had enough savings to be liable for tax on the interest, which is probably not the case here. I’m assuming that if you do pay off at the end of the fix that there is no ERC

Tiggermad

If we pay off at the end of the fix then there is no ERC, there would only be one if we fixed and paid it off within the fix.

South_coast

Newbie_John said:

Ok so it's only £30 more.

Yes, but also a 30% increase in the actual amount being repaid each month 😳