Paying off chunk of mortgage and credit history

eurobabe

Im looking to move properties this summer. I currently have a fixed term mortgage coming to an end in March. Im just going to stay on the SVR until I move. I have enough savings to pay off the mortgage, but if I do that it will affect my credit hsotpry negatively, so need to pay a chunk off but keep mortgage going. Is there a minimum amount I need to have still on the mortgage for it not to affect the credit history,also paying off a large chunk of the mortgage wont affect cfedit history?

MorningcoffeeIV

Pay the mortgage off in full.

Looking like you're struggling to pay off a small debt that's incurring interest is a terrible look. 

CliveOfIndia

eurobabe said:

I have enough savings to pay off the mortgage, but if I do that it will affect my credit hsotpry negatively

What makes you think it'll have a negative effect?  The opposite is true, it'll have a positive effect on your credit history.

It'll also save you money in interest (unless your savings are earning more interest than what you're paying on the mortgage).

eurobabe

CliveOfIndia said:

eurobabe said:

I have enough savings to pay off the mortgage, but if I do that it will affect my credit hsotpry negatively

What makes you think it'll have a negative effect?  The opposite is true, it'll have a positive effect on your credit history.

It'll also save you money in interest (unless your savings are earning more interest than what you're paying on the mortgage).

Reason I thought it would have a negative effect is that by paying it off I'd then close that account so I'd then have less history each month to go towards my credit report and kess mix of credit types.thats info I'm seeing online.so would rather keep mortgage going than pay off and close account not long before mortgage application

CliveOfIndia

eurobabe said:

Reason I thought it would have a negative effect is that by paying it off I'd then close that account so I'd then have less history each month to go towards my credit report and kess mix of credit types.thats info I'm seeing online.so would rather keep mortgage going than pay off and close account not long before mortgage application

The existing mortgage will stay on your credit history for 6 years after it's closed, so any lender looking at your file will be able to see plenty of history relating to how you've managed that account.  There's no need to keep it open purely to retain an ongoing record of payments.

You don't need to have a "mix of credit types" on your record.  All a lender is interested in is what debt you've currently got and whether you've been meeting your contractual payments each month.  Whether that debt is a mortgage, loan, credit card, mobile phone contract, whatever - it doesn't matter, as long as you're keeping up to date with payments and they don't view your current level of debt in relation to your income as being near to their maximum affordability calculations.

Just on the "meeting contractual payments" point.  For a typical mortgage or personal loan, this means paying the monthly amount that you're supposed to be paying (usually a fixed amount every month).  If you want to make overpayments you can, but you don't need to purely from the point of view of your credit history.

For a credit card you want to be paying the balance in full every month, not just the minimum (unless you're on a 0% promotional rate).  The reason being that if you don't pay the full balance on an interest-bearing credit card, it's going to cost you money in interest.  But it also gives the impression that you're borrowing more than you can afford - after all, why would anyone voluntarily pay interest on a credit card if they didn't have to?

Barkin

IMO... forget about the credit score/history malarkey.
If clearing the mortgage will save you money/interest, do it. 

eurobabe

CliveOfIndia said:

eurobabe said:

Reason I thought it would have a negative effect is that by paying it off I'd then close that account so I'd then have less history each month to go towards my credit report and kess mix of credit types.thats info I'm seeing online.so would rather keep mortgage going than pay off and close account not long before mortgage application

The existing mortgage will stay on your credit history for 6 years after it's closed, so any lender looking at your file will be able to see plenty of history relating to how you've managed that account.  There's no need to keep it open purely to retain an ongoing record of payments.

You don't need to have a "mix of credit types" on your record.  All a lender is interested in is what debt you've currently got and whether you've been meeting your contractual payments each month.  Whether that debt is a mortgage, loan, credit card, mobile phone contract, whatever - it doesn't matter, as long as you're keeping up to date with payments and they don't view your current level of debt in relation to your income as being near to their maximum affordability calculations.

Just on the "meeting contractual payments" point.  For a typical mortgage or personal loan, this means paying the monthly amount that you're supposed to be paying (usually a fixed amount every month).  If you want to make overpayments you can, but you don't need to purely from the point of view of your credit history.

For a credit card you want to be paying the balance in full every month, not just the minimum (unless you're on a 0% promotional rate).  The reason being that if you don't pay the full balance on an interest-bearing credit card, it's going to cost you money in interest.  But it also gives the impression that you're borrowing more than you can afford - after all, why would anyone voluntarily pay interest on a credit card if they didn't have to?

Thanks for the detailed reply.I understand that clearing debt I can looks good to a mortgage company, but doesn't that also work against me in that if I clear the mortgage earlier, then I'm likely to do that on next mortgage netting them less profit, so less attractive from that point if view.

MorningcoffeeIV

eurobabe said:

CliveOfIndia said:

eurobabe said:

Reason I thought it would have a negative effect is that by paying it off I'd then close that account so I'd then have less history each month to go towards my credit report and kess mix of credit types.thats info I'm seeing online.so would rather keep mortgage going than pay off and close account not long before mortgage application

The existing mortgage will stay on your credit history for 6 years after it's closed, so any lender looking at your file will be able to see plenty of history relating to how you've managed that account.  There's no need to keep it open purely to retain an ongoing record of payments.

You don't need to have a "mix of credit types" on your record.  All a lender is interested in is what debt you've currently got and whether you've been meeting your contractual payments each month.  Whether that debt is a mortgage, loan, credit card, mobile phone contract, whatever - it doesn't matter, as long as you're keeping up to date with payments and they don't view your current level of debt in relation to your income as being near to their maximum affordability calculations.

Just on the "meeting contractual payments" point.  For a typical mortgage or personal loan, this means paying the monthly amount that you're supposed to be paying (usually a fixed amount every month).  If you want to make overpayments you can, but you don't need to purely from the point of view of your credit history.

For a credit card you want to be paying the balance in full every month, not just the minimum (unless you're on a 0% promotional rate).  The reason being that if you don't pay the full balance on an interest-bearing credit card, it's going to cost you money in interest.  But it also gives the impression that you're borrowing more than you can afford - after all, why would anyone voluntarily pay interest on a credit card if they didn't have to?

Thanks for the detailed reply.I understand that clearing debt I can looks good to a mortgage company, but doesn't that also work against me in that if I clear the mortgage earlier, then I'm likely to do that on next mortgage netting them less profit, so less attractive from that point if view.

No. You're highly unlikely to clear your new mortgage in the first month or two, so you're not going to cost them anything. And even if you do, there's the ERC.

Do your current and future self a favour and clear the mortgage now. 

Huffnagel

This is technically the same as remortgaging: you're paying off a mortgage.

As explained above, if you can do that by using your own savings, I'm not sure what the issue is.  

eurobabe

Huffnagel said:

This is technically the same as remortgaging: you're paying off a mortgage.

As explained above, if you can do that by using your own savings, I'm not sure what the issue is.  

Thanks. It was about having a line of credit history see that I was still able to make  regular payments from a debt (mortgage) each month. Paying it off I guess looks good, but it doesn't then leave you with a trail after that you're still able to manage debt.

CliveOfIndia

As has already been mentioned, even if you pay off the debt then your history of repayments will remain visible for 6 years, so there's no need to worry about that.  Overall, the fact that you're carrying less debt would have a far greater positive impact in the eyes of any lender.  And it would be madness to voluntarily carry on paying interest when you don't have to - the only possible exception would be if you can earn more in your savings that what you're paying on the mortgage.

In terms of maintaining a positive history, by far the simplest method is just to use a credit card for routine day-to-day spending and repay in full every month when you get the statement.  This will cost you absolutely nothing and will maintain a solid history of responsible borrowing and repayment.