Is settlement vs savings simple maths?

squeekyminos

Grateful for help and apologies for the daft questions…

I have enough money saved to pay off my mortgage balance - so my outstanding mortgage balance and my savings are the same amounts. I’m on a fixed term repayment that will end in a few months. My savings are in tax-free (cash ISA) paying around 5% - I expect any remortgage deal to be offered at around 5%, so same same (not SVR). So my question are:

Does logic/maths support the assertion that if I keep my money saved and continue to pay a new mortgage at the same rate of interest as my savings, I effectively breaking even? Assuming both rates stay the same. Or is there another calculation that I’m missing that would favour settling the mortgage rather than continuing to save and retain mortgage debt? (Excluding early repayment charges, mortgage fees and tax on savings). I realise there are lifestyle considerations but I’m wondering if I’ve missed something in the maths.

Given that my current mortgage deal has an early repayment charge on it, how do I pay it off without charge? Do I simply wait until it reverts to SVR, and then (assuming there is no early repayment charge on that) pay it off in full immediately? Or some alternative?

very grateful for advice

S

Veteransaver

Your logic is fairly sound. Other things to consider though if you withdraw all your ISAs then you lose any future tax free benefits so would have to build them up again at 20k a year.
It depends how much you are talking about really, if you have a mortgage of £200k and 200k in ISas that may be a consideration, but if your mortgage is only £20k (ie one year of ISA allowance) then it doesn't really matter.
There are also benefits of not having to service a mortgage each month, ie you can pay more salary into a pension so saving a lot of tax. Though as your mortgage is effectively already offset you can do that anyway.
You should check you early repayment charges / terms though, unlikely it would make sense to repay it in full, but you are often allowed to make overpayments without penalty, so you should consider that, although what is your current mortgage fixed at (presume it is lower than 5% if it's been going a few years?)

squeekyminos

Thanks greatly Veteran - that’s a good point about being able to use other tax efficiencies (like pension AVCs etc) if not paying the mortgage - hadn’t really thought of that. But great to know I’m not missing anything major here. Yes, my current rate is below 2% which is why I’ve saved rather overpaid. Thanks for the reply

pjs493

It’s likely, although I’d check your T&Cs, that when your current term ends, you can pay off the balance without incurring the exit fees. 

Personally I’d rather be mortgage free and then start building savings again. Although it may be prudent to make sure you have a little set aside in case of any unforeseen emergencies like the need for a new boiler. 

squeekyminos

Thanks pjs - yes, it’s a personal thing and I can see advantages either way. It’s a nice problem to have!