Re-mortgage or pay it off??

Powapa

Good morning, 

my fixed mortgage deal of 1.84% comes to an end at the end of this month. I have been saving hard and have enough to pay off the mortgage in full when it ends but currently getting 5.17% interest on savings and can re-mortgage for 4.27%. - £98K remaining balance.

My question is with the prospect of inflation rising and BOE maybe holding interest rates is it worth fixing for 2 years and hoping savings rates stay high to gain more on savings or pay it all off now.

What would you do?

born_again

Pay it off, as the savings you would make over the rest of the term of the mortgage, will far outweigh any interest you will make on savings.

GrumpyDil

With a differential of 0.9% I'd pay it off.

It wouldn't take much for interest rates to drop enough to make you worse off by not paying it off and not a huge amount better off if rates don't drop. 

Hoenir

Powapa said:

 but currently getting 5.17% interest on savings

With easy acccess with Trading 212 ? 

That's a loss leading account. Could be changed at any time. 

BikingBud

Powapa said:

Good morning, 

my fixed mortgage deal of 1.84% comes to an end at the end of this month. I have been saving hard and have enough to pay off the mortgage in full when it ends but currently getting 5.17% interest on savings and can re-mortgage for 4.27%. - £98K remaining balance.

My question is with the prospect of inflation rising and BOE maybe holding interest rates is it worth fixing for 2 years and hoping savings rates stay high to gain more on savings or pay it all off now.

What would you do?

I'd be looking to clear it down. Hopefully you've made quite a bit on the interest rate split to offset the mortgage bubble.

Like @grumpydil i feel the gap is too small and locking in with a small split could easily see it go against you. 

I suppose it really depends on overpayment options and early resettlement fees, what would it cost you to bail out if the rates flipped against you?

Powapa

Thanks everyone, think safest bet then would be to get it paid off and don’t stress about it!

VNX

Powapa said:

Good morning, 

my fixed mortgage deal of 1.84% comes to an end at the end of this month. I have been saving hard and have enough to pay off the mortgage in full when it ends but currently getting 5.17% interest on savings and can re-mortgage for 4.27%. - £98K remaining balance.

My question is with the prospect of inflation rising and BOE maybe holding interest rates is it worth fixing for 2 years and hoping savings rates stay high to gain more on savings or pay it all off now.

What would you do?

I’m in a very similar position, current mortgage deal ends 1/1/25 balance will be around 69k.

I have been debating what you have for some time, but I think I’ll clear mine. Also if you chose to save / invest what was your monthly mortgage payment you will be earning interest 

as long as you’re left with enough in an emergency fund I think clear it

Veteransaver

Probably pay it off to be honest, unless you are withdrawing from ISAs and have long term plans for the tax free benefits of the isa. Are there any fees too on arranging the new mortgage, they could dwarf any potential savings in the short term.

Psbcuddles

That's a great position to be in.  We just paid our mortgage off early.  We got a 15 year mortgage in 2019 and paid it off at the end of October!

I can't tell you how good it feels to be out of debt, no more monthly mortgage payment, and the £713 monthly mortgage payment we used to have can now go into other investments!

If you look at the Bank of England base rate, its creaping over their 2% target.  Right now I feel that interest rates are unlikely to fall in the near future, and they may even rise at some point in the second quarter next year.  The employers national insurance increases puts pressure on employers, who may decide to increase the prices of their products and services to recup their losses, thus increasing inflation, and putting more pressure on the Bank of England to increase interest rates further over the medium term.

I'm actually torn by what I would do in your position, you have a huge amount of money that could be invested, which could generate a greater return for you.  Just look at the price of Gold, its gone up around 32% in one year!  Investing in the stock market, in a stocks and shares ISA could net you on average 9% a year.  The problem with investments is that they can go down, and there is always a risk over the short term, but over the long term 5 - 20 years, you could make a good return on your money.

The biggest problem we are all facing right now is that our currency is being devalued through inflation, just look at what 1 pound could by in 2019, and look at what it can buy today, in real terms the value of that pound has more than halved, money in the bank is loosing its buying power, and we are all getting poorer and poorer in real terms every year. 

If you do decide to take another mortgage out, please note that the penalty for early repayment can be very high, I would consider looking at a Tracker Mortgage, the interest rate will be a little bit higher than a 2 year fix, but you will have the option to make unlimited penalty free overpayments, so if you want to keep your mortgage a little longer you will still have the option to pay it off.  Also consider mortgage product fees, solicitor fees and mortgage advisor fees, they can add up to over £3000, so it would be a better option to consider staying with your current provider. 

We did exactly that in January, we weren't ready to pay off our mortgage in full, we were at the end of a 2 year fix, but knew that we would likely to want to pay off our mortgage within the next 6 months, so we opted for a 2 year Tracker with Nationwide, we just used our online account to go through the options available to us through Nationwide, we applied for the Tracker Mortgage online, we opted not to take advice from their mortgage advisor because we simply couldn't get an appointment with anyone in a timely manner.  It was 100% the right thing to do for us, and if you are not 100% ready to pay off your mortgage completely, it would be a good option for you too.

I hope all that helps you to make a fully informed decision.

I'm not a financial advisor, I just follow whats going on in finance and banking.