Any benefit keeping a small mortgage

dont_use_vistaprint

I have small mortgage of 37k on a property worth approx 340K  at 4.68 % until July 2025. I have the option to make an overpayment this month of £4000 and again after January 1st of £3,300. This would be from savings currently in a  T212 flexible ISA, which I could put back from momentum 60 day notice account., I’m not currently a taxpayer so the interest earning is currently better than the mortgage rate.

After July, it looks like the rate of mortgage will be higher than I can make in savings.

Can you think of any valid reasons not to pay it down Partially or fully? Friends have suggested keeping a very small mortgage just to enable further borrowing if ever needed for kids etc 

Archerychick

Additional lending would be subject to the same affordability checks anyway unless it’s an offset mortgage. 

It used to be that people kept a small mortgage so the lender looked after the deeds but as these are not physical documents that should be kept in a safe this is no longer a benefit. 

My own approach is to pay off the mortgage at the point that I can’t earn more in savings interest than it costs me to continue having the mortgage. You might find in the next couple of months that you’re at that cross off point where it will be more beneficial to you financially to just pay it off. 

  

SVaz

We will have around £15k left on our mortgage in 2026 when our 1.2% rate ends,  planning to pay it off as I can’t see rates ever dropping that low again in my lifetime

Archerychick

SVaz said:

We will have around £15k left on our mortgage in 2026 when our 1.2% rate ends,  planning to pay it off as I can’t see rates ever dropping that low again in my lifetime

Me too! Ours is currently 1.49%, and we have the funds to clear it at the end of the deal so it’ll be gone in October 25. Quite excited!

The only reason we won’t pay it off is if savings interest rates are higher than mortgage rates, but I can’t see that being the case 

Andy_L

Archerychick said:

SVaz said:

We will have around £15k left on our mortgage in 2026 when our 1.2% rate ends,  planning to pay it off as I can’t see rates ever dropping that low again in my lifetime

Me too! Ours is currently 1.49%, and we have the funds to clear it at the end of the deal so it’ll be gone in October 25. Quite excited!

The only reason we won’t pay it off is if savings interest rates are higher than mortgage rates, but I can’t see that being the case 

It is at the moment

"Up to 4.93% easy access or up to 4.81% fixed"

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

zagfles

dont_use_vistaprint said:

I have small mortgage of 37k on a property worth approx 340K  at 4.68 % until July 2025. I have the option to make an overpayment this month of £4000 and again after January 1st of £3,300. This would be from savings currently in a  T212 flexible ISA, which I could put back from momentum 60 day notice account., I’m not currently a taxpayer so the interest earning is currently better than the mortgage rate.

After July, it looks like the rate of mortgage will be higher than I can make in savings.

Can you think of any valid reasons not to pay it down Partially or fully? Friends have suggested keeping a very small mortgage just to enable further borrowing if ever needed for kids etc 

Yes, if you ever need to borrow you could get a better loan rate as it would be secured on your house. 

Also if the mortgage is with a building society there may be a chance of bonuses eg Nationwide have a "fairer share" bonus which one of the eligibility criteria is having a mortgage. Plus a (probably remote) chance of demutualisation.

Plus if the property isn't registered they'll look after the deeds. 

You could leave as little as £100 outstanding, then the interest rate margin would be fairly trivial. 

zagfles

Archerychick said:

Additional lending would be subject to the same affordability checks anyway unless it’s an offset mortgage. 

Yes but the loan rate would likely be better on a secured loan. You could of course remortgage and get a secured loan but then the bank/BS would have to value the house etc which would cost and be hassle. No point for a small loan. 

If there's any chance you might need to borrow in the future then leaving a small amount (eg £100) outstanding on the mortgage could be an idea. 

Sarahspangles

I can recall a time when people were advised to overpay their mortgage if possible, but not pay it off entirely, because it effectively gave them a ‘line of credit’ if they needed it. In fact some mortgages were explicitly set up in such a way that you could earmark this as an ‘overpayment reserve’. I remember having a NatWest mortgage like this. It was a different offering from the offset mortgages that were then available.

But it was a long time ago. Banks and building societies began to de-risk lending, one of the approaches being to say that overpayments were no longer available to withdraw, at a break point that facility would be removed. They also required some customers to pay off their remaining small mortgages, understandable given that a customer paying next to no interest isn’t profitable. There was grumbling in the Money advice columns, but then there always is!

Moonwolf

We paid most of our mortgage off early and I say it is paid off, but kept £1000 of debt simply because we understood could re-borrow up to what would have been our outstanding balance at any point at mortgage rates without a new agreement.  And yes it is Nationwide so we got £100 this year.

poseidon1

dont_use_vistaprint said:

I have small mortgage of 37k on a property worth approx 340K  at 4.68 % until July 2025. I have the option to make an overpayment this month of £4000 and again after January 1st of £3,300. This would be from savings currently in a  T212 flexible ISA, which I could put back from momentum 60 day notice account., I’m not currently a taxpayer so the interest earning is currently better than the mortgage rate.

After July, it looks like the rate of mortgage will be higher than I can make in savings.

Can you think of any valid reasons not to pay it down Partially or fully? Friends have suggested keeping a very small mortgage just to enable further borrowing if ever needed for kids etc 

I have a different approach in not only retaining a mortgage, but actively seeking to increase it. 

At the moment, obtaining isa income considerably in excess of mortgage interest payable  via  corporate bonds so  makes sense as a 40% tax payer.  However, looking ahead will be converting mortgage to equity release for IHT planning purposes. 

Single, no kids  and a substantial Sipp will be liable to IHT in future with no residence nil rate band available either.

The increased funds from mortgage will be invested in a discounted gift iht mitigation trust ( DGT), so the mortgage eats away the taxable equity in the home , whilst capital growth on the DGT accumulates outside my estate on behalf of the trust beneficiaries. 

Not a perfect plan by any means, but the introduction of IHT on Sipps , threw a spanner in the works of previous planning. Mortgage now becomes an element of IHT planning in my case.

QrizB

Moonwolf said:

We paid most of our mortgage off early and I say it is paid off, but kept £1000 of debt simply because we understood could re-borrow up to what would have been our outstanding balance at any point at mortgage rates without a new agreement.  And yes it is Nationwide so we got £100 this year.

Don't rely on that, though.

I had a mortgage with Nationwide and the annual statement said we had a £50k overpayment reserve. I asked them if I could borrow it back and they said no, my mortgage was too old!

Not that I'm bitter, or anything