Paying off our mortgage early

Telstar19

Myself and my OH are both 44 and have 90k on our mortgage left and just under 170k in savings between us.
The fixed term mortgage comes to an end soon which is on a 1.6% costings us 389 per month. With the interest rates increasing the new monthly mortgage repayments will be 500 per month.

We are thinking about using our savings to pay the mortgage off to avoid the higher rates.
At the moment we both have 50k each in premium bonds and can get some nice wins per month. It's turned into a competition between us on who wins the most. 

We both work full time with no debts and live a relatively simple life. Our house is in reasonable condition so no big cost round the corner hopefully. 

We are just wondering if paying the mortgage off is a good idea or fixing a new deal at higher rate and do something else with the savings we have?
My OH is not a risk taker with money so the stock markets would be out of the question I feel? 

sourcrates

Telstar19 said:

Myself and my OH are both 44 and have 90k on our mortgage left and just under 170k in savings between us.
The fixed term mortgage comes to an end soon which is on a 1.6% costings us 389 per month. With the interest rates increasing the new monthly mortgage repayments will be 500 per month.

We are thinking about using our savings to pay the mortgage off to avoid the higher rates.
At the moment we both have 50k each in premium bonds and can get some nice wins per month. It's turned into a competition between us on who wins the most. 

We both work full time with no debts and live a relatively simple life. Our house is in reasonable condition so no big cost round the corner hopefully. 

We are just wondering if paying the mortgage off is a good idea or fixing a new deal at higher rate and do something else with the savings we have?
My OH is not a risk taker with money so the stock markets would be out of the question I feel? 

That puts you in a very comfortable position, one that most would envy.

It seems silly paying interest on a mortgage when you don`t really need one.

I myself would pay the mortgage off, you will still be OK financially, and soon regain what it costs you.

MEM62

Telstar19 said:

We are just wondering if paying the mortgage off is a good idea or fixing a new deal at higher rate and do something else with the savings we have?

It is worth paying off the mortgage if the interest rate is higher than the return on your savings.  If your savings are earning you more than the mortgage is costing you in interest then it is not worth paying it off.

Telstar19 said:

My OH is not a risk taker with money so the stock markets would be out of the question I feel? 

That is a contradiction.  If you have nothing in equities then you are very much risk taking.  
  

Keep_pedalling

Paying off the mortgage will still leave you with a decent emergency fund, and the amount to PB prizes you get is unlikely to be anywhere near the interest you are paying.

In your shoes I would pay off the mortgage and boost your pension provision by putting a lot of the £500pm you free up into them.

TheAble

monevator.com/mortgage-inflation-hedge/

It's a complicated question. The above is another factor to consider and an interesting read.

Veteransaver

It's generally a no brainer to pay off a debt where the interest is higher than what you can receive in interest.
However if your savings are currently in ISAs there could be a consideration of future lost tax savings, especially as now paying off your mortgage will allow you to supercharge your ISAs.

ManyWays

What are your pension contributions like? ideally, you want to arrive at retirement age with a cleared mortgage and an adequate pension provision. 

Clearing the mortgage and then using half of the £389 a month to rebuild cash savings and half to make bigger pension contributions may be a good way forward for you both?

kimwp

Might be worth reading some of the posts on the mortgage free wannabe board.

chubsta

psychologically it may be better to pay the mortgage off - I know many people see it as 'cheap borrowing' but personally to me it is just another debt, and it doesn't matter if I have savings if I have a debt to compare them to. Obviously that is very simplistic and there are many other factors to take into account such as interest earned on the savings vs interest paid on the mortgage etc as mentioned above, but you really can't beat the security of being debt-free, particularly if you are also left with substantial savings too.

Also, as much fun as it is waiting each month for premium bond results, have you checked to see what actual return you are getting on it? My understanding is that the overall return on PBs is much lower than if the money is put into fixed savings accounts which have decent interest on them.

tigergambit

Are you both making maximum pension contributions each year? Hard to get 20% on anything these days.

Nomunnofun1

tigergambit said:

Are you both making maximum pension contributions each year? Hard to get 20% on anything these days.

Or even 25%. An £8000 contribution, for example, is grossed up to £10000. 

If a higher rate taxpayer a £10000 addition to a pension pot could end up costing £6000!