Pay off mortgage now or wait?

jane_adams_2

Current situation: We're currently on the market, not sold. We will need a larger mortgage for wherever we end up buying. Our currently mortgage is fixed until 31st August at 1.72% after which it will revert to the standard variable (currently about 7%) until such time as we move. 

We have cash set aside to reduce the eventual new house mortgage which would actually pay off the current mortgage completely (including about £550 fees), which would save us the £528 a month mortgage payments. 

Is it worth us doing this now or waiting until the fixed rate has ended (and avoiding the £500-odd fees)? Is there any downside to going mortgage free for a few months and then starting up a new mortgage for the new house, whenever that is? Anything else we've not considered. 

Final questions, what sort of money laundering checks do the banks do when paying off a mortgage in full? (It's Principality if that makes any difference, and about £50k). Just trying to get all our ducks in a row!

Labtebricolist

Personally I’d wait on the basis that lending to an existing mortgage customer is likely to be less of an issue and your actual ‘real’ benefit of paying off the mortgage then taking out another later in the year would be marginal at best.

When we paid off mortgage there were no AML checks, but the funds were sitting in a savings account with the same bank.  I expect if you are paying it off with funds from another bank they will ask you about the source of your funds.

grumpy_codger

jane_adams_2 said:

Current situation: We're currently on the market, not sold. We will need a larger mortgage for wherever we end up buying. Our currently mortgage is fixed until 31st August at 1.72% after which it will revert to the standard variable (currently about 7%) until such time as we move. 

We have cash set aside to reduce the eventual new house mortgage which would actually pay off the current mortgage completely (including about £550 fees), which would save us the £528 a month mortgage payments.

I don't understand.... "Saving payments" doesn't mean saving money because only a small part of the payments is interest. Put your cash to a savings account paying ~4.5% (p.a.) interest and you'll be making about 2.8% profit on your 'cash set aside' until 31st August .

MWT

If your mortgage is at 1.72% why would you want to pay it off when you can earn more than that on the cash you have, especially if there is a penalty for paying it off early...?

jane_adams_2 said:

... which would save us the £528 a month mortgage payments. 

It would only 'save' you the interest component of that payment, not the full amount as the rest is reducing your balance.

jane_adams_2

What I mean is if we pay it off we won't be paying the £528 a month. The alternative is to do it when the fixed deal ends and the rate goes up to 7% (or whatever the SVR is at that point. We can't really switch to another fixed deal now as it may not be the best deal for new mortgage. 

MWT

jane_adams_2 said:

What I mean is if we pay it off we won't be paying the £528 a month.

Agreed, but what you are saying is if you give them £50k you no longer have to give them £528 a month...

I'd keep the £50k earning interest until the mortgage fix ends.

saajan_12

jane_adams_2 said:

What I mean is if we pay it off we won't be paying the £528 a month. The alternative is to do it when the fixed deal ends and the rate goes up to 7% (or whatever the SVR is at that point. We can't really switch to another fixed deal now as it may not be the best deal for new mortgage. 

Right, but that £528 is basically £72 interest (50k x 1.72% x 1/12) plus reducing £456 off the mortgage balance. That's basically increasing your equity by £456 a month, ie moving your money from your current account to annother account called 'house'. 

So whether you move those £456 x 4 capital payments now in one go or gradually each month makes no difference. The only actual difference is by keeping the 50k in savings, you should be earning 4.5% ie £187 in interest a month, while spending £72 via the mortgage payments, ie you're quids in by keeping the mortgage. Even if you have no more savings allowance left and are a higher rate taxpayer, you'd still be earning £112 a month in interest which beats the £72 interest cost. 

When it jumps to 7% then it perhaps changes, as you're losing money each month plus don't have the £500 fee. So if you're likely to move to a new mortgage provider for the best deal on the new property, then pay this one off when it finishes in August and remain mortgage free until the new purchase.