Should my mum use her savings to pay off mortgage?

thedonkey68

Hi all and hope someone can help. Thought I’d ask here first for any pointers or perhaps someone has already experienced what I’m about to ask.  

My elderly mum (93year old) is looking at paying off her existing mortgage and has me to look into it.  She has 7 years left on it but has decided now that she’d like to pay it off (age etc). She has enough savings to do so but will leave her with nothing after it and she’s worried that should a large bill come in, she doesn’t have the funds to pay it. 

What I’m looking for is it worth leaving for the remaining or should she pay it off in full? Don’t know whether to source a financial advisor but would it be for mortgage or savings I look at? 

That’s a condensed version of what I’m looking at and any help would be great. 

Thanks. 

Barralad77

Hi, I would look to see if she can switch to an offset mortgage. With an offset mortgage you effectively open a second account that you can put money in (and take out - see later) and this account is linked to the mortgage. The crucial point is that you don’t pay any interest on the amount that’s held in the second (call it ‘offset’ account). For example, if your Mum owes £10,000 on her mortgage she will be paying interest on that £10,000 (reducing each month, of course). But with an offset mortgage she could put £10,000 in the offset account and that would mean she would no longer be paying interest on it. She could also instruct the lender to take the monthly mortgage payment out of the offset account. This is effectively the same as paying the mortgage off but with the opportunity to withdraw some money from the offset account should a big bill suddenly appear. This is what I would do. No more interest being charged/paid but her savings would still be there should she need them.

Keep_pedalling

If it leaves her with no emergency savings it is probably not a good idea. If not and she is paying more in interest than she is getting with her savings she should probably do it.

I

MWT

thedonkey68 said:

My elderly mum (93year old) is looking at paying off her existing mortgage and has me to look into it.  She has 7 years left on it but has decided now that she’d like to pay it off (age etc). She has enough savings to do so but will leave her with nothing after it and she’s worried that should a large bill come in, she doesn’t have the funds to pay it. 

Are you 100% sure this is a normal mortgage, and not an Equity Release product of some kind as a repayment mortgage taking her to 100 years old sounds a little unusual?

Even if it is a normal mortgage, why would she want to pay it off now, it would make little sense to use all her savings and leave her with nothing.

How much is left to be paid and are there any early repayment penalties?

Exodi

Emergency savings always take priority, but your 93 year old mum doesn't have the risk of losing her job which is one of the key things emergency savings are saved for and may possibly be able to draw additional costs from her pension should she need.

I don't know the figures we're talking here, but it is common for people to go overboard on emergency funds (especially on these forums!), sitting on tens of thousands of pounds just in case everything in their house spontaneously needs replacing at once, whereas realistically a few thousand to cover a replacement boiler or something like that would be fine.

What rate is she paying on her mortgage and what rate is getting on her savings? Little sense even thinking about overpaying if her mortgage rate is 3% whereas she's getting 5% on her savings.

A 93 year old with a mortgage with 7 years left to run is quite surprising though.

Hoenir

Exodi said:

A 93 year old with a mortgage with 7 years left to run is quite surprising though.

More surprising would be a mortgage term running to someone is aged 100. Not standard lending practice. 

thedonkey68

MWT said:

thedonkey68 said:

My elderly mum (93year old) is looking at paying off her existing mortgage and has me to look into it.  She has 7 years left on it but has decided now that she’d like to pay it off (age etc). She has enough savings to do so but will leave her with nothing after it and she’s worried that should a large bill come in, she doesn’t have the funds to pay it. 

Are you 100% sure this is a normal mortgage, and not an Equity Release product of some kind as a repayment mortgage taking her to 100 years old sounds a little unusual?

Even if it is a normal mortgage, why would she want to pay it off now, it would make little sense to use all her savings and leave her with nothing.

How much is left to be paid and are there any early repayment penalties?

It's a repayment mortgage taken over 40years - I've spoken with the lender and it ends when she's 100!. 
After a painful (lengthy) conversation with them, there is no penalty charges for early repayment but seemed relectant to give me an exact figure as to what it was. There's annual statement due in the next week from them and we've to refer to this should we want to pay it off early. 😩

MWT

thedonkey68 said:

There's annual statement due in the next week from them and we've to refer to this should we want to pay it off early. 😩

Hopefully the statement will confirm the outstanding balance, and the current interest rate.

Do you already know if the rate was fixed for the 40 year period? 1992 wasn't a great time for mortgage rates...

eschaton

Normally the 93 years old bit might have made me think differently, I would say let her pay it off. 

Let her have that feeling of owning her home. 

With no mortgage payments, she’ll quickly build up an emergency fund. 

Last year I had 6 years and 4 months remaining on mine. I was on a 25 year BR +0.99% tracker and had noticed the big increase in interest costs. 

I paid £38k in the next 6 months. It left me with a net £306 in the bank. I’d also forgone a new car to do it. 

As I buy my cars up front I’d want to have at least £12k in the bank after buying for an emergency fund. Dropping to virtually zero didn’t bother me. Being mortgage free was more important and that sounds like how your Mum is thinking. 

Slowly increasing month by month but a new car is still another 2 years away.