Paying off Mortgage in lump Sum

CocosMum_3

Hi is it possible for someone to give me some advice.  If i have come into some money, would it be wise to pay off my Mortgage all in one go?

flaneurs_lobster

Not enough information.

But simplistically, if your mortgage interest rate is higher than that which you can earn by putting that windfall into a savings account, then yes.

Newbie_John

Wise? Yes, probably the simplest solution.

Example: £100k mortgage with 15 years left, then over that time:
At 5% rate you will need to pay £142000.
At 4% rate you will need to pay £133000.
At 3% rate you will need to pay £124000.

That excess over £100k are the interests you end up paying, when your fixed term ends you can pay full £100k and close the mortgage.

With that amount of money simple savings account doesn't make sense, best rates are around 4% giving you £4000 which is likely to require paying your tax rate 20%-45% taking it down.

Maybe in some unusual cases like you have long term fixed mortgage at lower rate 1-2%, or you understand investing and could get more than 5% then worth exploring other alternatives.

Yorkie1

What sort of mortgage do you have? If you have a fixed rate product, check to see how much they would charge you for overpaying early (they ERC). Sometimes it can be a lot, depending on the ERC and amount overpaid. 

It may be worthwhile paying the maximum per year which will avoid charges. But do the maths.

Also, as f_l says, the bigger picture should be considered. Any higher rate debt? Pensions? Other savings? Future financial needs e.g. new car, kids at uni? etc

silvercar

Do you have rainy day savings? A decent pension?