Should We Pay Off Our Mortgage?

LisaS161

Hi,
I'm a new poster here but have been lurking on the forums for a long time and love all the help everyone gives eachother.
Anyway, down to business. Hubby and I have just come into some money which we weren't expecting, and it's making our heads hurt trying to work out what the best thing to do is.
We have a mortgage which only has 9 years left to run on a repayment basis at a good fixed rate of 4.79% for 5 more years, and currently have £27,400.00 left on it. If we repay in the next 5 years we will also have an early repayment charge of approx £1,100.00.
We also have a loan which we owe approx £5,500 on with 4 years left to run and no early repayment charge.
We have decided to have a holiday with some of the money as well as having a new bathroom fitted, but after that we would still have enough to pay off the mortgage and the loan if we chose to.
We've more or less decided to definitely pay off the loan, but are totally confused as to the best way to go with the mortgage. Initially we said we'd leave the mortgage as it is and put the money into the highest interest account we could find. Then we did some calculations and it seems it would be better to pay off the mortgage early (not sure that the calculations were right though). We've visited the building society who have said we can pay the vast majority of the mortgage off, just leaving £100 on to avoid the early repayment charge, til the 5 years are up then pay it all off then, which would mean we'd be better off by our monthly mortgage payment, but would have no money left if we did need it for any reason. We've also considered paying £20,000 off the mortgage and putting £7,200 into our ISA's.
I've spent all afternoon reading the forum and using various calculators but am still very confused.
Can anyone offer any advice please?

natman

Hi Lisa,

I am in a similar situation -
I have £27,000 left to pay on mortgage, I have 6 years - My interest rate is not as good as your fix - mine is 5.5% tracker.

I have £25,000 in savings and I have debated paying off/saving for the last 4-5 months..

If i was you, I would defo not want to go over 5 years i.e make sure this interest rate you have sees out the mortgage - if you are staying in your house etc.
I have decided to do half and half - pay half off - £13,000
and save half £13,000 in different accounts -
ICICI - FIX TERM HIGH ACCOUNTS - 7%
ISA - 6.5%
Yorkshire Bank instant access account 5.5%

This way i have not tied up all my money, and have access to funds if need be.
This is only my story.........
I did look at an offset mortgage - i.e one acount as in theory if i combine my funds, i would only pay interest on about £2000.
Hope this helps

bbbster

Lisa,

It sounds to me like you want to payoff your mortgage but not pay the early redemption fee. Keeping the mortgage with a balance of £100 sounds like a good idea.

I know someone who did something similar but the monthly payments were £1 per month (yes one pound). The mortgage company were so hacked off that they wrote off the debt and he was mortgage free.

If you ever did need some cash you could apply for an Egg credit card at 0% (comes with a 3% balance transfer fee). They will pay it into your bank account and it's cheaper that your mortgage interst rate.

Nala

I would personally pay off the loan and reduce the mortgage to £100. You will be freeing up, every month, the amount that you pay towards both of these - put the total into a high savings account/ISA and I'm sure it won't take long to pay for that holiday and the bathroom

dinkylou

OK I am really sad.

Using the snowball calculator at www.whatsthecost.com I have worked out how using the money alters things.

I've assumed that you pay off the loan and we are just talking about the mortgage.

So at your current rate by paying off the mortgage you will save £3334 in interest over this time.
But by putting it into a high rate savings 7% (or 5.6% net) you will make £8835 in interest, so in theory you should do this.

But to be honest, that assumes that you dont use the money for other things and the rate stays the same.

Depends whether you will be tempted and whether you will benefit more from losing the £500 odd mortgage payment every month?

Only you can know.