Paying off Mortgage or keeping savings

gillian46 · 28 August 2009 at 6:39PM

Hi,

I'm in a bit of a quandary, I very nearly have enough money in ISA's, shares and saving accounts to pay off my mortgage. The mortgage is currently on Nationwide's SVR of 2.5 % and has about 10 years to run if I don't do any more overpayments.

If I do pay off the mortgage then it will leave me without any savings at all, which makes me very nervous.

I just want to see what everyone else would do. Would you pay it off?

Thanks

G

ailuro2 · 28 August 2009 at 6:47PM

Not if I was earning more tax free in savings than I was paying on my mortgage, no...

which I am, and we haven't paid it off!:D

http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings have a read o MArtin's article - he explains it fine.

jennyjelly · 28 August 2009 at 6:51PM

Hi Gillian, you have posted more or less the same question I posted a couple of weeks ago so I thought I would pass on some of the good advice I was given.

I would strongly advise against leaving yourself without any buffer at all. Just suppose you lose your job or have an accident or illness that means you can't work. Most people recommend that you should aim to leave yourself with enough to survive for 3-6 months. If you overpay as much as you can for another year and keep adding to the savings, you could find that you are then in that position, so for the sake of a short wait.

Are you able to move your mortgage? 2.5% sounds a bit high - we moved our last £20,000 to ING Direct a couple of years ago and have been overpaying like mad ever since. They don't charge entry or early repayment fees, and at the moment the interest rate is 1.39% so it's worth looking into.

Have a look at all the advice on the thread here

http://forums.moneysavingexpert.com/showthread.html?t=1854839&highlight=

Where people have made some really good points.

gillian46 · 28 August 2009 at 8:27PM

Thanks for all your comments, I think the idea to continue overpaying for another year is a good one, I didn't see the other thread so I'lll go and have a read now. I will have a look at the ING direct mortgage, sounds interesting. I do have some of my savings at 6.1% which is quite a bit higher than my mortgage.

Has anyone else got any suggestions.

Thanks

G

Aaagh · 29 August 2009 at 12:25AM

It's very tempting to pay it off. That's why we are all members of this forum. What a great feeling it will be to be mortgage free.

I am a little competitive, and have joined the mortgage free in three post. I would love to do that, but simple maths will tell you that paying off your mortgage early may not be the best option. I will try to do it, but if I can earn more by saving that I will by paying of the lowest rate loan I will ever have, then I'll probably keep the mortgage.

I'm not really giving any advice here though am I? For me, I can't wait to be mortgage free, and I may pay a little more to do that early. Depends on the figures really, but if it's only a few hundred quid I'd go for it.

Good luck with whatever you decide.

chirpchirp · 29 August 2009 at 12:32AM

If your savings rate is 6.5% and your mortgage is 2.5% then I'd pay as much as you can into the savings. Remember that banks like to lower their savings rates to catch us out. Maybe double check from time to time that your savings are paying what they were paying when you took the account out.

ailuro2 · 29 August 2009 at 6:27AM

Just to add - another element of this is job security - if you have a big wad of savings they will be counted if you were to lose your job and claim benefits - but suddenly paying it into a mortgage overpayment fund is , (I've read here), seen as deliberately disposing of assets.

Also having unemployment insurance on the mortgage - if you have it, is it worth it anymore when your mortgage is nearly paid off?

getmore4less · 29 August 2009 at 7:42AM

ISA are tax free for ever(for now) so keep filling them first as long as you keep an eye on the rates, then overpay or find savings accounts that have higher rates than the mortgage after tax.

Jonbvn · 29 August 2009 at 8:56AM

You can beat your mortgage interest rate with ISA and other savings accounts, even considering tax (assuming basic rate tax-payer).

Given the above, it is best to keep your savings rather than overpay ATM. However, you should regularly check your mortgage and savings a/c's to ensure that your savings interest beats your mortgage. I have heard that some SVR rates have increased recently.

The above notwithstanding, you might consider hedging your bets so to speak and increasing your monthly payments using money from your savings, or using only part of your savings to make a lump sum overpayment.

gillian46 · 29 August 2009 at 1:12PM

Thanks for all your suggestions, unfortunately I can't add any more to the savings at 6.1% as it was a fixed amount last October. I think that the best thing to do at the moment is overpay by as much as possible and keep my savings in case the job situation doesn't get any better. I do work in the financial sector. I just want to get rid of the mortgage as soon as possible. I don't have unemployment insurance as I think they are a lot of money for only paying out for 12 months money.

Thank-you all for your suggestions.

G

chirpchirp · 29 August 2009 at 1:28PM

Gillian, there are quite a few regular savers about at the moment paying 5% such as Halifax and Lloyds. Halifax will take £500 a month and Lloyds £250. Some bank accounts are now offering over 3% so you may find that these are worth a look.

MSE Forum

Paying off Mortgage or keeping savings

Replies

£17 mill of Tesco Clubcard vouchers expire this month

How much have you earned from referrals?

Blenders, bills & birds of prey