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If you had the means to pay off your mortgage, is it definitely the best thing to do?

(15 Posts)
choceyes Thu 02-Jan-14 12:35:54

Due to a combination of monetary gifts from my parents and our monthly overpayments on the mortgage and an initial lowish mortgage, we are in a position to totally pay off out mortgage at the moment.

This will leave us with no savings left at all however. This does worry me a bit, the vulnerability of it. But we earn around £3500 between us after tax, so without a mortgage to pay, it is possible to build up the savings again I guess. We have no debts other than this mortgage.

Our house hasn't increased in value hardly at all since we bought it (new build, in an estate near the city centre), we do like the area though so will be living in it for awhile yet I think, especially as DC1 has started schooling nearby.
So the house is not really a solid investement or a money maker for the future.
But if we keep paying a mortgage (and I'm not sure what we can invest our savings in as rates are low at the moment anyway) we will keep paying interest on the mortgage and that would be more than any possible decrease in the property value anyway won't it?
If the property was in a more sought after area then I wouldn't be hesitating to plough these savings in out house, but as it is I'm not so sure. But is it still our best bet?
We will most likely move in a few years for secondary schools as although the primary schools around here are good, the secondaries aren't. So we are looking at another 6 or so years in this house, DC1 is 5.

Any thoughts much appreciated!

Does the money allow you to keep a savings pot (for emergencies, say in the event of a redundancy) of about 6months earnings? I'd keep that or something similar and pay the rest off the mortgage.

storynanny Thu 02-Jan-14 13:14:15

Being mortgage free transformed my life for the better.
I was however, advised to keep a nominal amount (in my case £1 !!) in the account to keep it "active" so that if in future I wanted to take out another mortgage or loan to improve the house I wouldn't have to go through the application process again. if you plan to stay in your house for a long time that might be worth considering.

CogitoErgoSometimes Thu 02-Jan-14 14:12:34

If you're thinking of moving in the near future for better schools, why wait another six years? How about using the equity in your existing home plus the gifts as downpayment on something bigger in a better location? Prices always rise in sought-after areas even when they are static in the unpopular areas. You might get a bargain today whereas, in six years' time, the gap might be too big to bridge.

HermioneWeasley Thu 02-Jan-14 18:15:47

Cogito speaks sense about moving when house prices are low, if you are intending to move in the future

Like StoryNanny said, being mortgage free is incredibly liberating. Knowing that I could walk out of my job any time and we'd keep a roof over our heads has made me much bolder (and therefore better at my job!)

I thoroughly recommend it!

specialsubject Thu 02-Jan-14 18:54:23

leave yourself with six months of living expenses and pay off the rest. Savers are dirt at the moment and it will continue for at least another year, so it makes sense.

Financeprincess Sat 04-Jan-14 00:38:58

I'd keep a bit back for emergencies but use the rest to pay down the mortgage. It's smart to reduce debt before interest rates rise. Plus, as others have pointed out, being mortgage free is so liberating!

We have an offset mortgage, and we offset the same amount as we owe. We could pay off the mortgage, but we choose to keep the reservoir of cash available in case we need to move for our careers and can't sell our current house as soon as we'd like. We still pay the mortgage every month, which is all capital since we don't pay interest, and we invest any excess over the mortgage debt in equities or our pensions.

Might be worth considering in your circumstances?

CogitoErgoSometimes Sat 04-Jan-14 08:10:11

House prices rose 8% in 2013 it was reported yesterday. If yours is stagnating it means that nice one near the good school is going up rapidly.

MoreBeta Sat 04-Jan-14 08:29:11

the standard advice is to pay off any other debts like credit card bills, store cards, car loans and other kinds of bank debt first. Then your mortgage. Then put 6 months of after tax salary into National Savings just in case you lose your job and you are set up and secure to make other financial plans like pensions.

Orangeychoc Sat 04-Jan-14 09:01:36

Isn't the current (or future) value of the house a bit irrelevant to this decision. You owe the vale of the mortgage you took out, regardless of what the house is worth. So if you're paying interest on that sum greater than you would earn with your cash in savings then it makes sense to pay it off.

Obvious caveats are yes to keeping six months livings expenses back and possibly more if you expect finances to be uncertain.

Orangeychoc Sat 04-Jan-14 09:01:57

Vale = value

CogitoErgoSometimes Sat 04-Jan-14 09:54:26

The future value is relevant as they are planning to move in the next five years. Tying up all their cash in a property that is stagnating in value while the places near the good schools are getting more expensive by 8% per year isn't making the money work particularly well.

storynanny Sat 04-Jan-14 10:21:44

I should add I have no children living at home any more and not sure I would have used up all my money on the mortgage if I had had the opportunity when they were younger. Like the others I would def keep 6 months cash out of the mortgage pay off.

Leighites Tue 07-Jan-14 17:15:36

I too think that if you can sell your house and use the extra capital to upgrade area and or house then this is a good time to do so. Yes it is lovely being mortgage free but I feel only when you have the house that you really like and wish to remain in for many years, in an area you equally like too.

Agree with all the above - pay off other debts first, keep 6 months wages available for emergencies, look at bringing forward your house move. I'm presuming you have more than 50% equity in your place already. But the landscape for getting a mortgage is very different now & still changing. I would investigate carefully what you can borrow & what deposit etc is required when you move, on the basis you will move in the next 6 months. You might not see your dream home immediately, but you'll want flexibilibity when you do. The last thing you want to discover is that you'll need a 25% deposit -when it is all tied up in equity in your house.

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