To think it is best to pay off the mortgage early

[Orangeblossom78]

We have an endowment policy on the mortgage and it is due to mature at the end of next year. Just had the annual update and it is currently at a level to pay off the outstanding mortgage amount.

DH rang them to check and they told him if we wanted to clear it now there would be no extra charges to pay. We could be mortgage free next month.

I think this is a good plan however he says it is due to accrue around £15K possibly if we continue with it to the end of the plan.

AIBU? I think due to Brexit and uncertainty well, it may also go down and the projection is just that. If we paid it now we would already save over £6K in payments over the next year anyway, and would not have to pay any tax on any lump sum.

Yes it is, no we don't have other means to pay it off, and it is good to hear they seem to pay out OK. I guess the worry is around Brexit and general worry about the endowment as heard negative stuff about them in the past

That was in reply to MLM

How about take the endowment now but continue to pay the mortgage amount into a savings plan for the year and plan what you are going to do with that money.

Its all a bit chicken and egg - most of that increase will come from the payments you will make. the rest is the risk part. SO by paying amount into the savings account there is no risk of extra tax, you still get albeit a smaller lump sum and its risk free

Interesting about the life cover aspect. I thought the same. We have got health conditions since then and might not be so easy to get cover. DCs are older and have trust funds for uni etc.

Why wouldn't you want to be mortgage free? Take a gamble and could end up paying more back, or pay it off now and definitely save money.

Difficult choice there..

Getting rid of debt is always a good thing.

Not quite that simple when there are penalties to pay. This close to the maturity it is probably more profitable to let it run. The only way to know is to enquire what the payout would be now, vs. maturity time, then do the sums.

Regarding Brexit, the uncertainty is priced into the market already. Many endowments will have international assets that actualy rise in value (priced in pounds) when the pound tanks. Nobody knows what's going to happen pecisely of course, but the obvious risks are priced in already and you could actually expect an uptick if things go better than expected (and expectations are low).

It’s hars to know the real value of the gamble unless we know OP’s mortgage amount each month (sorry if this has already been said)

But if paying it off a year early means no mortgage payment for 12 months instead of paying 12 months but potentially getting maybe around £15k or less at the end, if the mortgage each month is £800 for example, that’s already £9600 saved by paying it off a year early, so why gamble the othe £5k or so?

Take proper advice on this for all the reasons mentioned.

“Paying off debt is always a good thing”

Not always.

We have a tracker mortgage which is base rate plus 0.25%. Taken out years ago. It is a mortgage of £150,000 on interest only.

The interest payments are £1500 per year.

We have the money to pay it off but we get 2% on that money - £3000.

Having a mortgage makes us £1500 a year.

It’s sometimes not as clear cut as you think. Taking advice on something like this is really important.

CFR8 but you're only paying off interest, not the mortgage itself. You'd have paid off more of it by now if you did a repayment one. Yeah you've made £1500 a year but that wouldn't cover more than a couple of payments for a year on a normal mortgage repayment usually.

And the money you wouldn’t have paid out in 12 months can go to better investments

I'd pay off the mortgage. Depending on your payments, you could maybe save almost 15k by next Dec, assuming your payments are around £1110 a month? I'd love to be mortgage free- well done to both of you!

It doesn’t work that way Clover.

I could have paid cash for the property on day one. I didn't want to as I could earn in interest virtually what I was paying and keep hold of the cash. Since then mortgage rates have hit rock bottom and the rate of return has been higher. It makes no sense to pay it off at all. Borrowing money at low rates in interest only has made many people extremely wealthy in the property market. Can’t do it as easily now.

The payments are around £550 a month.

Pay it off and pay into ISA

If it's £550 and months you would save £6600 in a year anyway. So the real "bonus" is reduced plus you need to check what the investment is, is a large chunk of cash secure or is it all invested in the last year?

@Everanewbie

Total agree with your comment.

Whilst I agree there maybe emotional pulls to collecting the cash and paying off the mortgage, I am pretty sure that most endowments are advised to go full term or they suffer penalties ( which may be shown or invisible).
That said I dont know what your policy is and taking a census on here would I assume just confuse matters.
Proper advice and consideration is what should be your course of action.

Yes i think we need to condor any tax implications of a lump sum and need to check that out- it seems it is exempt from tax from what I have been reading. As DH is self employed etc. Some people online seem to have had a problem if anything about their endowment has changed over the years- i know we have paid more in at times when it has been needed to keep it 'on track'

consider

Well it would be paid off by this time next year anyway so not much difference / time to wait. I guess if it was another 5 years or so that would be different. It would be so lovely to stop paying it now though one thing less to think about.

We have separate accounts and I contribute towards it also so that would help me in the next few months. But then possibly a bonus would be good for paying off a credit card too (it is on 0% so no interest there though)

It’s only subject to capital gains tax if you cash it in before 10 years have elapsed so you are fine from a tax perspective.