To pay off £13k mortgage?

[shookitoff]

We’re both mid 40s, have overpaid mortgage for years through increases in salary and saving. It has £13k left so payments are about £80 per month. This is obviously really affordable but on an emotional level I’m drawn to the idea of paying it off in full and being mortgage free.

Any advice? Has anyone fully paid their mortgage off and do you feel it’s worth it compared to having a small mortgage?

Thanks

I wouldn't - I would prefer to just increase my monthly payment to cover that £80 and keep the £13k liquid.

And I say that as someone who (through very sad circumstances) has no mortgage, so I do understand the relief of owning a house outright! But £13k is a fair chunk of change and I'd rather have it available.

Because interest rates are so low compared to a bank loan, we kept the last £5k on for a couple of years, until we had enough savings to know that we wouldn't need it in the future. So unless you have other assets I would keep it running.

Sorry about the circumstances you mention @amusedbush. We do have other money available for unexpected car issues/ boiler going etc with the other £20k in savings, which we never touch. The £13k is separate to that.

I paid mine off 19 months ago, 10 years early.
I am glad I did it. I overpaid every month. It was a great feeling when the deeds came in the post!
Some people said u was daft oaying it off and I should have kept it on but having gone through some rocky years in the past financially and not knowing what tbe future holds I dont regret it.

I would. I did, years ago. The mortgage interest was always more than the savings rate, and I have a workplace pension.

DH and I are in a similar position (but late forties) and are thinking the same, the pull to do this is quite strong after 20 years of mortgage payments. However, in my head there is the thought that by keeping a small mortgage you have an option open for borrowing should an unplanned and expensive cost present itself. Historically it's been easier (and cheaper) to borrow via an increase in your mortgage than to use a standard loan or credit card. For me I'm not sure I want to close off that avenue quite yet especially as I'm not sure we haven't got another house move left in us. Options for borrowing, should you need to, reduce one you get into your fifties so on balance we are keeping our mortgage for the time being. It also very much depends what level savings and pension pot you have.

I have always heard "never pay your mortgage off it's the cheapest loan you will ever get" but with your other 20k saving I would be very very tempted. Do you have over 13 years left to pay off that £13k? I think in the current market I would pay it off. Interest on savings is low, inflation is high. Your cash sitting in a bank is probably loosing value.

Interest rates have been low, but will they continue to be? How much interest is having access to the money worth to you?
Those are the questions you need to answer.

Surely you keep a minimal amount on the mortgage in case you need any low cost borrowing?

I thought it was pretty standard practice, so you can borrow against it for works to the house, if you need to replace a car etc. No other way you'd be able to borrow £££ for 2.5% or whatever.

Is it worth thinking about the impact on your credit score if you no longer have a mortgage? I only ask because mine is about 400 points lower than DH, there are other factors contributing but have been told by our financial advisor that a large chunk of it is because I don't have any 'big-ticket' items like a mortgage to prove that I can manage credit responsibly.

My parents were shocked to be refused finance to replace their windows after they repaid their mortgage too. They ended up on a loan for people with dodgy credit history, even though they'd never had a negative report in their life. Mum said that in hindsight she'd have kept £10k on the mortgage, instead of paying off all of it.

Just another perspective

I would pay it off because interest rates are likely to go up but then I'm old enough to remember the horrors of 15% mortgages. We paid ours off early and then my husband had a life changing accident which reduced his earning capacity. I was so glad that the house was fully ours and our outgoings did not include a mortgage. Hopefully that won't happen to you but you never know what's around the corner.

If you don’t want to pay it one huge chunk, thé you can easily increase the amount you are paying back to a ‘normal’ mortgage payment, and pay it off over the next one or two years.

The only reason not to is in case you need to borrow any more money. The mortgage is the cheapest loan you’ll get.

@shookitoff

We’re both mid 40s, have overpaid mortgage for years through increases in salary and saving. It has £13k left so payments are about £80 per month. This is obviously really affordable but on an emotional level I’m drawn to the idea of paying it off in full and being mortgage free.

Any advice? Has anyone fully paid their mortgage off and do you feel it’s worth it compared to having a small mortgage?

Thanks

I've paid off my mortage twice but did it with high interest rates because the saving was substantial. In your case and right now, I wouldn't.

Interest rates are very low and if you want to do renovations/extentions to your house, it easy to get a loan on your house with a small interest instead of paying off the mortage and having to ask for a personal loan to do that.

On the other hand, if you are done with home renovations you may as well pay it and be done with it.

Thanks for all these perspectives. The only thing I can think of us doing to this house is redoing the kitchen but we would likely save for that rather than borrow. The mortgage would have 18.5 years left on it. Through a complicated set of circumstances our earnings majorly increased a few years back and instead of lifestyle inflation we threw huge amounts at the mortgage each month.

Psychologically it’s great.

I’d be more inclined to increase payment though, to, say £500pm than to transfer my savings.

And ONLY if pension contributions were at max because of the tax relief available on those.

To be honest, assuming the 80 a month is affordable to you, I’d probably keep paying that (maybe increase it to 200 though to pay it off quicker, depending on monthly income) and then invest that 13k into pensions for the tax relief or something that makes more interest than your mortgage for now and review in 2 years.

However I totally see the attraction of being mortgage free and if you do go ahead and pay it off, then I’d say immediately set up a standing order into a pension or investment of the amount you’re saving.

I would invest 13k instead. Have you looked at stock and shares ISA?

NO don't pay it off, leave the mortgage running with the small monthly payments this will allow you to easily remortgage or raise a new one if you perhaps want to raise capital or want to extend.
If you have the 13k to pay off then invest this in a stocks and shares ISA (tax free) this should return a good investment rate (above you mortgage rate)
Keeping the money in your control also give you access to it should circumstances change. Paying off the mortgage is a good idea if interest rates are high but otherwise it is relatively cheap credit so you can make your money work harder elsewhere.

We were in a smiliar situation (also amount wise) and just overpaid each month a fair bit. That meant we still had our savings in case of an emergency. as the overpayments could be stopped at any time.

We managed to clear the mortgage in a year.

We then moved a chunk of the overpayment amounts into the pension as. we felt we. wouldn't miss money we paid the bank for several years.

We had an offset mortgage, so we overpaid until we got it to c10k, then put 10k in the linked savings account.
When DH had his most recent spell of illness, we paid it down to £60 (in total, not per month).
DH likes the idea of the borrowing facility if we ever need it, and also porting the mortgage to another property if we ever move.

IF you can find Cash ISAs that pay similar rates of interest, you could put some savings into those they're zero risk but I think interest rates will increase over the next year.

bugger, posted too soon

If you want to pay it off, and interest rates rise, it might be the right time for you.

I’m a little confused how you’re paying £80 a month. If you’ve been overpaying all the time, why aren’t you just keeping that overpayment up (at whatever level you can manage) so it naturally pays off quickly, but without touching your savings?

Are you building your savings quickly alongside by using what you would have previously put into the mortgage?

@JustHereWithMyPopcorn

The only reason not to is in case you need to borrow any more money. The mortgage is the cheapest loan you’ll get.

This. In less words than my post.

I'd pay it off over the coming 10 months or so by increasing the monthly payments, that way if anything happens in the foreseeable you can scale back again and not pay off the whole lot. All being well it will be cleared in a year. I would be worrying about interest rates going up in the not too distant, so yes I'd be inclined to want to be mortgage free.