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'd pay it off. I had money to pay off my mortgage once and thought I was being clever investing it instead to get a higher return. The company went bust. Still have a mortgage and always regret it!

@OohRahhMaki123

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.

That wouldn't be my choice. I would never secure a car by risking my house. Mortgage borrowing is secured on the house, hence why it is often (not always) a cheap form of borrowing compared to unsecured lending. PCPs now exist for brand new cars anyway. At least there the car is the security for the lender.

We got rid of our can't afford to breathe in and out mortgage about three years ago, we then promptly remortgaged for another £40,000 to do the kitchen and the bathroom. We have chunked away hugely at it and we had £1,700 left on it.

We are with First Direct, I can't remember the interest rate but it is negligible, however the repayment fees if repaid before next April are just north of £600 on it. Based on this thread I have raided the savings and we now owe the princely sum of .........£119.61

So now we still owe until next April £2 a month.

I will now take what we were repaying top it up and buy more premium bonds every month.

I was made redundant at the end of furlough, but had planned to go back and ask to go eight hours and if they said no then no big deal. They beat me to it.

Dh retires in four months and all other financial ducks are in row. It is a good feeling.

So thank you for starting this thread.

I kept meaning to do it, now it is done.

Run the numbers on the interest and work out if there is a better option for your money. Let the numbers speak for themselves, they'll give you the best rational option.

We read an article many years ago which showed how much the average mortgage cost over 25 years- that is how much you actually end up paying. We were horrified and started to overpay and paid off early - great feeling to know you own the home.

However given interest rates are historically low I would only pay off if you have other savings

I agree it's a mortgage to savings ratio.

I have enough money to pay off the mortgage but savings give me a huge security.
So savings also have an emotional advantage, knowing we can buffer a job loss, help an adult child with housing, fix a leaking roof, buy a new car if the old one packs in.

For me the emotional security of savings is greater than the emotional security of paying off the mortgage.

Our mortgage is not huge, but not sure we will need to pay it off.
As our family shrinks and little ones fly we have no need for a 5 bedroom house.
If just OH and I would could sell, move to a smaller place, and still have enough equity to buy cash.

[quote Nothappyatwork]@Alondra that’s not actually true in every case either every time I log onto my app pop-up comes up offering to allow me to drawdown against the equity on my mortgage I can borrow up to 10 grand no questions asked.[/quote]
And I'm not surprised. At the moment different banks are offering diverse ways to borrow against equity and it may depend on how much you want to borrow. If you want to borrow 10 grand you don't need an application, if you want to borrow 50 grand, you do.

The OP is in a great position, her loan is almost fully repaid and it really depends what she wants to do in the future if he wants to borrow money.

As many people have said, there is an extraordinary sense of freedom when the loan is fully repaid and you get the title on your hands. On the other hand, this is not always the best course of action when intererst rates are as low as there are now.

It truly depends what the OP is going to do later on. It IS a very PERSONAL financial decision.

It's pros and cons and they're not all simple weighing of financial factors such as borrowing rates versus savings interest rates.

There's also the freedom of not being encumbered - administratively, as well as mentally and emotionally. If you pay off your mortgage, you don't have to comply with mortgage company requirements such as for instance about house insurance or maintenance. You don't have to notify them or change your mortgage to a different type and interest rate if you want to rent out your house.

Your deeds are clear of any registered interest in the property. If you want to sell, it is one less administrative thing and one less organisation to be dealt with in the tiresome conveyancing process.

And wishing you all good health and a long life, nevertheless when the time comes, for an executor there is one less thing to handle, with no notification or form filling with mortgage company, no mortgage payments having to be made while awaiting probate or applying for alternative arrangements for deferral or later payment.

All the time interest rates are so low I think it would work harder for you in your pension fund

I did. And really feel great being mortgage free.

Those saying it's the cheapest loan you'll get - it isn't necessarily. You could use a credit card then transfer the balance to a card with a 0% interest rate.

The other thing I'd factor in is given the length of the term still remaining, how much would you actually be paying back in total over the next 18 years? Although interest rates are low (not that it appears that situation will continue), owing that £13k over a long repayment period will cost you more than £13k in repayments.

Given that interest rates are only heading in one way, I think I'd either pay it off, or increase overpayments to pay it off really quickly if you'd like to keep the £13k. As another person who paid off their mortgage early through sad circumstances ( to anyone else in that situation), it is comforting to know that a bank doesn't own a chunk of your house any more

I'm mid 40s and about to take on a 25 year mortgage, if you ever miss paying your mortgage OP I will graciously let you have a turn at paying mine. Offer available to all MNers who have paid off their mortgage but would like a trip down memory lane

I could have paid mine off years before its termination date. I didn’t because the money was making more money elsewhere than the interest on the mortgage was costing me.

If the balance had tipped the other way and the trend looked long term, I would have paid it off sooner.

As many people have said, there is an extraordinary sense of freedom when the loan is fully repaid and you get the title on your hands.

I feel a bit cheated because I never got that when it was paid off in full.

I know people might not agree but £20K in savings if you paid it off is not much.

Ideally, you should have 6 months' gross salary saved in case someone loses their job.

I don't agree with the 'relief' at paying off a mortgage early. We didn't finish paying ours till late 50s, even by overpaying each month for along tiem, as we moved and increased the mortgage a lot in our early 40s. The mortgage was something we always factored into our budget so paying it off meant we had more disposable income but it never bothered me, emotionally, one way or the other.

I'd put 6 months living expenses in savings or even some premium bonds first, then pay it off.

I was about to pay off my mortgage about 5 years ago but the building society wanted to charge me £300 early redemption fee and something like £250 to get the deeds out of the safe and return them to me. So I paid it down as low as I could without either of these kicking in. I now pay 21 pence per month. It makes me laugh every time I see it on the bank statement. I still get all the standard letters about how much I've paid in the year etc and informing me of interest rate changes so it costs them far more in postage and admin than they get in interest.

you say you have the 13K+20K in savings. You mean easily accessible, in cash, and you also have other savings and investments? If not, I would prioritise investments. My mortgage rate is so ridiculously low that paying it off instead of investing would make no sense.

Yes, Moira, it is daunting and not unusual. Now you can even apply for a mortgage in retirement. Or take out a mortgage that goes up to the age of 80 or in some cases above.

I found it incredibly freeing and confidence boosting. Having it paid off meant I could concentrate on savings which led to being able to take the leap to a different job knowing I had some financial security - not found a job I've wanted to stay in for too long yet but enjoying trying different things.
When I was paying it off I'd pay a lump sum every so often which took the monthly payments down. That was quite exciting, seeing it drop. In your case I'd pay half of it off and put the rest in pensions.

We’ve paid ours off. Best feeling, even though it doesn’t really change anything as we are still saving for the future (or a nice somewhere bigger/more expensive) just in different ways to paying off a mortgage.

@Obelisk

How's your pension looking? Worth considering whether you'd be better off putting £13k into that and getting the tax relief. But I definitely get the emotional pull of being mortgage free!

This. Presumably you pay the same whether you pay the mortgage off early or pay until the last instalment?

It's the difference between what you can get as interest on £13K and the interest you are paying on the mortgage.

We could have paid off our mortgage easily, years ahead of it being paid (we elected to overpay each month.)

But the rates we were getting on savings were higher than the mortgage interest rate, is there was no point paying it off.

Look at the comparison between the two.

I have just called FD back and said ok lets fast forward to September when we are living on a FSP with a contributory pot, would we able to borrow, the answer was a resounding yes.

We paid ours off when we were 42 - since then we save at least the equivalent amount each month so we can afford other things. We've never regretted it and we know the money we are saving is going towards something that will make our lives better. Plus, we know that our home is ours, no matter what!