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Original poster

Pay Off Mortgage or Invest

14 replies

Jacaqueen · 22/02/2011 23:31

We have 25k left on our mortgage and around 28k in savings. Mortgage has 5 years left and we are on a SVR of 3.5%. At the moment savings are earning diddly squat. There would be no fees to pay if we paid mortgage off.

As I see it we could:

Pay off mortgage

Get offset mortgage

Invest money

Pay off some and invest the balance.

Any opinions?

OP posts:

eviscerateyourmemory · 22/02/2011 23:34

In your position I would just pay of the mortgage. You will then have 3K left over to save, and will no longer me making mortgage oayments, so could save the money that you would have used for that.

Chil1234 · 23/02/2011 07:19

I agree. Savings rates are nothing like 3.5% at the moment and, whilst they may improve in the next five years, the SVR would also go up if they did. If you pay off the balance now you will be able to invest/save the remaining £3k and you will also have about £450/month 'spare' cash that you can invest or save instead of paying towards the mortgage

Only caveat I would add is to make sure you still have a 'rainy day' fund of 3 - 6 months outgoings at the end of the exercise, or build it up as quickly as you can afterwards.

INeedALieIn · 23/02/2011 07:38

Stay as you are.

Very few lenders would offer a new mortgage of £25k over such a short term, it moves into personal loan territory. Also new mortgages can incur high set up fees which could wipe out any gain.

But most of all £25k is a nice cushion to have just in case.
5 years passes quickly and presumably you will still have your savings.

On a depressing note, there is little incentive to pay off a mortgage, banks are reluctant to reposess a house in negative equity as there is no gain for themselves, in contrast they far more likely to reposess a property with high equity as the debt can easily be cleared at auction.

BinJeeta · 23/02/2011 07:39

pay off the mortgage. interest rates could rise. get rid of it whilst you can.

Original poster

Jacaqueen · 23/02/2011 09:41

Thankyou for the responses

I didn't think it would be worth while going for an offset mortgage as the costs involved wouldn't be worth it considering it is a relatively short term and low amount.

I must admit I quite like the idea of being mortgage free. But I think I would worry about having so little in savings. Mind you if we did pay off the mortgage we would certainly concentrate our efforts to get our savings back up to a more comfortable level as quickly as possible.

My initial reaction was as INeedALieIn suggested. I wasn't sure if this was just me being lazy though. I think I will set aside the £25K and continue to add to our savings. If the mortgage rate increases then we can pay it off. The good thing is that at this stage most of the monthly repayment goes to reduce the capital amount anyway.

OP posts:

Chil1234 · 23/02/2011 11:10

Even if you paid £10k or £5k of the capital you'd still save yourself a huge amount in interest payments and you'd still have a significant sum in the bank.

nymphadora · 23/02/2011 11:27

Pay half or the morgage? Then chunk left can be used as redundancy etc protection. We can live on £2k a month incl morgage so should last you a couple of months. You Could carry on same morgage payments to pay it off quicker or reduce them to add to savings etc

nickelbabe · 23/02/2011 11:28

I personally would pay off the mortgage.
then at least, if you hit hard times, you don't need to wrry about keeping the roof over your head.
open an Isa with the remaining £3k, as the interest is usually better.

nickelbabe · 23/02/2011 11:30

(plus, when you've paid off your mortage, the money that you would pay on repayments can be saved - you're spending more money on mortgage interest than you can get in savings interest, so you're financially better off not having the debt)

if your mortgage repayments are £300 a month, then you're already £300 a month better off by putting it in savings instead.

chinax · 24/02/2011 14:38

This reply has been deleted

Message withdrawn at poster's request.

Original poster

Jacaqueen · 24/02/2011 15:45

Thanyou for all of the further advice.

We have decided to reduce the mortgage by £15k. This will leave us with around 12k in savings and a tiny mortgage of just over 9k. I just feel more comfortable having a substantial amount of liquid assets.

Our monthly payments will reduce to around £170 per month. I think we are going to put the £300 we shall save into an investement ISA and look to payoff the mortgage as quickly as possible.

OP posts:

Chil1234 · 24/02/2011 15:51

If you want to pay off the mortgage as quickly as possible you could keep the payments at their current level (which you can afford) and you'd probably be mortgage-free inside two years... ISAs don't pay 3.5%

Original poster

Jacaqueen · 24/02/2011 16:38

Good point Chil!

OP posts:

Deux · 24/02/2011 16:49

Pay off the mortgage because it is a debt. Don't see why you wouldn't really. Seems madness when the interest on savings is virtually nil.

If you can invest your 28k and earn more than you are paying to service your debt, great. But otherwise it's pointless. Why pay all that interest when you don't have to? You'd be losing money. Madness.

Are you willing to take a risk with some of your 28k?

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