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Original poster

Advice on paying off mortgage early please

35 replies

stirling · 21/07/2019 22:58

Hi,
I'm a single mum and have been struggling with finances since my ex and I divorced on a clean break. It's not impossible for me to cover costs but becoming harder as my health has been quite bad in the past couple of years.

My dad, whose cancer is spreading has given me money that would pay off the Mortgage should I wish to. Its not a huge mortgage but a burden nonetheless. I've cried buckets this weekend over his loving gesture.

To get to the point, should I pay it all off or leave a tiny amount on tbsre
I can't remember what the reason was for not paying the whole lot off, something to do with credit scoring? Any other valid reason? I'd quite like to get rid of it so that i only pay bills, food, stuff for kids etc. Will help me enormously until I'm ready to return for work, if I ever do - the hospital is suggesting a serious op for me.

Any advice appreciated
Thank you

OP posts:
HollowTalk · 21/07/2019 23:04

What a lovely father you have. I would pay the whole lot off and be grateful every day.

Flowers
LadyGAgain · 21/07/2019 23:12

I'm so sorry that you're dealing with the near-end-of-life with your lovely dad. I hope you're as ok as you can be.
What a lovely legacy he is leaving. Of your mortgage payments per month are low, it might make sense to keep a teeny mortgage by using some of your dads money but not all.
He has given you the gift of choice. It's fine to take some time to work out the best for you and your own.
I hope you have some positive time with your dad in his final days/months. ThanksThanks

Original poster
stirling · 21/07/2019 23:22

Thank you so much for your responses. He's been my rock throughout my life.

OP posts:
78percentLindt · 21/07/2019 23:23

It used to be that leaving a small amount on the mortgage meant that the lender kept the deeds for you. However changed at land registry mean that this is no longer necessay.
Also, you could borrow more money without reapplying if there was still an outstanding balance. But that may not stìll be the case.
Person I would pay it off and have the security. It is a fantastic gift from your dad.

HollowTalk · 21/07/2019 23:24

You were very lucky to have him as a father and I'm so sorry he's not well.

As far as the mortgage is concerned, I would pay it off. Someone else might be able to let you know about taking out a credit card and paying it off in full each month - that should bump up your credit scoring as far as I'm aware.

namechanged2000 · 21/07/2019 23:25

The only reason we haven't paid off the rest of ours is because the bank would charge us £1000 for paying it back early.

namechanged2000 · 21/07/2019 23:25

That's a lovely thing for your dad to give you. Sorry to hear he's poorly.

HeddaGarbled · 21/07/2019 23:37

Mortgage interest rates are fairly low at the moment so it may not be the most beneficial financial strategy.

If you have any other debts with higher interest rates e.g. credit cards, bank overdraft, car loan etc, you should pay these off first.

You should keep enough money in an instantly accessible account for emergencies (losing job, car breaking down, boiler packing up etc).

Check whether there are any charges for paying the mortgage off early.

It is possible to pay it off in chunks, if you are nervous about throwing all the money at it in one go.

Hecateh · 21/07/2019 23:37

as @78percentLindt said, it used to be advised to keep a small amount owing as it was secure storage of your deeds this is now all held digitally so that need is no longer valid. Pay it off - i feels great to know that it is yours and no one can touch it.

romeoonthebalcony · 21/07/2019 23:42

you are more at risk though of the growing problem of property fraud if you have no mortgage so follow the instructions here if you have no mortgage
www.gov.uk/protect-land-property-from-fraud

useful link
www.moneyadviceservice.org.uk/en/articles/should-you-pay-off-your-mortgage-early

BarbaraofSeville · 22/07/2019 07:08

Sorry about your DF Flowers.

Couple of things to consider - are there any penalties to pay off your mortgage? If so, you should put the money in savings accounts and pay off as you can without penalties.

Also check the interest rate, it's not necessarily higher than you can get in savings - you might get more interest by saving the money and you can use it later to pay off your mortgage.

It's good to have some credit products so you are demonstrating that you can pay back on time. Sometimes having no debt is detrimental to your credit score, but mortgages, current accounts, mobile phone contracts and credit cards all count. If you have a credit card that you pay off in full every month, it doesn't cost anything - just put a few small purchases on each month and set up a DD to pay it off fully each month.

But it's also good to have an emergency fund, so you might want to think about keeping some back in case you can't work - pay the bills during recovery from the surgery that you mention for example. Also to replace white goods when the time comes, or repairs or improvements on your property - all good use of money, especially when the interest on your mortgage might not be costing you that much.

Finally, I'd also think about using some of the money to treat your DCs - I'm sure your DF would like it if you took them on a nice holiday for example or bought them something such as good quality bikes, that you couldn't normally afford?

78percentLindt · 22/07/2019 07:17

Are there likely to be any inheritance tax implications for him giving you the money now? It depends on the value of his estate and when he dies. Sorry to raise this but you may need to be aware.
Just to reinforce what others have said- check there is no penalty for paying off the mortgage early, if there is, pay the maximum that you can without penalty annually. Some used to have a maximum annual sum ( 6K i seem to recall with ours) or sometimes it is a percentage of the balance or original mortgage.
If you have high interest debt, pay that off first.
Also follow Romeo'swise advice regarding about registering for Land Registry alerts. I would also be circumspect about who knows that you have paid the mortgage off.
Enjoy the remaining time with your kind and generous dad.

LIZS · 22/07/2019 07:33

You need to check if there are any penalties to repaying early. There may be an annual limit, so pay down the maximum and wait until the next opportunity to do so. Agree you need to check for any future iht liability. There are some annual amounts and specific gifts exempt from this.

Original poster
stirling · 22/07/2019 13:25

Thanks everyone. I've already called my tax accountant to check re inheritance tax, apparently it's OK because it's a smaller amount.
Yes I will be penalised for paying it early but it works out to much less than the tax I'll be paying for the next 16 years, even if I pay the allowed annual lumpsums.

I'm worried about the property fraud situation so I'm going to check that link now :(

Thank you again everyone

OP posts:
BarbaraofSeville · 22/07/2019 13:36

What tax would you be paying over the next 16 years if you didn't pay off the mortgage?

SophyStantonLacy · 22/07/2019 13:40

My guess is that OP means interest not tax.

My dad gave us money to pay off the mortgage. We were told it was more financially savvy to use it as a deposit on another property instead as a BTL. However I believe BTL are becoming less financially secure with changes to how the market is regulated so that may no longer be the best advice. We didn’t do it anyway as my dad really wanted us to clear the mortgage, so we did that.

Original poster
stirling · 22/07/2019 13:48

Yes sorry I meant interest not tax!
I have just registered with hm land registry for alerts re property fraud, really appreciate the heads up romeoonthebalcony

OP posts:
fruitbrewhaha · 22/07/2019 13:56

WRT penalty - You should be on a fixed rate for a certain period of time, so if you agreed to a rate for 3 years and have 2 years left, payoff the mortgage at the end of it's term without penalty.

BarbaraofSeville · 22/07/2019 14:00

Don't forget that if you put the money in a savings account, it will also earn interest, and it could be as much, if not more than what your mortgage costs. I get more interest by just leaving my money in my current account than what my mortgage costs.

Penalties for paying off early can be thousands of pounds. Moneysavingexpert has a calculator that works out what is best to do.

www.moneysavingexpert.com/mortgages/mortgages-vs-savings/

ListeningQuietly · 22/07/2019 15:17

Not many savings accounts offer more than a mortgage costs

romeoonthebalcony · 22/07/2019 15:26

BTL is a high risk investment and not one to go into if you can't afford losses. Certainly sounds totally inappropriate for the OP's situation.

Also very hard to find an instant access account that pays more than mortgage rate these days.
It sounds a very stressful time for you. Paying off the mortgage could help a lot with relieving you of some worry it sounds like.

Original poster
stirling · 22/07/2019 22:37

Thanks again, good points to mull over...

OP posts:
missbattenburg · 23/07/2019 09:40

In a situation where you cannot risk losing money and where slight changes in your fortune could make a big difference to your life (for good and bad) I would absolutely prioritise getting the house 100% paid.

Then you have a fully secure home - which to me would be the most important thing and wonderful gift from your father. It might also mean more to him to know he has been able to secure that for you (vs secure most of it but still have a small mortgage).

MissConductUS · 23/07/2019 09:47

Pay it off in full and invest your old mortgage payment in a low cost index fund with risk suitable for your situation. Vanguard is brilliant for this.

We paid our small mortgage off recently with a windfall like this and it's a wonderful feeling to be mortgage free and have the extra money to invest.

stucknoue · 23/07/2019 09:53

Pay it off, thank your dad - your father will be able to pass away knowing you are ok and you can concentrate on rebuilding your life. It's a hard gift to take but he wants to know you are provided for, this is his way. Hugs