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Original poster

Clear the mortgage but no savings?

25 replies

Badgershy · 25/04/2021 19:52

Our mortgage is £10k, we're saving in the hope of finishing it in January 2022 however it will leave us with no savings. Should we clear it completely or leave save a bit longer and have a couple of grand in the bank? The mortgage payment is £600 per month so we'll be able to save that if we do get it cleared.

OP posts:
Original poster
Badgershy · 25/04/2021 19:53

I should probably add that we're both in secure jobs and no debit.

OP posts:
billybagpuss · 25/04/2021 19:55

Where are your savings, we have ours in an ambitious stocks and shares ISA and are making more on the savings than the interest on the mortgage.

Having said that if it is more cost effective to clear the mortgage I’d wait a few months so you still have a rainy day fund, don’t clear yourself out.

AaronStampler · 25/04/2021 19:57

There's no hurry to pay it off, assuming you're paying a reasonable interest rate. Having some money in the bank (or in other savings) is much more flexible.

purplecorkheart · 25/04/2021 19:57

I am risk adverse so I would like to have some savings in case a few things went wrong in a short space of time. For example the car needed a spare part, someone needed an root canal and the washing machine broke down in the space of a couple of weeks. However as I said I am a risk adverse type of person and avoids using short term credit if possible.

Runway · 25/04/2021 20:01

A mortgage had a tiny interest rate, it’s the cheapest borrowing you’ll ever have. You need 6 months salary in savings. Just because you have a job now that could change tomorrow.

Babymamamama · 25/04/2021 20:05

Watching as I am in the same position with similar numbers. Years ago I heard that you should leave a bit of debt on the mortgage and pay it off super slowly as it made remortgaging if you needed to borrow more much easier. I don’t know if there’s any truth / logic in that approach.

Calmdown14 · 25/04/2021 20:33

Is there a reason for that date i.e a fixed term deal ending? If so, I think I'd just pay it off. You will soon build up savings on the mortgage payments alone and as you said you are saving now, presumably there will be other money available when reach your goal?
Presumably you have no other debt to service? How are your other outgoings? Could you survive on one wage without a mortgage if worst came to worst?

BarbaraofSeville · 25/04/2021 21:21

If you have a reasonable amount of spare money each month and have no plans to make any big purchases like a new car, you can probably absorb big car repair or new appliance type expenses by paying for them on a credit card and paying the bill off in full at the end of the month, so that reduces your worry about that sort of cost.

But if the interest rate is really low, there's really no rush to pay it off, even if it feels like the best thing to do.

Keeping your mortgage running means that you have some flexibility at little cost.

Coolhand2 · 26/04/2021 05:16

I would have a few grand in an emergency fund and then pay off the house. A lot of things can happen unexpectedly and you don't have to create more debt.

OverTheRainbow88 · 26/04/2021 05:41

I would clear it and then save your £600 a month which would usually be spent on the mortgage. After a few months that’s a good amount of savings

Orchidflower1 · 26/04/2021 06:06

I’d clear it then save.

Frenchfancy · 26/04/2021 06:10

Clear it. Being mortgage free is a wonderful thing. You can build up your savings after.

savvy7 · 26/04/2021 07:15

Build up a contingency fund of savings, then clear the mortgage.

And until you have a healthy contingency fund, don't go near stocks and shares :)

murbblurb · 26/04/2021 09:39

Boiler goes bang or car written off in January. What will you do then?

Bells3032 · 26/04/2021 09:42

I'd want at least a couple of K in the bank for emergencies. even if that means taking a few more months to pay off my mortgage

HaveANiceFuckingDay · 26/04/2021 09:44

If you clear your mortgage that frees up£600 a month , you’d have decent savings after a few months

rarat · 26/04/2021 09:45

I wouldn't, I would build up savings.

kickergoes · 26/04/2021 09:49

Whilst interest rates are so low I wouldn't necessarily rush to pay it off, not if it means having no savings at all. When my mum was in this position she worked out how much she was paying in interest and it was pittance, so decided to keep a very small mortgage over a couple years (so small she can still easily save) in order to preserve some savings (she paid the bulk of it off).

Original poster
Badgershy · 26/04/2021 11:14

Thanks for all the replies. Sorry I couldn't log on again yesterday.

I think we'll let it run until March 2022 that will leave us with £2k in savings and then we can clear it and start saving the mortgage payment.

OP posts:
maxelly · 26/04/2021 11:33

MN is obsessed with paying off your mortgage but TBH your interest rate and repayments on a teeny tiny mortgage must be so low I wouldn't be rushing to repay it. It should always be a savings priority to have ~6 months expenses in reasonably accessible cash (by expenses I mean essential bills inc mortgage repayment, food costs etc), not just in case of an appliance failure or big car bill but also job loss, illness or injury etc. As your mortgage payments will be low this may not be that high a figure but it would be really silly if you ended up having to put any 'emergency' payments on an expensive credit card or similar and paying lots of interest for the sake of having saved yourself pennies on paying off the mortgage. Once you have your emergency fund in place you could look at paying off the mortgage although personally I would probably keep it as a super cheap loan, and make your money work for you in other ways, max out pensions funds if you haven't done so already, and potentially invest in some slightly higher risk/reward areas (a managed stocks and shares fund for instance) - you shouldn't need a particularly high risk investment to easily outstrip the interest costs on the mortgage with what you earn on the equivalent investment...

Runway · 26/04/2021 13:10

£2k in savings isn’t enough if you’re both made redundant! You need 6 months salary at least

FinallyFluid · 26/04/2021 13:19

Six months money behind you before you worry about a small mortgage like that, it is lovely being mortgage free, but you need savings.

helpmemakeit · 26/04/2021 13:24

Don't think of it as savings. Have a look at how
You can invest that money and whether it will make more for you. Mortgage interest should be low.

ShakeaHettyFeather · 26/04/2021 13:39

I'd prioritise 6 months salary as savings, and only then worry about the mortgage, especially if you still have dependent kids.

A couple years ago I took redundancy partly on grounds.of ill health, thinking DP had the most secure job ever. Then he was made redundant. Then the car was written off and we needed a new boiler. We got through it, just, but glad we'd kept money and not overpaid the mortgage as much as we could.

Cocomarine · 26/04/2021 14:17

If one of you is a higher rate tax payer, £10K in a private pension is £15K. Even basic rate tax payer you get £2.5K, overnight, for doing nothing.

If you’ve already maxed your annual allowance, fair enough!

But I’d contribute to pension before over paying a mortgage any day, on my personal circumstances.

I also wouldn’t pay it off leaving zero easy access savings.

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