Any pitfalls to paying off mortgage ?

[fedup078]

I currently have enough money in savings to pay off the £70k I owe on the mortgage and have been hanging onto it due to redundancies where i work, they have finished the restructure and I'm safe for a while now
It's on a fixed rate of 1.8 and has a 2% early repayment fee until June when it drops to 1%
I should just pay it off now (or June) shouldn't I or is there anything I'm not thinking of?

Don't pay it off. Mortgage is the cheapest loan you'll get. Increase the monthly payment to reduce the balance faster and interest repayment. Then reduce the monthly payments nearer the end so that the mortgage runs full term. That way you can easily remortgage if circumstances change or you want to extend.
Invest your 70k in Stock/share ISA using your tax free allowance or increase pension contributions, both are highly tax efficient and should return 8-10%p/a.
Paying the mortgage off is just locking up equity with your money. Much better to invest your money and leave the "banks" money tied up in the house.

Use your 10% overpayment until your repayment fee expires

You can just call your lender & increase your monthly direct debit. Will still save you quite a bit of interest.

There is a mortgage overpayment calculator on Martin Lewis website which is good

@Spoldge45 does the early repayment fee expire if you don't fix a rate?

Yes it does. Once I'm out of my fixed term I can pay whatever I like extra for the rest of the length of the mortgage without fees.

When you tick over to 1 year, pay off the following year's maximum overpayment, assume 10pc, then clear it. Will reduce you repayment fee a little more.

Personally I would not be doing that. I would invest it in a safe share which is still low. Jan will probably see a further crash and hence a wonderful opportunity for shares which are safe yet undervalued.

What’s your pension like and how close are you to retirement?

The early repayment fee would be a factor for me
Plus whilst interest rates are low I'd be tempted to keep the money and continue to pay the mortgage, I'd wait until the fixed rate had ended and make a decision then
I've also heard you're more likely to have a better credit score and get further credit if you've got a mortgage

@GrumpyLivesInMyHouseNow that's a good point
I have wondered about the credit score aspect

If you'd like more disposable cash and want to keep a mortgage for your credit score, why not pay most of the mortgage off, keep your term the same but lower your monthly payment. Or pay off less than 10% each year to avoid the early repayment charge

does the early repayment fee expire if you don't fix a rate?

Yes, the early repayment fee is usually tied to a fixed rate.

We're mortgage free (at 33) and it's the best thing we did with our money - we only need to work part time to cover bills etc and have been able to chose jobs we enjoy. Such a weight off our shoulders.

@JustAnotherOpinion21 another good point

Even though the rate is relatively low now the interest still makes me wince

So I paid £361 this month which only lowered the amount by £247

The mortgage still has nearly 20 years to go

Lots of conflicting but useful information I'll need to think about

Thanks everyone

You should really go and see a few IFA's and get some professional opinions.
Doing the right thing with this money could have a significant financial impact on your future savings.

Do you mind me asking where the money came from? If you are dipping into savings for ordinary living I am guessing this is a one off e.g. inheritance or divorce settlement. There’s a big difference between a one off opportunity to make a difference and spending money that you are constantly building up through savings.

@Mia85 an inheritance
This is why I don't want to dip into it

Yes same for us. I think that is important because certainly I feel that I want to honour the person who gave it by making good use of it. Plus it’s likely to be a one off opportunity to make a difference.

We put a big chunk towards our mortgage at the start of the pandemic but should have bought another house (we’re renting it out and renting elsewhere currently). Houses near here have gone up $1m in a year and we’re suddenly priced out. Unprecedented rises.

If you're having to dip into savings each month, I'd pay off any debt, the highest interest first and then pay off the mortgage. My ifa said to do these in order

Pay off highest interest debts first
Then your mortgage
Then put away 3 months salary 'just in case'
Start paying into a pension
Then whatever is left you can spend on goodies

Houses near here have gone up $1m in a year and we’re suddenly priced out.

OMG.

Whereabouts is this?

[quote fedup078]@JustAnotherOpinion21 another good point

Even though the rate is relatively low now the interest still makes me wince

So I paid £361 this month which only lowered the amount by £247

The mortgage still has nearly 20 years to go

Lots of conflicting but useful information I'll need to think about

Thanks everyone [/quote]
If you change to an offset mortgage once your fixed term has expired then any savings offset the debt and you only pay interest on the difference. So £80k mortgage and £60k savings, you are paying interest on £20k not £80k. But that £60k is still available not tied up in bricks and mortar.

Pay weekly into your mortgage if you can

Change the term down and overpay each month. So if you have 10 years left, change to 1 or 2 years and pay it off that way and you'll avoid early repayment fees. ask if you can do this

Just a note that First Direct allow unlimited overpayments (one of the reasons we chose them) although there is an early repayment fee, could you ‘unlimited overpay with them’ and have a tiny mortgage?

@PiffleWiffleWoozle

Houses near here have gone up $1m in a year and we’re suddenly priced out.

OMG.

Whereabouts is this?

Australia. It’s mad.

Not sure but I vaguely remember seeing someone say before about paying it off except about £5-10 to avoid the early repayment fee but not sure how that would work as surely counts as an overpayment....

Buy a BTL. You get some income which could pay off your mortgage, you get your money working harder & you may find the house increases so you actually benefit in the future if you sell it.
Be a good fair landlord & I don’t see the problem