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Original poster

Pay off the mortgage?

28 replies

Avinagiraffe80 · 18/12/2022 09:42

I realise I’m in a fortunate position but would appreciate some different viewpoints in case I haven’t thought of all options.
DH and I have £25k remaining on our mortgage (tracker at 0.89% above base rate) which will take around 5 years to clear at current payment levels. We also have £25k in a savings account (2.3% easy access) which we could use to pay off our mortgage.
We have an additional £20k in 3% easy access savings accounts so we’d still have a buffer for emergencies. We both work full time and our jobs are as secure as anyone’s can be nowadays.
Writing this down, it looks like a no-brainer to pay off the mortgage as it’s costing more in interest than I earn in savings interest. I’m a naturally cautious person so maybe this is why I can’t take the leap but is there any downside to paying off the mortgage that I haven’t thought of?

OP posts:
limitededitionbarbie · 18/12/2022 09:46

Following with interest as fingers crossed this will be me paying off mine in the next five.

Ocrumbs · 18/12/2022 09:49

Pay it off if they let you without penalty.

OriginalTheory · 18/12/2022 09:49

Check the terms and conditions for any penalties for early repayment - but otherwise my vote is pay it off. And then congrats on being mortgage free OP!

sashagabadon · 18/12/2022 09:50

Why not clear half the mortgage and just keep it going at half the current payment for the next 5 years. It must be a small monthly payment with only £25 k outstanding and so half that must be a couple of hundred pounds?

Ilikewinter · 18/12/2022 09:53

Are there any charges/penalties for paying it off early?.
If not then pay it off, or I like the idea of clearing half of it and just have a very small monthly payment

pigsducksandchickens · 18/12/2022 09:59

Pay it off! It is a HUGE relief to know whatever happens I will always have a roof over our heads. The money you spend on you mortgage you put straight back into savings.

Original poster
Avinagiraffe80 · 18/12/2022 10:00

Sorry, I forgot to say there are no penalties for early repayment or overpayments.
I’ve also already paid half the balance off earlier in the year when we owed £50+k and the base rate started creeping up.

Each time the base rate increases I feel like I’m wasting money by not paying it off but something seems to be holding me back. It’s good to know there’s nothing obvious I haven’t taken into account.

OP posts:
Frazzled2207 · 18/12/2022 10:04

Pay it off. We did this and were mortgage free for a while.

the disadvantage is that it will use your savings which means your rainy day fund. Personally i would always want at least some cash savings on hand as you never know what’s going to happen. But when the rainy day appears you won’t have a mortgage to worry about and in the meantime should be able to increase your savings considerably, if you want to

BarbaraofSeville · 18/12/2022 10:06

We're in a similar position to you and we're paying ours off over the next few months after over a decade of saving separately due to better savings interest.

From what you say, I'd definitely pay it off. You just have to be mindful about having money available for large purchases like car replacement or home improvements but without a mortgage you should be able to save a decent chunk each month to build those up.

Bucks67 · 18/12/2022 10:06

Depends on your pension provisions I would say.
If you well on track with retirement plans then pay it off.
I don't think getting rid of a small mortgage like yours will make a huge difference to you.

Galliano · 18/12/2022 10:08

You could move your savings into a fixed rate account which would mean you earned interest similar to what you are paying. I’ve done this rather than pay my mortgage off because I’m also cautious - a change in circumstances and you couldn’t necessarily borrow money back. Admittedly my rate is lower so I actually make a small amount this way.

if you decide to pay 50% off as suggested above you could keep repayments at current amount and would therefore only have about 2 years to go.

mumda · 18/12/2022 10:22

Pay off the mortgage but continue to put the mortgage payment money aside. Save that up too.

Oakbeam · 18/12/2022 10:30

I was in a similar position with a .17 above base tracker. It didn’t make sense to pay it off early then, but I would now.

Bear in mind that paying it off might not give you the “life changing” experience that some rave about. It certainly wasn’t for me.

Original poster
Avinagiraffe80 · 18/12/2022 10:55

@Galliano I think you might have hit the nail on the head. I’m worried that if something happens which means I need that money, I won’t be able to borrow it back at the same rate.

@Bucks67 DH and I both have reasonable company pensions but it’s probably worth looking into to see what we can do to maximise this.

Thanks to everyone for reassuring me there is no downside I haven’t thought of. I think I just need to be brave and pay it off. To those that mentioned it, I would still put the mortgage amount away in savings each month. DS will be off to uni in a couple of years so our mortgage payment will then probably become his rent payment!

OP posts:
Dougieowner · 18/12/2022 11:00

We paid off our mortgage very early and had been mortgage-free for about 15-years. Financial considerations aside, it gives a wonderful sense of security.

Moved earlier this year and had to take out a new mortgage (bigger house, new area). The rate is seriously low (and fixed) but we now have the cash so will be paying it off next year (early redemption fee drops to practically nothing in real terms, this was something we spoke to our mortgage advisor about so he was aware of our plans). Perhaps not the best move financially but it suits us as it is one less outgoing to worry about.

YankeeDad · 18/12/2022 11:06

@Avinagiraffe80 could you look into whether there would be any possibility, should you need money, to borrow again against the house, for instance using a small offset mortgage or a home equity line of credit, and what that would cost?

This is not a suggestion to actually borrow, but rather to find out whether you could.

if it turns out that you could un theory borrow that £25k again at a reasonable cost(even if it is a bit higher than the mortgage rate) then you can serenely pay off the last of that mortgage and live debt-free while knowing that there is a way to release some cash from your home if you need it!

Sunbird24 · 18/12/2022 11:06

OP I’ve just arranged to switch to a tracker (0.69% above base rate) when my current 1.49% fixed rate ends in May precisely because of the unlimited overpayments and lack of early repayment charge that you mentioned. Never thought I would in the current economic climate but the fixed rate for the same period was 1% higher than the variable!

As you’ve got a separate instant access savings account I would definitely pay off the mortgage, but as a PP said make that payment into another savings account instead, probably a less easy access one with a higher interest rate if you can find one.

LindaEllen · 18/12/2022 11:40

We've just been in exactly this situation, and chose to pay it off. It is such an amazing feeling when you realise you truly own your home, and nobody can take it off you. It's brilliant.

Oakbeam · 18/12/2022 13:23

We've just been in exactly this situation, and chose to pay it off. It is such an amazing feeling when you realise you truly own your home, and nobody can take it off you. It's brilliant.

I didn't get that. It was just "The mortgage is paid off".

I felt cheated!

PoinsettiaPosturing · 18/12/2022 14:16

Mortgage adviser here - unless your savings return are at least 1% above your mortgage rate, then your money is devaluing sat in the bank. If you have no mortgage payment, how quickly could you rebuild a savings pot? I'd pay it off ASAP especially with rates increasing

coodawoodashooda · 18/12/2022 14:21

pigsducksandchickens · 18/12/2022 09:59

Pay it off! It is a HUGE relief to know whatever happens I will always have a roof over our heads. The money you spend on you mortgage you put straight back into savings.

Yeah. I'd do this.

tribpot · 18/12/2022 14:25

I was in the same position and paid ours off at the start of this month. Our deal was about to end and I didn't want to spend the money on renewing it. With interest rates where they are, it makes a lot more sense to pay it off, as @PoinsettiaPosturing says.

As there are no penalties for overpayments, you have the option to do this bit-by-bit rather than all in one go - start paying double or triple your monthly payments and using that to reduce the term. That way you're keeping more of your capital liquid in case you were to need it, but still reducing your outstanding liability.

That said, with 20K in additional savings, I think you just need to go for it. But thought I would offer an alternative.

Upfartooearly · 18/12/2022 14:53

It might not be the same or possible now but when I was in a position to pay off my mortgage, I left £1 owed and was able to request a refund of the overpayment for the term of the mortgage if I found I needed it. I didn’t need to but it was comforting to know I could.

LadyLapsang · 18/12/2022 14:55

Switch the an offset and use your savings to offset the mortgage debt so there are no payments but you have access to the money if you need it. I haven’t made a mortgage payment for the past decade.

Bunnycat101 · 19/12/2022 08:32

As above I was wondering if an offset might suit you if you wanted to keep the cash buffer. Only thing though Is whether the fees would be worth it for such a small mortgage.

It probably is worth paying it off at that rate but depends what value you put on having savings. If you drip-fed the overpayment from savings you’d do it more gradually. Eg 300pcm overpayment would take 2 years off , saving around £1200 and still leave you with more than half of your 20k pot at the end. You’d be getting your 3% interest on the reducing lump sum as well.

It looks like you’d save around £2800 in interest paying it off now. You’d not be getting the interest on the £25k but could rebuild savings re diverting the mortgage payment. So would be a spreadsheet job to work out exactly how much the difference would be and whether you value the saved interest more than having a big buffer.