If you could pay off your mortgage with your savings - would you?

[PanicPants]

It would mean you would be left with hardly any savings at all, so in an emergancy you would be bu**ered.

Does it make good financial sense to do this or not?

Have a look on www.moneyexpert.com website. He'll tell you.

i think it makes the money work harder ie interest rate over 25 years etc to pay off the mortgage.

Or considerably reduce the mortgage - it saves ££££ in interest over the years

If you can possibly avoid it, don't do anything in life that will leave you with zero savings. So, if paying off your mortgage now will leave you with no savings for a rainy day, don't do it. Wait until such a time that paying off your mortgage will not leave you penniless.

Having said that, whether or not paying off your mortgage makes sense depends on what kind of a mortgage you have. Is it fixed rate, variable rate, or variable with a cap, for example? How long do you have to go on your mortgage?

Does it have to be all or nothing? We recently paid a lump sum off our mortgage as we were coming to the end of a fixed rate and just about to transfer to a new product (so no redemption feed). However, we left ourselves with a 'rainy day' fund in savings.

I would have thought so. No mortgage means no more interest payments going out and no fretting at interest rices.

If we did pay off our mortgage then I wouldn't need to work. But that would also mean we couldn't make any savings either to replenish the savings that went on paying off the mortgage.

pay off your mortgage, then work to make up your rainy day savings, then you have lots of choice in your life as to what to do
leave a bit of cash behind as the savings initially

How many years do you have left on your mortgage? If it is just a few more years to go, you will be paying pretty much only capital anyway, so it makes more sense not to pay it in one go but rather pay it in installments over the life of the mortgage.

I would look into an offset mortgage type account, that way you can still access the funds if you need them but aren't paying interest if you don't.

I think the best advice is to keep three months' worth of income in savings or easily accessible investments.

I would find a half way house. Interest rates are going down so mortgages are getting cheaper again (depending on when you fixed) and savings making less.

Is an offset mortgage suitable for you? This way you can use your savings to reduce your mortgage but still have access to them for that rainy day. You could carry on working for a bit to save a bit more, and when you are satisfied you have enough in the bank then you can stop?

Compare your mortgage interest rate to your savings rate...bet the mortgage repayment is higher rate, therefore the savings are going down relative to the interest on your mortgage.
We faced a similar situation so chose to overpay by reducing the mortgage term by 5 years and upping the monthly repayment. We saved £25,000 in interest!!!!
If you have a large outstanding sum then stepping up the monthly payments makes sense!
Only 1 year to go now managing to save and repay the mortgage, then we will be free of mortgage and have choice about work! I plan to go to 3 days a week once the mortgage is gone

hell yes
but I wouldn't stop working immediately, if I were in your shoes

a rule of thumb is to keep 2/3/6m salary for emergencies
but if it were a real emergency one could take out a loan.

If you are a higher rate tax payer then it makes a lot of sense as avoiding paying mortgage interest gives you the same as earning about 9% gross but with no risk.

I think that there are a lot of offset type mortgages which let you fully offset your mortgage by savings. We are with First Direct and although we have paid off most of our mortgage we can draw down up to 80% of the agreed house value immediately (online or by phone). So we have access to plenty of funds in an emergency. Potentially the benefits are more marginal in a basic rate or non-taxpaying position.

I agree with the off set Mortgage option. We have one and all our savings are in there, our Slalries even go in it to help avoid as much interest as possible. So far it means we will pay off a 20 year mortgage in 12 years.

nooo never have all eggs in one basket unless your savings cover mortgage AND contingency

Yes.

How about 50% reduction ?

Ok - someone explain the offset mortgage in VERY simple terms to me please.

The idea behind all this is that I am desparate to leave work due to ds' behaviour and problems with childcare. That decision has really been made - it's just finding ways to do so financially.

I need to get rid of the monthly payments in order for me not to work. So does an offset mortgage get rid of monthly payments?

I have about 16 years left to go on the mortgage. We did reduce it by half 2 years ago, and that did halve the monthly payments. But it's not enough!

I think we would be left with just a few thousand in our savings.

We had no savings and a big mortgage but came into some money recently. We have paid off half of the mortgage and kept some back as savings, it's enough to do us 3 or 4 months.
However, savings aside, we now have twice as much money left each month after bills (what am I going to spend it on?!) which for us is huge and it means our standard of living will dramatcially improve.
So what I am thinking I am saying is don't spend all your savings but if it will change your day to day life to pay off some of your mortgage then pay as much as you can!

Offset means that you have a deposit fund and the mortage amount. The amount of interest on the deposit can be used towards whatever payment is due on the mortgage amount so you only actually pay the net figure , if there is one. The deposit funds are available to draw on if you need them , subject to t and c's, and the net payment is adjusted accordingly when the fund decreases/increases.

We have an offset mortgage PP.

Straightforward mortgage account, linked to current account and savings account.

Interest worked on a daily basis so say

Mtg £50K
Savings £10K
Current £1k

Interest is calculated on £39K

If you make payments based on the capital/interest of the full £50k you automatically overpay and will pay off earlier.

It's different to the 'One' Account that is offered in that your money is still in separate pots so to speak not all lumped in together.

Well with First Direct you have a mortgage account of say -£250,000. You can then link as many accounts with that mortgage as you like, savings, current accounts, single or joint. Your monthly mortgage interest payments are based on the overall net position. So for example I have a lump sum "saved" for the dcs school fees. I currently earn no interest from FD on that savings account (and therefore pay no tax as there is no interest). Instead our mortgage interest payments are reduced by around £400 per month. I still have full access to the lump sum whenever I want, though obviously at present I just take each terms fees out when they are due. Because I am rather anal, and this is "my" lump sum, I also transfer across the amount of interest saved on the mortgage each month, so our joint cheque account goes down by the full gross mortgage interest amount each month but my school fee fund goes up.

We have other savings accounts similarly linked. In fact when we took out the mortgage we opted for a 75% mortgage even though we only needed a 50% mortgage and then put the extra amount borrowed straight into a savings account. This means that is a superb investment opportunity, or we suffered an emergency came up we would have immediate access to a large wad of cash. The money we could access in this way is far more than 3 months salary.

oops x-port. Saggars has explained it much more succinctly!

Lady Muck - you put my financial savvy to shame