Meet the Other Phone. A phone that grows with your child.

Meet the Other Phone.
A phone that grows with your child.

Buy now

Please or to access all these features

Money matters

Find financial and money-saving discussions including debt and pension chat on our Money forum. If you're looking for ways to make your money to go further, sign up to our Moneysaver emails here.

Small mortgage

16 replies

Thingsthatgo · 08/12/2023 20:29

I have quite a large mortgage to repay, but I am due to be paid some inheritance which will pay off nearly all of it.
If I have, for example, £208k to pay and I inherit £200k. When my fixed rate comes to an end, can I pay off £200k and get a new mortgage for £8, or is that a too small amount to get a mortgage for? And if so, what happens?
Do I have to pay off less of the mortgage? Or does the £8k go into the Standard Variable Rate of my current provider?

OP posts:
DoIOrNot · 08/12/2023 22:31

I was understanding that the minimum mortgage was £30k, anything under that would have to be a loan.

GOODCAT · 08/12/2023 22:36

I think your options are:

Stay on variable rate while you pay off the £8k

Take out an unsecured loan to pay off the £8k

Don't pay quite so much off and remortgage for the lowest amount you can. That way you have a bit of a cushion.

Unexpectedlysinglemum · 08/12/2023 23:25

GOODCAT · 08/12/2023 22:36

I think your options are:

Stay on variable rate while you pay off the £8k

Take out an unsecured loan to pay off the £8k

Don't pay quite so much off and remortgage for the lowest amount you can. That way you have a bit of a cushion.

I'd do the third option

Thisisnotmyname2022 · 08/12/2023 23:30

Pay as much as you can when you get it without being charged an ERC. If your fixed rate ends this year, once it’s up, pay the rest of the inheritance, which has been sat in a high interest savings while it’s waiting, then go to the SVR. By paying as much as you can first, you’ll save in interest.

BarbaraofSeville · 09/12/2023 07:23

What's your current rate, when does your product end and is the £208k your current balance?

When do you expect to receive the inheritance?

If you're still on an old cheap fix, you'll get a much higher interest rate by saving the money until the end of the fixed rate period. The extra interest will go a long way towards paying off the extra £8k. You'll also be reducing your balance due to normal payments.

For example, if your current mortgage rate is 2% and you can get 5% on savings and you get the inheritance a year before your fix ends, in that year, you'll earn £10k in interest, which will be taxable, although you can reduce this using your ISA allowance. If it's a joint mortgage and you are married, and you get the inheritance before the end of the tax year, you could put £80k in cash ISAs, which would reduce the tax quite a bit.

But if the overlap is smaller so you don't earn enough interest to pay the mortgage off, when the fix ends, I would pay off most but not all the mortgage, partly because minimum mortgages are somewhere between £25k and £50k, so you want to leave this amount, also so you have some savings (assuming you don't already have a decent amount, or else you'd just top up the £200k with savings to pay it off and wouldn't be asking the question).

Then you want a mortgage with no arrangement fee and no early repayment charge. Interest rate is secondary, you might decide to stay with the same provider for ease, or you might decide to go elsewhere for a better interest rate. But you'll be able to match most of the interest with that you earn on savings, so it's a minor consideration. I'd also assume that you'll be able to overpay the £30k (for example) as obviously the monthly payment on a £30k mortgage will be much lower than a £200k mortgage, unless you reduce the term, which I wouldn't, if you get a mortgage that allows unlimited overpayments, because you can just overpay.

Or, something else you could do to free up money to pay the mortgage off cheaply, which would work if the balance is a few £k is to get the money onto a 0% credit card, eg by taking out a 0% spending card and putting some of your normal spending on it, or transferring balances. You can usually get cards with 0% for a year or two with no fee. This is what we've done. We've never had a fix rate so, while we benefited from a virtually interest free mortgage for over a decade, when rates started to rise, it wasn't worth fixing as we didn't owe very much, so we overpaid most of it and shuffled money round so now have about £12k on a couple of 0% credit cards and are saving to pay them down if we can't get new offers, but are profiting from the interest in the meantime. But only go down this route if you know what you're doing and don't spend for the sake of it.

If you've fixed after rates have gone up, and you can't match/beat the interest with savings after tax has been accounted for, then you'll need to consider whether it's worth paying an early repayment charge to pay it down. That will depend on the interest rate and the size of the fee.

A final consideration would be if you want to do anything else with some of the money - home improvement, car replacement, big holiday, pension top up, that sort of thing. Which would obviously increase the amount that you end up having left on the mortgage.

OhDoh · 09/12/2023 07:28

I think you can get a small mortgage but not sure if you can fix it. It might be worth though OP keeping some back as a cushion. Maybe keep a mortgage of 30k and keep 22k back for emergencies.

RachelSTG · 09/12/2023 07:39

Invest the money for a year or two and then you'll have full balance of mortgage

wildwestpioneer · 09/12/2023 07:47

I was always told it's good for your credit rating to have a little debt.

A lot depends on circumstances

How old are you
Do you have dc
Do you have any savings
Do you have decent pensions

If you're youngish (20s or 30s ) I'd be tempted to pay off some of the mortgage, to keep repayments down, which would give me available cash to start putting on pensions and also have an emergency fund of savings 'just in case' . That amount of money is unlikely to come around again so make it work for you and your future .

I'd love to be mortgage free but my pension is sorted and I'm in my 50s so I'd pay it off and take a loan out for 8k

YireosDodeAver · 09/12/2023 07:48

In your situation I would be paying off £150k and arranging a £58k mortgage with an offset savings arrangement. Offset mortgages are perfect for this situation. You have your mortgage alongside a savings account, you put the remaining £50k into the savings account and you only get charged mortgage interest on the £8k difference. You can then easily pay off the remaining £8k across the 2 year fixed term of the new arrangement and are then "effectively" mortgage free except that in the event of disaster/redundancy/sserious illness you have instant access to a pot of money, whereas if you had just paid off the mortgage in full then the money is permanently gone.

Toooldtoworry · 09/12/2023 07:52

You can wait until the day after the fixed rate ends, lump the 200k off and then once that's been applied to the balance call back and ask to do a product transfer for the remaining 8k.

Most mortgage companies want at least 15-25k balance to remortgage.

hermioneee · 09/12/2023 07:57

I was always told it's good for your credit rating to have a little debt.

Credit ratings only matter if you want to get into debt. You can also just use a credit card and pay off every month you absolutely don't need to have ongoing debt to have a good credit rating.

blowfishh · 09/12/2023 08:00

BarbaraofSeville · 09/12/2023 07:23

What's your current rate, when does your product end and is the £208k your current balance?

When do you expect to receive the inheritance?

If you're still on an old cheap fix, you'll get a much higher interest rate by saving the money until the end of the fixed rate period. The extra interest will go a long way towards paying off the extra £8k. You'll also be reducing your balance due to normal payments.

For example, if your current mortgage rate is 2% and you can get 5% on savings and you get the inheritance a year before your fix ends, in that year, you'll earn £10k in interest, which will be taxable, although you can reduce this using your ISA allowance. If it's a joint mortgage and you are married, and you get the inheritance before the end of the tax year, you could put £80k in cash ISAs, which would reduce the tax quite a bit.

But if the overlap is smaller so you don't earn enough interest to pay the mortgage off, when the fix ends, I would pay off most but not all the mortgage, partly because minimum mortgages are somewhere between £25k and £50k, so you want to leave this amount, also so you have some savings (assuming you don't already have a decent amount, or else you'd just top up the £200k with savings to pay it off and wouldn't be asking the question).

Then you want a mortgage with no arrangement fee and no early repayment charge. Interest rate is secondary, you might decide to stay with the same provider for ease, or you might decide to go elsewhere for a better interest rate. But you'll be able to match most of the interest with that you earn on savings, so it's a minor consideration. I'd also assume that you'll be able to overpay the £30k (for example) as obviously the monthly payment on a £30k mortgage will be much lower than a £200k mortgage, unless you reduce the term, which I wouldn't, if you get a mortgage that allows unlimited overpayments, because you can just overpay.

Or, something else you could do to free up money to pay the mortgage off cheaply, which would work if the balance is a few £k is to get the money onto a 0% credit card, eg by taking out a 0% spending card and putting some of your normal spending on it, or transferring balances. You can usually get cards with 0% for a year or two with no fee. This is what we've done. We've never had a fix rate so, while we benefited from a virtually interest free mortgage for over a decade, when rates started to rise, it wasn't worth fixing as we didn't owe very much, so we overpaid most of it and shuffled money round so now have about £12k on a couple of 0% credit cards and are saving to pay them down if we can't get new offers, but are profiting from the interest in the meantime. But only go down this route if you know what you're doing and don't spend for the sake of it.

If you've fixed after rates have gone up, and you can't match/beat the interest with savings after tax has been accounted for, then you'll need to consider whether it's worth paying an early repayment charge to pay it down. That will depend on the interest rate and the size of the fee.

A final consideration would be if you want to do anything else with some of the money - home improvement, car replacement, big holiday, pension top up, that sort of thing. Which would obviously increase the amount that you end up having left on the mortgage.

This is good advice.

What a lovely financial position to be in, OP 😀

RoseMarigoldViolet · 09/12/2023 08:24

Just ring your mortgage provider and ask what your options are.

Thingsthatgo · 09/12/2023 09:15

Thank you all for your advice - looks like we have a few options. Our very low fix ends dec 2025, and the inheritance will arrive when a property sells, so could be any time!
From my sums we will have around £12k left of mortgage if we use all the money. I am keen to pay it off, just to be debt free, but I appreciate it might not be the wisest thing to do financially.
I shall investigate all of the different options suggested, so thank you for your help.

OP posts:
seekingasimplelife · 09/12/2023 09:24

Yes, you can pay off the £200K once the fixed rate ends and the penalty time frame has elapsed. You would stay on your current lender's standard variable rate for the remaining £8K mortgage, as this is too small a loan for a remortgage.

To keep things simple:
Wait until the fixed rate term is up and there are no penalties for additional over payments. You'll be moved onto the Standard Variable Rate.
Then pay off as much as you want from the mortgage.

With the balance you are talking about, any part payment designed to keep the mortgage balance high in order to gain access to new fixed deals, or additional savings interest is unlikely to be worthwhile. Any gains would mostly be eaten up by new arrangement fees.
You could switch to a new lender on SVR before you pay off the additional amount, but again there might be fees which outweigh the gains.

If you had a good fixed rate deal in place for a few years ahead, and rates were rising, it might have been financially beneficial to save the inheritance in a high paying account. But rates are stagnated and some are falling, so the advantages are less attractive and more unpredictable.

missmollygreen · 09/12/2023 17:22

Stick it in a 5% easy access (or limited access if you think you will be tempted to touch it) Two years and you will have 220k (minus tax) more than enough to pay off the mortgage

New posts on this thread. Refresh page
Swipe left for the next trending thread