Using savings to pay off mortgage - wwyd?

[Bramshott]

Having totted it up today, we are in the very lucky position of having about £15,000 in savings accounts and cash ISAs which are now paying very low rates of interest (1.5% gross). There are few things we want to do on the house which will use a few thousand over the next few months, but I am wondering about paying a bit into the mortgage instead of keeping it in savings accounts which are paying less than inflation?

WWYD? If we paid £5,000 into the mortgage, and spent £5,000 on the house, we'd be left with only £5,000 as "rainy day" money. Is this foolish in the current jobs climate? We don't have an offset mortgage so once it's paid in, it's gone, which is the part which scares me, but it seems mad to have money earning so little, whilst paying out 6% on our (quite substantial) mortgage debt.

And, yes, I am aware that many people are not lucky enough to have any savings at all, and I'm slightly that we do, but I'm just trying to work out the best way to use our money and still keep a safety net . . .

I think the general consenus of money experts is to have enough to pay bills for 4 -6 months and then pay of debts so as long as you have enough back up money then seems like a good idea to me.

We are using our savings, about half, to pay off the mortgage as interest is so low on savings.
But DH and I are both in government jobs with fairly safe prospects...

DH sorts out all our mortgage stuff, but have you thought about changing your mortgage to get a better rate?

DH is rubbing his hands as we have a tracker - very low rate at the moment apparently.

And he is thinking about paying off a lump sum and upping our monthly payments as we are earning nothing on our savings.

Hmm, thanks for quick responses.

I need to investigate the small print on the mortgage contract don't I? Also to work out how much 4-6 months bills would add up to.

Big TM - we are on a 5 yr fixed rate as we prefer the convenience of always knowing what your outgoings will be.

I know it's changed recently with the current climate, but dh and I paid our mortgage off about 12 years ago. It was the best thing we have ever done, and even though dh has been made redundant 3 times since (and we had no back up money after paying the mortgage off) we have never regretted it. Your savings are making you next to no money, but the mortgage is costing you.

DH would say you are mad to have a fixed rate at 6%, but I would probably have chosen that too!

Can you get any independent financial advisors to come and advise you? It doesn't cost anything - they get commission from the companies they advise you to go with (I think if they are independent they are not tied to certain companies).

It might be worth it as a mortgage is a huge outgoing.

Will warn you though! When we went down to the Building Society to pay it off, no-one there knew what to do, because no-one had done it before!!!!

We had to go back another day when they were ready for us!

i believe, that for every £1000 you pay off the mortgage you save yourself about £1000 interest so i'd def pay some off.

Oh, and find out if there's an early termination fee!

Useful to know that you have not regretted it girlandboy. I think we'll probably do it - just need to check the small print.

could you pay off extra each month rather than paying off a lump sum?

That way you would still be benefiting from paying off your mortgage early (if you pay off a few hundred every month you will knock thousands off your mortgage interest and cut the term by loads) but you would still have hold of the rest of the money in case something goes wrong with your jobs etc.

depends on how secur your work is / how long you'd last on reduced savings. If you can survive 6 months and have reasonably secure jobs go for it.

I'd also be looking at the termination fee but going for a different fix if you like to know your outgoings.

Oh Lord, I'm going to have to read the dull paperwork aren't I?!? I will try to look it out tonight and report back!

What about swopping on to an offset scheme. Different lenders operate slightly differering schemes.

Plucking a figure from fresh air, if the interest rate charged was 4%, you pay the repayments on your mortgage calculated at 4%.

If you had £15000 in your offset savings account, you also earn 4% gross 'offset interest benefit' per month on that balance - gross interest. This is usually transferred onto your mortgage account on the last day of the month, which will reduce the balance outstanding. Only the offset interest benefit is transferred in - not the capital.

you are usually free to pay in and withdraw from the savings account at any time.
You could also use the interest to reduce your repayments. For example, if the mortgage repayment due was £700 per month, and offset benefit due was £200, then you only need to pay £500 to make up the difference.

One thing to be aware of is that if the balance of the savings exceeded that of the mortage balance, then interest is calculated only on the lower mortage balance.