To pay off mortgage or not?

[Wanderinstar80]

So DH and I have been talking about moving, I’m a student and have two more years of my course to do. We recently came into an inheritance which is enough to give us a 60% deposit on the type of house we would like to move to. It's also enough to pay off our mortgage, do home improvements and go on lots of nice holidays. DH thinks we should pay off mortgage, live a bit then if we want to move in a couple of years, we start afresh with a new mortgage.

However, we are on a 1.19% rate which is fixed for four more years and I feel that should we eventually move, it would be more sensible to keep the mortgage so we can hang on to this rate and port it. Don’t get me wrong the extra cash would come in handy as I’m studying, but OTOH it’s not a massive monthly amount we pay (£390).

What would you do in these circumstances?

I would stay put. That is a very low mortgage rate. The financial situation will help you through your studies.

Our financial adviser said (years after we met him and had already paid off the mortgage) that we should’ve kept the mortgage going and invested the cash in different ways.

You'd make more money by putting it in a higher interest savings account, even instant access are higher than your current mortgage rate. You're also likely to have early redemption fees to pay . I'd save the money, the decision doesn't need to be made yet, with such a low mortgage rate.

We followed the Dave Ramsey Babysteps plan. Paying of debts and mortgage will always be the priority. I gives you so much freedom to not owe anyone money.

I'd see what the highest interest rate is you can get on it- if it's such a significant amount you might be able to get a high enough paying savings account that you can pay your mortgage using the monthly interest (Some accounts I've seen advertised were at 4%+ but I didn't look at the Ts+C's). You'd then get the benefit of being mortgage free in terms of your monthly budget, but also keep the mortgage, at least for the next four years.

I'd also be wary on whether mortgage provider would port at your low rate in the current market - it's not necessarily guaranteed I think. Perhaps worth checking this first?

With a low rate stay put, that gives you more options, save up and pay it off when rates go up.

What will be different about the house you might move to? How much would that enhance your life Vs being mortgage free and having nice holidays?

I've just exchanged on a house that means I've gone from mortgage free with a big savings cushion to having a mortgage and no savings. I think it'll be worth it to get rid of the low level stress of living in a house that's far too small, so to me it was the right decision but it might depend on why you want to move.

Sorry think I misunderstood your question there! I thought you were asking whether to move now or be mortgage free.

We had this last year. We paid off the mortgage and we won't be moving. We are now in an extremely lucky position to not have an additional £500 to pay out each month and it's helped us to make our house exactly how we want it.

Check that you will be able to port it at that rate before you make your mind up.

At that rate I would keep the mortgage. You would get more money if you invest elsewhere and be able to enjoy spending some of it

@MarianneVos we have a DD and DS sharing a room, if we want another bedroom we have to convert the loft. It'll then be a case of lose space from the big bedroom as the stairs to the loft would be located in the bedroom cupboard (we would likely create a corridor for privacy). These are terraced houses with no parking which really irritates me the more time passes, new house would have a drive and be a proper 3 bed.

@MoHunter I checked with my broker who said that our lender would definitely port. Or they will at the current time!

I might look into high interest savings accounts meantime, thanks for the suggestions on that.

Nationwide offering 4.5% fixed rate savings for 2 years, 4.75% for 3 years, or 4% for 1 year.
You can't add more during this time or access the cash either.
But relatively risk free and a good rate of return if you don't need access to the cash.

Stay put and review in 4 more years. That's cheaper borrowing so invest the rest and come out even.

If your low interest mortgage will port I would make the move to a bigger house now. Your DD and DS cannot share a room indefinitely and you have the money now. The loft extension sounds like it will come with compromises and the new house sounds like it would be a good step up the property ladder.

@Twiglets1 only thing holding us back is we would have to borrow a bit extra on top of our current mortgage to fully afford the next step up in this area, which I'm not keen to do while I'm still a student.

Thanks @Londongent , I'll look into those savings accounts (Nationwide is who our mortgage is with).

It's not really a serious question.

You should try to keep that mortgage for as long as you can at that rate. Don't overpay at all.

Borrowing at 1.19% for 4 years when prevailing rates are closer to 6% now is a great position to be in. Use the money in the meantime (upsize and port mortgage, or invest).