Do I pay off the house

[jjgreenwood]

So I've been saving for the last 10+ years into an isa like everyone said you should. I've also got a substantial mortgage which I pay off in a manner that should clear it in 15 years or so. It turns out that if things go in the next few years like they have for the last few years, and I know that is a big if, I should be able to pay my mortgage off with my savings in 2021.

What would you do? Pay off the mortgage or keep the savings?

 

[imightbewrong]

Depends on a lot of things, like: what's your mortgage interest rate? What's the rate of return on your savings? What's your appetite for risk? Are there any early payment penalties?

 

[soupdragon]

So I've been saving for the last 10+ years into an isa like everyone said you should. I've also got a substantial mortgage which I pay off in a manner that should clear it in 15 years or so. It turns out that if things go in the next few years like they have for the last few years, and I know that is a big if, I should be able to pay my mortgage off with my savings in 2021.

What would you do? Pay off the mortgage or keep the savings?

In simple terms, if you grow your money faster than the interest rate on the mortgage, then keep your money and invest. If not, pay the mortgage off.

Or, if you can make a portion of your money work better (eg a LISA) then do that and use the surplus to pay off some mortgage.

 

[John7]

Keep your savings but suspend saving any further and use the money to increase mortgage payments, reducing the payback time. Also consider keeping a small residual mortgage if you plan on needing any form of credit in the future as this will be helpful maintaining a good credit rating.

 

[swiftpete]

Seems daft to have savings and debt. Use the savings to pay off your debt.

 

[blue max]

Debt is very hard to come by these days. If you need to borrow in the future, for a house extension say, you may be glad you had the money and didn't have to approach a lender. In the past it was basically a quick phone call, but now its an interview and life story! I wouldn't be so hasty to pay back a mortgage if it was on a low interest rate. Just a thought anyway.

 

[shoemaker666]

i was in the same situation i put enough money aside for one years wages. then paid off the mortgage.

 

[Vitalija]

Whether it makes financial sense or not I would pay off the mortgage. I hate owing anyone anything. At least you would know that whatever happens you and your family will always have a roof over your heads and nobody can ever take it away from you.

 

[KyleS1]

I'd do what a few people mentioned, pay down the mortgage but keep a small one.
I hate owing the bank that huge amount but it is good for your credit score.

 

[imightbewrong]

Debt is very hard to come by these days.

I know it's only anecdotal but they seem to be throwing debt at me.

 

[blue max]

I know it's only anecdotal but they seem to be throwing debt at me.

Wait til you actually need it! [emoji3]

 

[imightbewrong]

Wait til you actually need it! [emoji3]

Well it's rude to say no

 

[blue max]

I know it's only anecdotal but they seem to be throwing debt at me.

Because you don't need it. If you actually lost your job or something, they become like a fish's ass at 50 fathoms [emoji3]

 

[jjgreenwood]

Depends on a lot of things, like: what's your mortgage interest rate? What's the rate of return on your savings? What's your appetite for risk? Are there any early payment penalties?

Interest rate is 2.37%. Savings rate of return is claimed at 9% but has been as low as 3% such is the nature of stock based investments. Offer period ends on mortgage in 2021 so no early payment penalties then.

 

[stblob]

No need to keep a small mortgage to keep your credit in check, just use a credit card to fill your car once a month and pay it off when you get the bill.

 

[misterS3]

You could switch to an offset mortgage. That way you have access to cash and reduced your mortgage.

 

[imightbewrong]

Because you don't need it. If you actually lost your job or something, they become like a fish's ass at 50 fathoms [emoji3]

Swings and roundabouts - nice not to have a big outgoing also

 

[imightbewrong]

You could switch to an offset mortgage. That way you have access to cash and reduced your mortgage.

When I've looked at these the interest rate always looks very poor compared to a regular mortgage / savings.

 

[Jezza99]

Seems daft to have savings and debt. Use the savings to pay off your debt.

Not if you can get a much better return on your investments than you are paying on the mortgage. It makes perfect sense. Stock market linked investments can easily achieve this, but with a degree of risk.

Having said that, for a lot of people paying off the mortgage is an emotional decision, not a financial one, so many people will pay it off just for the "security" factor. Often illusional, but hey, it's their money.

 

[blue max]

Often people have some sort of product too. It usually comes with a fee for redeeming before the term, so that is another factor. But if you're on a low fix, it isn't such a simple decision. Anyway, those are some of the issues.

 

[doubledragonxx]

Have you looked at an offset mortgage? We have now effectively paid off our mortgage or at least not paying interest and the money is available should we need it.

 

[jjgreenwood]

The other thing to bear in mind is tax liability. If I continue paying £1k+ a month on the mortgage I retain my savings but my income is being taxed away at 40%. If I pay off the mortgage I can increase my pension contributions to a higher level reducing the amount of 40% tax I pay.

 

[jjgreenwood]

Have you looked at an offset mortgage? We have now effectively paid off our mortgage or at least not paying interest and the money is available should we need it.

The savings are in a S&S ISA so not sure if this is an option for me.

 

[KyleS1]

The other thing to bear in mind is tax liability. If I continue paying £1k+ a month on the mortgage I retain my savings but my income is being taxed away at 40%. If I pay off the mortgage I can increase my pension contributions to a higher level reducing the amount of 40% tax I pay.

But not guaranteed to receive everything you put into a pension if you die early.

 

[Greg Hook]

If it were me I'd pay off the mortgage. Getting that off your back is everyone's dream.