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Do I pay off the house

jjgreenwood

Prominent Member
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?
 

soupdragon

Distinguished Member
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

Prominent Member
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.
 

blue max

Distinguished Member
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.
 

Vitalija

Prominent Member
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

Distinguished Member
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.
 

jjgreenwood

Prominent Member
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

Prominent Member
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.
 

Jezza99

Banned
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

Distinguished Member
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

Prominent Member
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

Prominent Member
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

Prominent Member
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

Distinguished Member
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

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

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