Should I pay off my mortgage? Discussion area

A question about : Should I pay off my mortgage? Discussion area

I think their are two biggies not included in this basic model that should be highlighted:
1) Tax credits
If you are on tax credits and earn more than Ј300 interest per year (outside ISAs) then the interest will result in a withdrawal of tax credit at the rate of 41p in the Ј on top of any tax on the interest so an effective rate of 61% for basic rate tax payers!!!
2) Re-mortgaging
Using savings to pay down a mortgage may allow a lower ltv band on re-mortgage which is likely to have a much greater impact on the mortgage rate and hence total interest cots than any earnings from savings interest.

Best answers:

• I think their are two biggies not included in this basic model that should be highlighted:
  1) Tax credits
  If you are on tax credits and earn more than Ј300 interest per year (outside ISAs) then the interest will result in a withdrawal of tax credit at the rate of 41p in the Ј on top of any tax on the interest so an effective rate of 61% for basic rate tax payers!!!
  2) Re-mortgaging
  Using savings to pay down a mortgage may allow a lower ltv band on re-mortgage which is likely to have a much greater impact on the mortgage rate and hence total interest cots than any earnings from savings interest.
• If you have no other expensive debts then yes PAY OFF THE MORTGAGE ASAP
  Only my opinion but I hang round the MF board alot Sad !!!
• So....
  I have a flexible mortgage at base + 0.75%. Lots of headroom as I have had it for a while so there is spare cash if I want to play with it. Anything I do must be 100% secure and accessible so that if the rates rise I can get the money back.
  Have taken a gamble and bought Ј30,000 of Index Linked Savings Certificates, 5.2% inflation this month and tax free, can't think why they stopped issuing them.
  The next stage is to find the best ISA deal.
  What did catch my eye was the Santander Base Rate + 2.5% account. Can I take the risk though?
  I hadn't thought of the tax credit problem, I only get the basic amount anyway so there is not much to loose.
  This has got me thinking though. Those of us with older mortgages are still borrowing at less than inflation. This means the value of the loan is going down in real terms just by existing. How long before the banks find a way to stop this?
• Re the emergency fund.
  I have overpaid my mortgage considerably over the last few years - too the extent that at last check, I had over 2 years worth of overpayments.
  I am unable to withdraw any of the money from my overpayment fund (I was always aware of this) however, I am able to suspend my monthly contractual payments at any time and have these taken from the overpayment reserve until it's exausted - this is aside from other flexible arrangments such as payment holidays.
  I think it's worth people checking this out with their mortgage companies as it means you need a much smaller emergency fund leaving you with more money to put towards overpayments.
• I'm surprised there wasn't even a mention about what Joint home owners should consider before one or the other makes mortgage overpayments.
  Sadly they should consider what the implications are if they break up.
  If you are married, then assets are out into a 'pot' to be split between the couple. If one of you has put a lump sum into the mortgage, this is considered as part of the 'joint assets' during the split and is not 'ring-fenced' or 'repaid' back to the person prior to the settlement.
  If you are unmarried, then a 'Declaration of Trust' should be drawn up with the aid of a solicitor, detailing what each would be entitled to in the event of a split. The couple should consider how overpayments to the mortgage should also be funded and split.
  e.g. if the house is owned 70:30 due to differing deposits, should any overpayment also be funded the same way i.e. 70:30?
  In the common case of only one partner being in the position to make an overpayment (e.g. due to an inheritance, windfall etc), then this must be detailed in the Trust document, or else, in the event of a split, that partner with the windfall risks losing 30% of the overpayment to the other partner (in the case of a 70:30 ownership).
  Of course, no-one wants to plan what to do if they break up. But I felt it was worth pointing out that if one person makes an overpayment, they should be clear on how that would be dealt with in the event of a split.
• We are in a fixed deal at the moment which is at nearly 7%. The penalty fees halve on 1st October to around Ј300 and we are considering clearing the 26k owed at this point. We have been told that we would be better leaving a small amount still owing just in case we need to re mortgage for any reason thus doing away with valuation fees etc which a new mortgage would require. Is this advice correct?
• I've heard the same too, outofoakes, but I'm not so sure it's the best way. Surely, if a mortgage company know you won't default (despite them not making much money on you), then they know you're a "good" client?
• We were considering buying my sons house which he is renting out at the moment and I thought we may be able to re mortgage ours to raise the money which shouldnt incur fees rather than start again with a buy to let mortgage which will incur Ј3k in fees before we start. If we dont go down that route there was the option to convert our loft space and as the newer mortage rates are better than personal loans we thought we would have the option to re mortgage to do these improvements. Or we clear the mortgage in full and just save the money we were spending each month on the mortgage till we have enough to do the improvements.
• I have a part re-payment, part interest only mortgage on a fixed rate.
  If I were to pay off a lumpsum amount, which part of the mortgage would it be best to allocate it to ?
  Any advice gratefully received.
• I understand that when the mortgage is finally paid off Santander asks that you get a lawyer to remove Santander's charge against the mortgage on the property's deeds or alternatively Santander will do it. How much do people expect to pay for this legal formality? I guess this is standard practice.
• My mortgage will be paid off in 18 months (Ј5000),the interest rate is 2.5%. I have Ј8000 in savings accounts that are now earning 0.1%. I have Ј35000 in a cash isa paying 3.26 % A.E.R. instant access. Advice would be greatly appreciated to maximise the return,
  thanks Micko,
• The article does include this but its at the bottom so some may miss it. You should also include using tax free allowances when making a decision.
  Things like ISAs are a use it or lose it allowance. Whilst one year in isolation isnt going to make a lot of difference, over time you can have hundreds of thousands of pounds in ISAs.
  Ј20,000 income in retirement from ISAs is tax free
  Ј20,000 income in retirement from taxable savings/investments would generate Ј4000 tax (above personal allowance).
  So you have to weigh up not just immediate needs and gains but future needs and gains as well.
  Personally, I have increased my pension contributions (significantly as volatile markets are great news for long term regular contributions), maxed out my ISAs and I am overpaying the mortgage. I dont see why you should limit yourself to any one thing but instead do a combination of things. If interest rates were higher, then my approach maybe more weighted to mortgage.
  I thought it was a good article.
• I might be wrong but I think there is a difference between the mortgage interest rate you think you are paying and the % interest you are actually paying month-by-month. I have about 9 years left on my 25 year mortgage and about Ј65k left to pay. I am fortunate to be on a rate of 1.7% and earning interest on my savings of around 3% net. At first glance you would think that the decision is obvious, namely don't pay off more of the mortgage than the monthly payments because I'm earning more on my savings (3%) than I'm paying on the mortgage interest rate (1.7%).
  But when I looked at the yearly statement and the monthly breakdown I found that of the total payments I'd made in the year - roughly Ј6500 - around 10% of it, not 1.7%, is interest charges. If I've read this right then the interest charges and rate are high to start with, decrease slowly through the life of the mortgage and only really hit a minimal level in the last couple of years. This suggests you're almost always better off in the current environment to pay off as much as you can.
  I'd be interested in Martin's views on this but unless I'm talking drivel the real comparison in deciding whether to pay down your mortgage is not between your savings rate and your mortgage rate but between your savings rate and the level of interest (%) that you're paying on your mortgage payments at the time. It also suggests that no online calculator such as the one on this website will help you because you need to do the calculations based on what's in your annual mortgage statement.
  What do you think Martin?
• HELP !!! 12 months ago we downsized and bought a bungalow which required full modernisation before we could move in; we have a 12 year mortgage with an interest rate of 3.79% fixed for 3 years initially, and are now tied in for 2 years with a remaining penalty of Ј1,819.15 if we repay early, on an outstanding balance of Ј90,000. We have just sold our former house; should we repay the mortgage and pay the penalty - we can pay 10% off per year without penalty but have missed the first year - if the best interest rate we can get (before tax) is 4.0% and we are basic rate tax payers should we open a 2 year bond and pay off in 2 years, in addition to paying off 10% capital repayment this year and next year, or pay off now and pay the penalty and then save the Ј835 monthly mortgage payments?
• Hi Jilly,
  the good news is you're in luck...there is an answer to your question, but the bad news is it will involve lots of maths!
  You need to work out how much interest you will earn (less tax) by putting the house sale price in the bank over the next two years, vs how much interest you will pay on the mortgage in the same period of time.
  If the difference between the two is greater than the payout fee, then pay your mortgage off. If the answer is less than the pay out fee, then you are best off saving your money and paying the mortgage off in two years when there is no penalty.
  I hope that helps!