Unemployed, Can I Pay Off Mortgage With Savings?

[bond]

If I have savings of £54000 and I am unemployed, am I allowed to pay off the balance of my mortgage - £49000, or would it appear to be deliberate disposal of savings. I presume if I did nothing I would receive no benefits due to the value of my savings, but could I pay my mortgage off and be entitled to unemployment/job seekers benefit temporarily (obviously with a view to obtaining another job soon) having just £5000 left and no need to claim housing benefit (which I think only pays interest on certain mortgages for a short time).

[factor-fiction]

Contribution based JSA is not means tested.

[bednobs]

have you been working recently? For the first six months of job seeking you may well be entitled to contribution based JSA if you have been

[factor-fiction]

There may also be a fairly substantial penalty imposed by your mortgage lender- overpayments are often limited to 10% a year, after which a fee is made.

[factor-fiction]

If you were already claiming means tested benefits and they knew you had £54000 I am sure consideration would be given to treating this as deliberate disposal of savings.

[bond]

To methyl - the interest rate on my mortgage is about 1.09%, and I get 2% on my savings, so it is possible.

[bond]

Yes I am in the UK. I have not claimed any benefit for about 16 years. @factorfiction, yes I'm sure there may be fee but better to pay off the mortgage than pay the interest for the remaining term perhaps. I have a BOE tracker by the way.

[factor-fiction]

Those two posts seem contradictory to me, bond.
But I'd agree that it may be cheaper to pay a fee-(maybe a £1000) if you can then claim more benefits if it's for a fairly long period.
Are you already out of work? Are you already claiming? Do you have a pension or any other household income?

[solvitquick]

Payment of your mortgage debt seems sensible idea within certain conditions:
(1) Your mortgage is repayment only.
(2) You retain enough savings to maintain the house owner's financial responsibilities to maintain the house in suitable living order. For example what happens if you need a new central heating boiler etc? You should similarly have enough saved to cover services (gas, electric, telephone etc.). Similarly your building, house-contents insurances.
Then there is your car insurance, servicing etc., if you own one or more.
All adding up to thousands a year.
(3) In the latter half of the 1990's I paid off over £40,000 of our 53,000 mortgage without a penny of charges being levied.
(4) Think and talk to all involved. If OK I think you should retain about £20,000 for now. And can you go to interest-only?
Don't act precipately. Cannot believe that paying off a massive debt (mortgage) would be deliberately disposing of your capital, but check.
Keep in touch,
SIQ.

[THECORBYLOON]

Paying ANY loan earlier than need be would be looked at to see if was deprivation of capital.

[bond]

So, the government department looks at an individual case and decides I guess, since I have several different answers here and nobody can produce a definitive answer.

[factor-fiction]

You have got several different answers I think because we are still unsure of all the circumstances. The devil is often in the detail in these cases

[puzzled54]

You could ask at the CAB - Citizens Advice Bureau - they may be able to help.

[factor-fiction]

It depends.
First, where did the savings come from- have they been built up over time or did it include a substantial recent one-off payment such a s a redundancy payment.
Second, are you already claiming benefits or are you considering claiming shortly?

If you owed £49000 on a high interest credit card at say 20% interest p.a. it would make sense to pay it off if you had the cash., although if I worked for DWP I'd ask why you didn't pay it earlier while you were working.

In your case repaying £54000 when your mortgage rate is only 1.09% seems odd given that you get 2% on your savings so I think it would look like an artificial move just to diminish your savings in order to entitle you to benefits.

[BRIGHT SPARK]

Not sure of your full circumstances but when the job situation gets better and if age is still on your side you could look at an offset type mortgage.Your capital will then offset the loan and you can still use it if you need it.

[bond]

factor-fiction "seems odd given that you get 2% on your savings so I think it would look like an artificial move just to diminish your savings in order to entitle you to benefits" - so would you suggest I should not pay off my mortgage and thus have a guaranteed roof over my head? if so I would just be eating into my savings to pay mortgage/living and then reach a point where I had nothing and then have to go the job centre and attempt to claim something while seeking employment.

[Peter Pedant]

.

The standard advice is to pay off debts such as your mortgage and then you have a home base (in which to starve...)

However the interest repayment of a 50k mortgage is £500 per annum
which is so peanuts, my advice is to pay the interest and keep the mmortgage. You then have a pool of money to finance finding your next job....

in answe to your question, no it is not deliberate disposal of savings...

[Barquentine]

I would pay off the mortgage so I had one less thing to worry about - no more mortgage repayments. Then find a part time job on Saturdays or evenings and live frugally so you don't need to claim any benefits while you're finding a new full-time job.
I don't know what the rules are about claiming benefits but I am sure you could contact someone senior at the relevant Government department (is it Dept of Work & Pensions?) You are trying to do the right thing so you can't go wrong by asking them.

[factor-fiction]

I don't see what the advantages are in paying off the mortgage in this case. if it's an interest only mortgage at 1.09% the interest payable on £49000 is only £534 year whereas the interest you get on £49000 savings is around £900 a year. By paying it off you'd be £366 a year worse off.
With that level of savings I can't see any risk of you not being able to pay the mortgage and risk losing the roof over your head.

Anyway, the CAB or DWP will be able to give an answer on whether it would be seen as deliberate disposal of savings.

[THECORBYLOON]

Peter Pedant, if someone pays off all or part of a loan earlier than need be, deprivation of capital will be considered. It may make sense to pay off loans early but if that then results in their savings falling below the maximum savings' limit and they claim benefit, it will be investgated. The fund for benefits has to be protected and by paying off a loan early, folk are trying to gain twice, firstly by saving on interest charges and secondly by claiming a benefit they would not otherwise have had entitlement to.