ChatterBank1 min ago
To pay off mortgage or not to pay...that is the question!
I currently owe about �11k on my mortgage and have about 40k in savings. The mortgage has about 5 years to run and I pay about �240 a month. I will retire in 6 years time and will get a lump sum of about 60k on retirement. Is it worth paying off my mortgage now? The advice used to be that generally one should never pay a mortgage off as it was 'a cheap loan' - presumably that was when there was tax relief on interest paid - but what is the current thinking these days? Any advice/thoughts would be gratefully received! Many thanks...
Answers
No best answer has yet been selected by knowall. Once a best answer has been selected, it will be shown here.
For more on marking an answer as the "Best Answer", please visit our FAQ.May depend on if you have any redemption penalties.
You will probably be paying around �14k back from the above figures. If your redemption figure is �11k, this means that over 5 years you are being charged �3k.
If you think you can earn �3k on �11k by keeping your money elsewhere then don't pay it off.
Personally speaking, I would always pay off debts before considering savings.
I can't be bothered going into more detail (sorry - long day) but if you look at fool.co.uk, I'm sure there'll be info there.
Switch to an offset mortgage account and keep an equivalent amount in your current account to zero the interest charge.You will pay off the mortgage more quickly,you pay no tax on the current account balance and you get an interest rate equal to a borrowers rate.
West Bromwich are refunding valuation fees and have a 5% rate at the moment
Ask yourself this: Would I rather pay interest or earn interest. It is always better to save than to borrow. Unless there is a bad redemption penalty pay it off. It's a "cheap loan" and if you need it you can use it but you don't. Look at it another way how much interest are you paying on 11K ? how much will you earn on 11k you'll always be paying more than you could earn so pay it off no contest!
Many thanks to you all for these answers. I have thought about the 'current account' type mortgage but most don't seem interested in my small outstanding balance...however - I will have a look again. Common sense tells me that its better not to have a mortgage than have one I suppose, I am thinking that I will pay it off - providing that I'm not going to be really stung on a redemption fee. Thanks once again all.
Good luck.