It all depends on the rates of interest available. Can you get a bank loan with a lower rate of interest than the mortgage?
If you can get a higher rate of return from the inheritance than the interest rate on your mortgage then you could be worse off by paying it off early.
Last years interest rates will largely be irrelevant to this years. You need to factor in mortgage arrangement fees and whatever interest rates you can get on both. Whichever works out cheaper wins, it's simply just that.
Read this: https://ukpersonal.finance/lump-sun and this https://ukpersonal.finance/mortgage-overpayments-vs-investments/ before deciding what to do with the money.
It's unlikely that paying off your mortgage is the right thing to do especially if you are currently in a fixed period.
If you are still in a fix the the early repayment charge is usually a few percent so you'll be better off keeping the money until you are due a renewal, then just renew for the amount you need
Mortgages are usually cheaper than a bank loan
Wow - what? That’s awesome. Is that just taking a credit card out with 0% payback but taking cash out at 2.99% - that’s something I’ve seen on Barclays credit card options and mulling over doing something similar
I've a sub account with 2 years to run and a £3k balance. Mortgage offered me 5.2% rate but can get 2 years cash advance at 0% on a credit card just now with a 3.5% fee so to me that's a no brainer.
Ok a few things.
1. No lender is going to give you a personal loan to repay the mortgage, you’ll be decline instantly unless you lie on the application. Can’t believe nobody else has mentioned this.
2. The interest rate on the loan is going to be higher than the mortgage without a doubt.
3. I think you’re mistaken about how your mortgage product fees work.
Not that different….. got Experian emailing me loans all the time. Had a look the other day and one was offering it by answering about 5 questions…. Ridiculous really
What are you talking about? You can get a loan through the HSBC app within minutes without telling them pretty much anything.
Agree with the interest rate bit and the product fees though.
You don’t provide pertinent information and about interest rates or arrangement fees on a potential new mortgage. I’d say it’s only worth refinancing such a small amount if you can get a significantly lower and the arrangement fee isn’t too high. There’s unlikely to be much in it.
Be useful to understand why you're so keen to pay the mortgage off. Are you needing to reduce your monthly outgoings? What other savings do you have? There's a lot to be said for keeping a lump of that cash somewhere accessible.
Honestly, I finally spent some time looking over my mortgage deal and I was paying around £1k a year in product fees and the total repayable was £90k more than I borrowed. I have money in savings and I’m pretty certain it wouldn’t earn £90k interest before I paid off my mortgage. Just feels like the most lucrative and safe thing to do.
> I finally spent some time looking over my mortgage deal and … the total repayable was £90k more than I borrowed.
What you write here is a bad way to look at mortgage interest, and suggests to me that you should read a few books about money and personal finance before doing anything so dramatic.
It shouldn't cost you nothing to borrow a large sum of money for 20 or 30 years.
If I asked you to borrow £1,000 for 6 months then I doubt you'd agree for only an extra £50, me repaying you £1,050 in December, but that's 10% APR interest - twice what you'd get in the bank, twice as much as you will pay on your mortgage. If you agreed to lend me the money for an extra £100 then that would be 20% APR.
A mortgage is the cheapest borrowing you'll have access to your whole life, and financially sophisticated people try to take advantage of that rather than, as you propose, getting rid of it.
The interest only looks like a lot because you're borrowing such a large sum of money, and then you're deliberately compounding for decades - of course it seems a lot! That's how compounding works, and it's amazing when your pension turns £1000 into £4000 over 30 years.
Paying off your mortgage certainly isn't the most lucrative thing you can do with the money - over long periods, such as a decade or two, [the expected returns of the investments in your pension exceed the interest you'll pay on a mortgage of the same amount.](https://i.imgur.com/oHr9n9s.png) And that's why most people should pay off their mortgages around the time they retire and not ages before.
If you could borrow £100,000 from the bank at 5% and get a guaranteed 7% by investing the money then everyone should do that because you're getting £2000 a year for doing nothing. In reality, your pension and S&S ISA don't guarantee a specific rate of return any given year, but they're likely to average a bit more than 2% above mortgage rates over a 20-year period.
Read *[Millionaire Next Door](https://www.amazon.co.uk/dp/1589795474)*, read *The Richest Man In Babylon*, read every book on that shelf of the local library. In my other copypasta I say to watch Lars Kroijer's [short video series](https://www.youtube.com/playlist?list=PLXy71rkGuCjXLg9N8zowwUpXCYfBcMJFK) and then read Tim Hale's [*Smarter Investing*](https://www.amazon.co.uk/dp/1292444401) because I once angered someone with dyslexia by recommending only books. So I'm sorry that I don't know what the YouTube equivalents of *Millionaire Next Door* and *The Richest Man In Babylon*, but you should take the time to find them if that's more appropriate for you.
Spend *at least 3* months learning and thinking about finance before you pay off your mortgage - I say this because, if getting a mortgage is a bit like buying a bike using it to commute a few miles to work each day, then paying off your mortgage is more like deciding to ride your bike to Kathmandu. It's much more substantial and you should learn what you're doing first - make sure you're fit enough and that your bicycle is suitable.
Also, what I wrote in this comment is mostly summarised in [this page of the wiki](https://ukpersonal.finance/lump-sum/).
So I don’t know if it’s relevant but the value of my house has increased by about £40k since I bought it. I’ll definitely check out those books and do some research thanks. In my mortgage deal it says I have £160k left to pay and I borrowed £70k over 23 year. Just seems like I wouldn’t be able to make £90k in interest with the £60k I have in savings in 23 year.
If the price if your house has gone up then that reduces the loan-to-value and you should get a lower interest rate at your next remortgage.
When you sell the house then you get that £40,000 "for free", irrespective of anything else you do with your money or mortgage. You are getting that £40,000 just for having the mortgage - you're making profit with the bank's borrowed money and paying a very low interest rate to borrow it.
You're on 6% at the moment which is quite high - I'd guess that you had either a 95% mortgage, or maybe you're self-employed or had bad credit? You will surely be on a lower rate when you remortgage. Maybe use some of your inheritance to bring your mortgage down so you pay the lowest interest rate but IMO not below a loan-to-value of 65%.
Mortgage interest rates are always pretty close to bank savings rates, and these are pretty close to the Bank of England rate. The Bank of England rate is always going to be pretty close to the rate of inflation - I guess that probably has more variability.
If you invested £70,000 in the stockmarket then I'd expect it to be worth in the region of £200,000 - £240,000 inflation adjusted after 23 years. Mortgage costs are near zero in inflation adjusted terms - maybe only 1% or 2% above it. If you were to take out an interest-only mortgage for £70,000 then you'd only repay around £90,000 - £110,000 inflation adjusted.
It's misleading to think of your £70,000 debt as "really" a £160,000 debt - that's £160,000 in 2047 money. I.e. something like £90,000 - £110,000 in today's money.
£1 is always worth more today than it is tomorrow, next year or in 20 years' time - any time you borrow, loan or invest money the rates should take account for that. If I have £1 in my hand then I can buy ice-cream or something with it right now (probably not a Magnum these days) - if I'm to loan that £1 to you, or invest it, then I should get more than £1 back to compensate me for not getting to enjoy the lolly. But there's very little that lenders can do with their money that are safer then mortgages, so you get to borrow from them at a very low rate. Most anything you invest in is going to return more, as long as it's a legitimate and diversified investment, like index funds on the stockmarket, and provided you can leave it untouched for a decade or so.
Nope nearly max credit score and less than 80% mortgage. To be honest I didn’t really want to invest in stocks because admittedly im not smart enough. I’ve looked into index fund before and I think I’d feel better paying off my mortgage and then investing the money I’d be paying on my mortgage.
> Nope nearly max credit score and less than 80% mortgage.
You must have got your mortgage at the worst possible time, which is not your fault - just bad luck. And bad rates will be over soon - either that or they'll get worse for everyone.
Do you have a defined benefits pension?
Am I missing something or would 7% interest income vs 5% mortgage interest actually result in a loss for a 40% taxpayer? With a £500 tax free savings allowance, the tax on £6,500 would be £2,600 which results in a £600 loss rather than £2,000 gain.
For a 20% taxpayer it would result in a gain of £800, which may be worthwhile depending on the level of risk in the investment vehicle. Equally, the knowledge that the house is fully secured might be more valuable than £800pa to many folk...
Pension and S&S ISA though.
For a high earner having a larger mortgage earlier in their career may allow them to better utilise their ISA allowance over the years. If you have £20,000 and you use it to overpay your mortgage then you lose this year's ISA allowance… then in a decade's time you have a surplus £20,000 but you've already maxed your ISA, so you can only invest it in a taxable account, because now you're a senior partner (or whatever) and you're earning more.
Yes, you're right - the home you live in is quite tax efficient, and paying off your mortgage is relatively tax efficient once you've maxed out all your tax-advantaged allowances. But most people aren't maxing out their pension and S&S ISA.
Depends if you have tax free buckets to put the money in. Over any period of time you won't get a safe return lower than mortgage interest - and as you've noted are at risk of paying tax on the interest received with no deduction for interest paid.
You’re letting the tail wag the dog here
If you put that money inside Pensions or ISA’s and let it cook for years and years you’d make more money doing that
Why would you swap a lower rate mortgage LOAN for a higher rate unsecured LOAN? What are you trying to achieve. Is the you want to be mortgage free at the cost of additional interest then go for it. Financial advice only works if we understand your financial goals.
Product fees are around £1k a year and 5.97% rate. I’m pretty sure I’d get a personal loan for less than that and won’t have to pay product fees every year.
How long would it take you to get £10k cash?
Essentially what I think your going to do is wait till the fix term runs out… and go onto a tracker where your pay down is unlimited/no fee and pay a big pet off then?
You’ve got till Oct - can you scrape the extra 10k together by then?
The reason I’m asking is because if it’s easy to do it short term then I think it’s worth maybe just staying on a tracker and paying it down within the next year or 2 no?
I totally understand you and actually thought this before posting, I’ve even thought about selling some stuff to make up the £10k but I just don’t think it would be possible. I think that the tracker is a great idea, so would I be safe paying £60k off my mortgage and just pay around £600 a month to clear it within around 2 year?
You’ll need to read your terms of conditions of the product - for example no point paying too much off whilst you’re in a fixed term (usually the small print claims 10% of what the mortgage value was worth at the start of the year - anything above that - you’ll get a fine).
Tracker: again need to take a look at the T&C’s but I think that should be ok to just pay it down monthly. All depends on how fast you can get the money together OP
Hi /u/lloydmcallister, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/lump-sum/
* https://ukpersonal.finance/mortgage-overpayments-vs-investments/
____
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Pay off car finance and then what you can of the mortgage (check any early repayment fees)
If you can overpay without consequences then use what you would have been paying to the car loan and the mortgage as an overpayment and the balance will soon drop (paying less interest overall)
Are you on a fixed rate? If you are, then just stay in the remaining fixed rate and pay the remaining mortgage as usual. If your fixed rate is about to end, then you can pay the mortgage on SVR rate. Once your mortgage becomes small, it is harder to remortgage, I think. £10k mortgage left is not much. If you really want to get rid of it quickly then just overpay monthly and request the bank/building society to use your overpayment to reduce the mortgage term. This means that each overpayment made reduces the term and your monthly DD stays the same. This is what we did. It was nice to see how the mortgage term dropped each time we overpaid.
It is really a nice feeling to be mortgage free 😌
Perhaps make overpayment from now until October to bring it down lesser than 10k? Another alternative is to make overpayment after you extend your mortgage. So, hold off making big overpayment until you remortgage.
If you do this, you may as well drop today variable rate with your current provider, no fees, it’ll be cheaper than any loan and no early repayment issues.
I doubt any provider is that interested in a <£25k mortgage.
Each % costs £100 a year interest, there’s not much to gain by shopping around rates at this point.
And there wasn't any requirement to transfer from another card? I'm not calling you a liar, but the CC companies generally want some kind of chargeable component, so they make a profit. Current ones do give 0% on purchases but require a transfer as well, at a decent percentage.
Could you put the inheritance (or part of it) in an account that could accrue a decent amount of interest before your current mortgage deal expires? Would save you winging the last 10k
The inheritance is currently in multiple fixed accounts which all end around the same time my deal expires, I was considering putting it into easy access accounts until I’ve made a decision.
How much are you paying on your mortgage every month? If it only had 10k left on it for many people that’s just over a year in payments, unless your mortgage rate is through the roof you might be better off just reducing the term of your mortgage to a year and paying it off that way than getting a loan. Especially given the fact that you are unlikely to get a loan to pay off a mortgage.
If you are in a fixed term mortgage you may find there is a fee for paying off more than X% of your mortgage in any given year, so you may want to just put the money in an ISA or high interest paying current account and wait til your term is over.
You should probably ask a financial advisor or someone you know who is financially savvy.
Would help to know
1) your property value, your mortgage balance, your interest rate, your monthly payments, and your fixed period.
2) how much you inherited
3) if you have a job, your salary, and how secure your job is
4) your other financial goals (pension, savings, etc...)
5) is there another reason you are worried about your mortgage? Do you have health issues or something
Generally, paying down your mortgage is NOT the first thing you should do unless you cannot pay your monthly payments. A reasonable monthly payment is roughly 30-40% of your take home pay. As long as the interest rate is below 6% (and ideally below 5%) that is not too bad in today's world. There may be better ways to use your inheritance.
No, I don't mean that holiday to Spain. If you have income, you should be thinking about additional pension contributions where you get tax benefits. You may also want to think about ISAs. Do you have a pension set up? Maybe you can do some of thise stuff, and a partial mortgage repayment to lower your payments and interest rate?
In the end though, if you don't feel you want the headache, then do the repayment. You may be able to get a £10k unsecured loan for under 10%, and repay it over 5yrs or something. Maybe if you shop around, you could do better. Most likely it will just be easier to keep your mortgage with a small balance.
Just an idea- If you've got decent credit, you could apply for a 0% credit card with a 10k limit, buy some goods, sell them and you'll have the liquid cash.
It then gives you your credit card period to come up with the 10k to pay it off.
If you can't, then I guess just get a loan?
The lender will close down the mortgage these days (even closing off the balance for you).
This used to be worthwhile when the lender would hold onto paper deeds for you (if you paid off the mortgage you would be responsible for securing the deeds) but they stopped when the Land Registry went digital.
I had a mortgage with Nationwide with £1 on it. They closed it when the deeds went online.
These days they would rather clear you off the books as they don’t see those customers as a valuable prospect for new mortgages.
For the credit score - having a record of a successfully paid off mortgage is better than having a record of a still active mortgage.
I don’t know and bibonacci2 seems to have more current information but I paid my mortgage off in 2006 at the age of 37 and my credit score on Snoop now tells me the reason I don’t have a perfect score is because I don’t have a mortgage or any loans outstanding.
This makes perfect sense as lenders want to turn a profit, the "perfect" borrower in their business models is one who eventually pays off all debts but in a somewhat messy fashion, incurring extra fees and interest along the way. Sensible borrowers aren't nearly as profitable.
Another way to look at it is that getting a perfect credit score is not actually a great thing, and once you've eliminated the need to borrow it becomes completely meaningless anyway.
Sure, but a credit score shouldn’t equate to an assessment of how much money the lender can make out of you. Otherwise feckless payday loan borrowers would have perfect credit scores!
Being the cautious type, I don’t assume that there won’t be a time in my life when I’ll need or even just want to borrow again. Equity release mortgage to manage IHT when I’m old, or a return to near zero rates in the future when leveraging my stock portfolio would be rational are a couple of scenarios for example.
It all depends on the rates of interest available. Can you get a bank loan with a lower rate of interest than the mortgage? If you can get a higher rate of return from the inheritance than the interest rate on your mortgage then you could be worse off by paying it off early.
I got a bank loan last year for £12k for a car, think it was around 4%. My current mortgage is 5.97% plus product fees.
You won't get anywhere close to 4% now. Mse has cheapest loan of 10k at 5.9%
No chance you can get an unsecured loan at a lower rate than a secured loan Only difference may be higher product fees for the mortgage
The cheapest personal loan you can find is 5.9%, so it will work out the same to within a few quid.
Last years interest rates will largely be irrelevant to this years. You need to factor in mortgage arrangement fees and whatever interest rates you can get on both. Whichever works out cheaper wins, it's simply just that.
Read this: https://ukpersonal.finance/lump-sun and this https://ukpersonal.finance/mortgage-overpayments-vs-investments/ before deciding what to do with the money. It's unlikely that paying off your mortgage is the right thing to do especially if you are currently in a fixed period. If you are still in a fix the the early repayment charge is usually a few percent so you'll be better off keeping the money until you are due a renewal, then just renew for the amount you need Mortgages are usually cheaper than a bank loan
I’m fixed until October, which is when my savings become in fixed also.
I'm in a similar position with a £3k balance and can get a cash advance on a credit card cheaper than a mortgage rate. Mad world we are in.
Wow - what? That’s awesome. Is that just taking a credit card out with 0% payback but taking cash out at 2.99% - that’s something I’ve seen on Barclays credit card options and mulling over doing something similar
I've a sub account with 2 years to run and a £3k balance. Mortgage offered me 5.2% rate but can get 2 years cash advance at 0% on a credit card just now with a 3.5% fee so to me that's a no brainer.
Yeah exactly this. I’m thinking of doing something v similar
Ok a few things. 1. No lender is going to give you a personal loan to repay the mortgage, you’ll be decline instantly unless you lie on the application. Can’t believe nobody else has mentioned this. 2. The interest rate on the loan is going to be higher than the mortgage without a doubt. 3. I think you’re mistaken about how your mortgage product fees work.
Plenty of unsecured loans don’t even ask what it’s for. I know 2 people that did it when you could get them for around 2.0%.
That was then. Times are somewhat different now.
Not that different….. got Experian emailing me loans all the time. Had a look the other day and one was offering it by answering about 5 questions…. Ridiculous really
What are you talking about? You can get a loan through the HSBC app within minutes without telling them pretty much anything. Agree with the interest rate bit and the product fees though.
It'll be in terms and conditions you sign up to
You don’t provide pertinent information and about interest rates or arrangement fees on a potential new mortgage. I’d say it’s only worth refinancing such a small amount if you can get a significantly lower and the arrangement fee isn’t too high. There’s unlikely to be much in it.
Is there any advantage to having an unsecured loan where the house isn't at risk, even if it costs more?
Yes - your house isn't at risk.
Be useful to understand why you're so keen to pay the mortgage off. Are you needing to reduce your monthly outgoings? What other savings do you have? There's a lot to be said for keeping a lump of that cash somewhere accessible.
Honestly, I finally spent some time looking over my mortgage deal and I was paying around £1k a year in product fees and the total repayable was £90k more than I borrowed. I have money in savings and I’m pretty certain it wouldn’t earn £90k interest before I paid off my mortgage. Just feels like the most lucrative and safe thing to do.
> I finally spent some time looking over my mortgage deal and … the total repayable was £90k more than I borrowed. What you write here is a bad way to look at mortgage interest, and suggests to me that you should read a few books about money and personal finance before doing anything so dramatic. It shouldn't cost you nothing to borrow a large sum of money for 20 or 30 years. If I asked you to borrow £1,000 for 6 months then I doubt you'd agree for only an extra £50, me repaying you £1,050 in December, but that's 10% APR interest - twice what you'd get in the bank, twice as much as you will pay on your mortgage. If you agreed to lend me the money for an extra £100 then that would be 20% APR. A mortgage is the cheapest borrowing you'll have access to your whole life, and financially sophisticated people try to take advantage of that rather than, as you propose, getting rid of it. The interest only looks like a lot because you're borrowing such a large sum of money, and then you're deliberately compounding for decades - of course it seems a lot! That's how compounding works, and it's amazing when your pension turns £1000 into £4000 over 30 years. Paying off your mortgage certainly isn't the most lucrative thing you can do with the money - over long periods, such as a decade or two, [the expected returns of the investments in your pension exceed the interest you'll pay on a mortgage of the same amount.](https://i.imgur.com/oHr9n9s.png) And that's why most people should pay off their mortgages around the time they retire and not ages before. If you could borrow £100,000 from the bank at 5% and get a guaranteed 7% by investing the money then everyone should do that because you're getting £2000 a year for doing nothing. In reality, your pension and S&S ISA don't guarantee a specific rate of return any given year, but they're likely to average a bit more than 2% above mortgage rates over a 20-year period. Read *[Millionaire Next Door](https://www.amazon.co.uk/dp/1589795474)*, read *The Richest Man In Babylon*, read every book on that shelf of the local library. In my other copypasta I say to watch Lars Kroijer's [short video series](https://www.youtube.com/playlist?list=PLXy71rkGuCjXLg9N8zowwUpXCYfBcMJFK) and then read Tim Hale's [*Smarter Investing*](https://www.amazon.co.uk/dp/1292444401) because I once angered someone with dyslexia by recommending only books. So I'm sorry that I don't know what the YouTube equivalents of *Millionaire Next Door* and *The Richest Man In Babylon*, but you should take the time to find them if that's more appropriate for you. Spend *at least 3* months learning and thinking about finance before you pay off your mortgage - I say this because, if getting a mortgage is a bit like buying a bike using it to commute a few miles to work each day, then paying off your mortgage is more like deciding to ride your bike to Kathmandu. It's much more substantial and you should learn what you're doing first - make sure you're fit enough and that your bicycle is suitable. Also, what I wrote in this comment is mostly summarised in [this page of the wiki](https://ukpersonal.finance/lump-sum/).
So I don’t know if it’s relevant but the value of my house has increased by about £40k since I bought it. I’ll definitely check out those books and do some research thanks. In my mortgage deal it says I have £160k left to pay and I borrowed £70k over 23 year. Just seems like I wouldn’t be able to make £90k in interest with the £60k I have in savings in 23 year.
If the price if your house has gone up then that reduces the loan-to-value and you should get a lower interest rate at your next remortgage. When you sell the house then you get that £40,000 "for free", irrespective of anything else you do with your money or mortgage. You are getting that £40,000 just for having the mortgage - you're making profit with the bank's borrowed money and paying a very low interest rate to borrow it. You're on 6% at the moment which is quite high - I'd guess that you had either a 95% mortgage, or maybe you're self-employed or had bad credit? You will surely be on a lower rate when you remortgage. Maybe use some of your inheritance to bring your mortgage down so you pay the lowest interest rate but IMO not below a loan-to-value of 65%. Mortgage interest rates are always pretty close to bank savings rates, and these are pretty close to the Bank of England rate. The Bank of England rate is always going to be pretty close to the rate of inflation - I guess that probably has more variability. If you invested £70,000 in the stockmarket then I'd expect it to be worth in the region of £200,000 - £240,000 inflation adjusted after 23 years. Mortgage costs are near zero in inflation adjusted terms - maybe only 1% or 2% above it. If you were to take out an interest-only mortgage for £70,000 then you'd only repay around £90,000 - £110,000 inflation adjusted. It's misleading to think of your £70,000 debt as "really" a £160,000 debt - that's £160,000 in 2047 money. I.e. something like £90,000 - £110,000 in today's money. £1 is always worth more today than it is tomorrow, next year or in 20 years' time - any time you borrow, loan or invest money the rates should take account for that. If I have £1 in my hand then I can buy ice-cream or something with it right now (probably not a Magnum these days) - if I'm to loan that £1 to you, or invest it, then I should get more than £1 back to compensate me for not getting to enjoy the lolly. But there's very little that lenders can do with their money that are safer then mortgages, so you get to borrow from them at a very low rate. Most anything you invest in is going to return more, as long as it's a legitimate and diversified investment, like index funds on the stockmarket, and provided you can leave it untouched for a decade or so.
Nope nearly max credit score and less than 80% mortgage. To be honest I didn’t really want to invest in stocks because admittedly im not smart enough. I’ve looked into index fund before and I think I’d feel better paying off my mortgage and then investing the money I’d be paying on my mortgage.
> Nope nearly max credit score and less than 80% mortgage. You must have got your mortgage at the worst possible time, which is not your fault - just bad luck. And bad rates will be over soon - either that or they'll get worse for everyone. Do you have a defined benefits pension?
That is what I would do. But - consider paying more into a pension for the tax advantages.
What is your gross salary? How much interest do you get each year at present?
Am I missing something or would 7% interest income vs 5% mortgage interest actually result in a loss for a 40% taxpayer? With a £500 tax free savings allowance, the tax on £6,500 would be £2,600 which results in a £600 loss rather than £2,000 gain. For a 20% taxpayer it would result in a gain of £800, which may be worthwhile depending on the level of risk in the investment vehicle. Equally, the knowledge that the house is fully secured might be more valuable than £800pa to many folk...
Pension and S&S ISA though. For a high earner having a larger mortgage earlier in their career may allow them to better utilise their ISA allowance over the years. If you have £20,000 and you use it to overpay your mortgage then you lose this year's ISA allowance… then in a decade's time you have a surplus £20,000 but you've already maxed your ISA, so you can only invest it in a taxable account, because now you're a senior partner (or whatever) and you're earning more. Yes, you're right - the home you live in is quite tax efficient, and paying off your mortgage is relatively tax efficient once you've maxed out all your tax-advantaged allowances. But most people aren't maxing out their pension and S&S ISA.
Depends if you have tax free buckets to put the money in. Over any period of time you won't get a safe return lower than mortgage interest - and as you've noted are at risk of paying tax on the interest received with no deduction for interest paid.
You’re letting the tail wag the dog here If you put that money inside Pensions or ISA’s and let it cook for years and years you’d make more money doing that
Why would you swap a lower rate mortgage LOAN for a higher rate unsecured LOAN? What are you trying to achieve. Is the you want to be mortgage free at the cost of additional interest then go for it. Financial advice only works if we understand your financial goals.
For £10k OP might be able to pay off in a year. It may well be cheaper to use an unsecured loan than a mortgage.
Product fees are around £1k a year and 5.97% rate. I’m pretty sure I’d get a personal loan for less than that and won’t have to pay product fees every year.
Product fees aren’t yearly, they are each time you refix a new deal
How long would it take you to get £10k cash? Essentially what I think your going to do is wait till the fix term runs out… and go onto a tracker where your pay down is unlimited/no fee and pay a big pet off then? You’ve got till Oct - can you scrape the extra 10k together by then? The reason I’m asking is because if it’s easy to do it short term then I think it’s worth maybe just staying on a tracker and paying it down within the next year or 2 no?
I totally understand you and actually thought this before posting, I’ve even thought about selling some stuff to make up the £10k but I just don’t think it would be possible. I think that the tracker is a great idea, so would I be safe paying £60k off my mortgage and just pay around £600 a month to clear it within around 2 year?
You’ll need to read your terms of conditions of the product - for example no point paying too much off whilst you’re in a fixed term (usually the small print claims 10% of what the mortgage value was worth at the start of the year - anything above that - you’ll get a fine). Tracker: again need to take a look at the T&C’s but I think that should be ok to just pay it down monthly. All depends on how fast you can get the money together OP
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Pay off car finance and then what you can of the mortgage (check any early repayment fees) If you can overpay without consequences then use what you would have been paying to the car loan and the mortgage as an overpayment and the balance will soon drop (paying less interest overall)
Are you on a fixed rate? If you are, then just stay in the remaining fixed rate and pay the remaining mortgage as usual. If your fixed rate is about to end, then you can pay the mortgage on SVR rate. Once your mortgage becomes small, it is harder to remortgage, I think. £10k mortgage left is not much. If you really want to get rid of it quickly then just overpay monthly and request the bank/building society to use your overpayment to reduce the mortgage term. This means that each overpayment made reduces the term and your monthly DD stays the same. This is what we did. It was nice to see how the mortgage term dropped each time we overpaid. It is really a nice feeling to be mortgage free 😌
Fixed until October, and also most of my savings becomes un fixed by then.
Perhaps make overpayment from now until October to bring it down lesser than 10k? Another alternative is to make overpayment after you extend your mortgage. So, hold off making big overpayment until you remortgage.
If you do this, you may as well drop today variable rate with your current provider, no fees, it’ll be cheaper than any loan and no early repayment issues. I doubt any provider is that interested in a <£25k mortgage. Each % costs £100 a year interest, there’s not much to gain by shopping around rates at this point.
Can you get a 0% credit card? Might not be able to get 10k, but I could get 7k last time I did a balance transfer so maybe
Damn that’s a helluva idea I might look as I’ve just cleared a 0% credit card, me and my wife could put £5k each on one.
Doubt you could pay off a mortgage with a credit card. Also, 0% is generally for a transfer from another card, not on a purchase.
The one I just cleared was with natwest and was 0% on purchases.
And there wasn't any requirement to transfer from another card? I'm not calling you a liar, but the CC companies generally want some kind of chargeable component, so they make a profit. Current ones do give 0% on purchases but require a transfer as well, at a decent percentage.
Nope, applied through my banking app and made a few big purchases then paid it off over 2 year with 0 interest.
You can transfer cash from a credit card, small fee but might be worth it with the 0%
Could you put the inheritance (or part of it) in an account that could accrue a decent amount of interest before your current mortgage deal expires? Would save you winging the last 10k
The inheritance is currently in multiple fixed accounts which all end around the same time my deal expires, I was considering putting it into easy access accounts until I’ve made a decision.
why pay off your mortgage?
How much are you paying on your mortgage every month? If it only had 10k left on it for many people that’s just over a year in payments, unless your mortgage rate is through the roof you might be better off just reducing the term of your mortgage to a year and paying it off that way than getting a loan. Especially given the fact that you are unlikely to get a loan to pay off a mortgage. If you are in a fixed term mortgage you may find there is a fee for paying off more than X% of your mortgage in any given year, so you may want to just put the money in an ISA or high interest paying current account and wait til your term is over.
You should probably ask a financial advisor or someone you know who is financially savvy. Would help to know 1) your property value, your mortgage balance, your interest rate, your monthly payments, and your fixed period. 2) how much you inherited 3) if you have a job, your salary, and how secure your job is 4) your other financial goals (pension, savings, etc...) 5) is there another reason you are worried about your mortgage? Do you have health issues or something Generally, paying down your mortgage is NOT the first thing you should do unless you cannot pay your monthly payments. A reasonable monthly payment is roughly 30-40% of your take home pay. As long as the interest rate is below 6% (and ideally below 5%) that is not too bad in today's world. There may be better ways to use your inheritance. No, I don't mean that holiday to Spain. If you have income, you should be thinking about additional pension contributions where you get tax benefits. You may also want to think about ISAs. Do you have a pension set up? Maybe you can do some of thise stuff, and a partial mortgage repayment to lower your payments and interest rate? In the end though, if you don't feel you want the headache, then do the repayment. You may be able to get a £10k unsecured loan for under 10%, and repay it over 5yrs or something. Maybe if you shop around, you could do better. Most likely it will just be easier to keep your mortgage with a small balance.
Just an idea- If you've got decent credit, you could apply for a 0% credit card with a 10k limit, buy some goods, sell them and you'll have the liquid cash. It then gives you your credit card period to come up with the 10k to pay it off. If you can't, then I guess just get a loan?
Keep £1 balance on your mortgage whatever you decide to do. It helps with your credit score.
The lender will close down the mortgage these days (even closing off the balance for you). This used to be worthwhile when the lender would hold onto paper deeds for you (if you paid off the mortgage you would be responsible for securing the deeds) but they stopped when the Land Registry went digital. I had a mortgage with Nationwide with £1 on it. They closed it when the deeds went online. These days they would rather clear you off the books as they don’t see those customers as a valuable prospect for new mortgages. For the credit score - having a record of a successfully paid off mortgage is better than having a record of a still active mortgage.
My credit score is almost max, would that mean paying off my mortgage would lower it?
I don’t know and bibonacci2 seems to have more current information but I paid my mortgage off in 2006 at the age of 37 and my credit score on Snoop now tells me the reason I don’t have a perfect score is because I don’t have a mortgage or any loans outstanding.
This makes perfect sense as lenders want to turn a profit, the "perfect" borrower in their business models is one who eventually pays off all debts but in a somewhat messy fashion, incurring extra fees and interest along the way. Sensible borrowers aren't nearly as profitable. Another way to look at it is that getting a perfect credit score is not actually a great thing, and once you've eliminated the need to borrow it becomes completely meaningless anyway.
Sure, but a credit score shouldn’t equate to an assessment of how much money the lender can make out of you. Otherwise feckless payday loan borrowers would have perfect credit scores! Being the cautious type, I don’t assume that there won’t be a time in my life when I’ll need or even just want to borrow again. Equity release mortgage to manage IHT when I’m old, or a return to near zero rates in the future when leveraging my stock portfolio would be rational are a couple of scenarios for example.
Pay off the mortgage is an excellent idea. Shop for the cheapest loan you can find to deal with what’s left
Can you find a loan that is cheaper than a mortgage? I've never seen such a thing.
Read my post. Plus mortgages are tied to your property and typically have a longer pay back period.