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Any disadvantages to paying off a mortgage

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I may be answering my own question in the OP but here goes:

Aside from possible "Early Redemption Charge" (which I'll have to check with my provider), are there any basic disadvantages to completely paying off one's mortgage (on one's sole property)?
I vaguely remember a few threads on here loosely discussing this sort of topic, and a general vibe that there is some advantage to leaving a token small amount like £200 to pay off. 


All I can think of is that as I have made a number of sizeable lump overpayments in the past couple of years, and that as overpayments they are available for me to "withdraw" (a bit more simple than "remortgaging") if I get in a financial pickle etc. then by paying it off and closing the account, this option (and indeed further remortgaging?) would not be available to me.

Again I'd have to look into this in some more detail with my provider but I am just casting for general ideas/advice/opinions. 

Thanks in advance. 

 Ian W 14 Jan 2021
In reply to Blue Straggler:

What's your rate of interest? 

If you owe £20k, but its at 2%, you'd be better off using the money as (for example) a deposit on a buy to let, or bunging it in a pension pot, where you would attract tax relief now, and almost certainly better returns in the future. if its at 5%, think about paying it off.....

Edit; just reread the bit about the overpayments etc - yep, that flexibility is worth something - again depending on the rate, think about using the money to invest; although I can see the attraction in becoming mortgage free........

Post edited at 13:58
 robhorton 14 Jan 2021
In reply to Blue Straggler:

I think the biggest disadvantage is just that you don't then have the option to use the cash for anything else you might want / need to do, but whether that's important will depend on the interest rate you're paying, general finances and life plans. Personally I'd rather have a few £k cash in the bank even if on paper I would be better off using it to pay off the mortgage quicker.

Thanks, the interest is low, 2.1%
The outstanding balance is much less than £20k. 
I haven't been doing sums based on interest, nor have I put any thought into where "spare money" can "better" be used; it's been more of a basic psychological boost after becoming financially reasonably solvent/comfortable 5 years ago after decades of always being skint and in minor debt - enjoying throwing money into the mortgage. I hadn't planned to bring it to the point where I could soon pay it off, it just kind of happened. Can't complain! 
I've never bothered to learn about "investing" - as mentioned, I spent so long having "no money", or at least no "spare" money, that it wasn't worth looking into. 
I guess I have some extremely outdated notion of "totally owning your house" conferring some sort of "status"

In reply to Ian W:

I had not thought about putting lump sums into a pension pot! That's something for me to consider. I do put a chunk of my salary into the pension pot for the tax relief aspect. As per my previous reply, I have pretty much zero knowledge/experience of what to do with "money in general".

Until I was in my late 30s, having more than about £800 in my current account was rare, and I often had to sponge emergency loans of my parents if for example the car failed an MOT and I needed a couple of hundred to sort it out. So mortgage overpayments, pension pots etc, all still bewildering to me! 

 marsbar 14 Jan 2021
In reply to Blue Straggler:

I don't know, but I wanted to say well done.  

I think in the old days you had to pay to keep the deeds in a safe at the bank if you paid it off, but I guess it's all electronic now?  

 nniff 14 Jan 2021
In reply to Blue Straggler:

We've got three more payments to make - we fully intend to walk smartly away and not look back - it's been long enough coming.  No more red letters saying that our endowments may not reach the target figure etc (don't get me started on that).  Freedom at last!

 Stoff 14 Jan 2021
In reply to Blue Straggler:

I believe the thinking behind keeping a very small mortgage (circa £100) rather than paying it off  is because while you have a mortgage the Building Society keeps your Deeds safe and secure. If you pay off your mortgage they will return them to you and then you need to find somewhere safe to store them (away from fire/flood/theft) and also somewhere you won't forget when you come to sell!

Many people choose to have them stored stored by a solicitor or bank and there is a cost involved (around £30/year). If that cost is more than the interest on your (small) mortgage it makes sense not to pay your mortgage off.

I hope this makes some sense - it's harder than I thought to put it succinctly into words!

In reply to Blue Straggler:

Depends on your mortgage, but mine is still open with 10 years of the term to run. I owe about a hundred quid and don't make any repayments.

If I need a new roof or any major outlay the bank are happy for me to draw down on the mortgage as long as it's paid off at the end of the term.

It's not costing me anything to keep it open, and it allows me to access cash in a hurry without touching my savings if I need to do so.

 elliot.baker 14 Jan 2021
In reply to Blue Straggler:

I'd just echo what the second person said which is that the first rule of personal money is to pay off your most expensive debts (highest interest) first; but that if you could get a higher rate of return than the debt cost then on paper it's mathematically better to invest it in that. Of course, if the stock market tanked 40% just after you boshed your money in then you wouldn't be better off though.  Similarly though if you'd put that money in something like Jet2 9 months ago you'd be up 50% or something astronomical. I don't believe you'll find 2% guaranteed returns anywhere at the moment.

Maybe work out what the interest is costing you per month (as in, if you are paying say £500 a month maybe £50 of that is interest) then ask yourself, would I rather have £20k in the bank right now to do something with or to keep you more secure, at the cost of £50 per month in interest, or could I live without that £20k in the bank and therefore save myself £50 per month times how ever many years left you have.

Just food for thought.

 jess13 14 Jan 2021
In reply to Blue Straggler:

I was quite pleasantly surprised to find my pension pot had actually grown even with all the hassle/uncertainty due to Brexit and Covid. The same could not be said for an investment ISA which lost 20% even though the FTSE only went down 14%-incompetent management time for a move.

In reply to Stoff:

I'm not sure physical deeds are actually a thing anymore, the title to the property is registed with the land registry and available electronically.

Sadly a lot of historical deeds have been destroyed by solicitors when properties have been sold, with only the minimum amount of information to legally register the property being retained.

Post edited at 14:43
 Andy Hardy 14 Jan 2021
In reply to Ridge:

Probably depends on when the house last changed hands. Our deeds have a plan of the estate and our plot marked in red ink, it will still be readable when we're all on Windows 487.9 and file formats from the mid 21st century are the preserve of archeologists

 Flinticus 14 Jan 2021
In reply to Blue Straggler:

Well, I work in financial advice (not an adviser however but nonetheless chartered) but like you, we are now looking at paying off our mortgage this year and that's well less than the standard 25 yr term and the only bright lining to 2020 was a much higher repayment rate, especially as, for a while, there was a chance of one of us losing employment. That didn't happen thankfully.

I may keep it nominally open as an avenue to additional loans.

I am attracted to the idea of being mortgage free but it certainly does make sense to pay into a pension and the last addditonal lump sum I had did in fact go into my personal pension, rather than mortgage. It will be grossed up by 20% and, on retiring, 25% will be tax free at least. I've also increased my regular monlthy contributions as our mortgage has reduced.

In reply to Blue Straggler:

I have this discussion with my IFA every visit. As discussed upthread, in simple terms its about opportunity cost. Can the overpayments be used for something better.

Whilst it annoys him, I make max overpayments each year but I'm fortunate enough to have a company pension, an ISA, a few prem bonds and a small slush fund for short term speculation. 

His simple view (and trusting him at face value) is that whilst mortgage payments are easily affordable and the interest is so low mortgages should be fixed and extended to their maximum possible length and the difference should be invested in something which will produce better returns than the mortgage rate*

*He also says that as a rule of thumb, where possible, 6 months salary should always be liquid, either in something like prem bonds or a current account. For a rainy day.

In reply to jess13:

> I was quite pleasantly surprised to find my pension pot had actually grown even with all the hassle/uncertainty due to Brexit and Covid. The same could not be said for an investment ISA which lost 20% even though the FTSE only went down 14%-incompetent management time for a move.

If you make regular payments,  those contributions will have made a massive difference since the big FTSE100 dip in March. 

 Babika 14 Jan 2021
In reply to Ridge:

> Depends on your mortgage, but mine is still open with 10 years of the term to run. I owe about a hundred quid and don't make any repayments.

> If I need a new roof or any major outlay the bank are happy for me to draw down on the mortgage as long as it's paid off at the end of the term.

> It's not costing me anything to keep it open, and it allows me to access cash in a hurry without touching my savings if I need to do so.

Spot on. My thinking entirely - which is why I keep mine running.

A few years ago I drew down a huge sum for about 2 months to enable my Mum to move house when the chain got blocked without the fandango of a bridging loan - which she almost certainly wouldn't have got. 

I didn't have to do anything - simply pushed a few buttons and the money appeared (First Direct offset mortgage). Worth its weight in gold in an emergency which is sometimes difficult to foresee. 

In reply to Blue Straggler:

Check current position on their legal costs if you intend to fully pay off the mortgage which may be in addition to an early redemption charge. You may have your own legal costs as well.

In the past, it was quite common to leave a small balance to avoid the costs until a sale or remortgage was happening.
 

Also, can be easier to borrow (if circumstances change) if your are borrowing already.

In reply to Babika:

That was my thinking (also with FirstDirect). When I discussed it with them I was surprised at how nonchalent they were "No, no need to contact us about it, just transfer the money from the mortgage account into another one of your accounts".

Huge thanks to everyone, what a useful thread. 

The outcome - I won't pay it off in full; the interest is virtually negligible even on the current outstanding amount; for an old fashioned psychological boost I will throw a final lump at it, around April, to bring it to just £100-200 outstanding as suggested in my OP and as practised by several posters on the thread. By then I'll have made £40k of lump overpayments which iirc I can access very easily (like Babika describes), plus the other advantages that my provider looks after the deeds and there is the option of remortgaging more easily in a real emergency. 
Beyond that, I will look at putting lump sums into the pension (I have a company pension with my current job and had one with my previous, I currently supplement the company pension with a cut from my salary each month. I don't actually know now much there is in either of these!) 

In reply to Ridge:

Interesting.  They are a pain in the arse if you are trying to get a mortgage in the first place, although very cheap.

 Le Sapeur 14 Jan 2021
In reply to Blue Straggler:

If you have any plans to use your home for business it may be possible to offset mortgage interest against tax. Dependent on circumstances and uses. 

 RobAJones 14 Jan 2021
In reply to Flinticus:

> I am attracted to the idea of being mortgage free but it certainly does make sense to pay into a pension and the last addditonal lump sum I had did in fact go into my personal pension, rather than mortgage. It will be grossed up by 20% and, on retiring, 25% will be tax free at least. 

Yep, with the personal allowance it is money for nothing until your pension is over £17000

 CurlyStevo 14 Jan 2021
In reply to Blue Straggler:

I'm in a similar situation, the way I see it stocks, gold, bitcoin almost everything is at all time highs just at the same time when we could be about to experience more inflation over the coming medium to long term. Bond yields also don't have much wriggle room and are not a great investment. Its also likely many western countries are going to increase tax to pay for covid. I already put quite a bit in my pension so I am concentrating with the rest of my money on paying off the mortgage. If the stock market tanks I may change tack though and whack some money in stocks, however I won't miss out there, as my pension pot is already heavily invested in stocks. I personally wouldn't be suprised if house prices do drop down too when stocks crash but I'll be happy to move to a larger property if that happens (its the cheapest time to do size 'up').

Post edited at 16:01
 CurlyStevo 14 Jan 2021
In reply to RobAJones:

The question is though what can your pension invest in thats anything like safe in the current climate. FTSE is running at about average PE ratio just now but you can be sure when the US tanks we will too.

 Ian W 14 Jan 2021
In reply to jess13:

> I was quite pleasantly surprised to find my pension pot had actually grown even with all the hassle/uncertainty due to Brexit and Covid. The same could not be said for an investment ISA which lost 20% even though the FTSE only went down 14%-incompetent management time for a move.

There's the thing - my pension pot has been completely untouched by brexit, save for exchange rate movements as most of it is in dollars as it is invested in overseas securities.........I started it off about 22 years ago, then stopped paying into it for a few years as i needed the money elsewhere (stupid in hindsight....) and it has (gloat, gloat) achieved an average return of just over 12% pa since it started......

 Ian W 14 Jan 2021
In reply to Blue Straggler:

Hey, dont take our word for it - go talk to a proper adviser - even if you pay him / her a fee, it could be worth it. I'm an accountant by training, so fairly savvier than average, but speaking to a proper adviser was my best move. They are the specialists, and gave me so much more confidence to invest in stuff that might not have seemed obvious, but i'm so glad i followed their advice.

 gravy 14 Jan 2021
In reply to TheDrunkenBakers:

Is that because he earns more commission that way?

 CurlyStevo 14 Jan 2021
In reply to Climbing Pieman:

That's interesting that's its worth keeping a small amount in the mortgage over a very long term, I'll probably aim for that until I sell also.

In reply to Andy Hardy:

> Probably depends on when the house last changed hands. Our deeds have a plan of the estate and our plot marked in red ink,

We moved last in 2008 and there was a 2 inch thick file on the table with deeds, building plans and all sorts of stuff in it. I rang our bank to ask if they wanted it and they said no, everything they need is digital and storing that amount of paper costs money. 

On the mortgage front, I got a buy to let rather than paying it off but after about 10 years I sold it, not worth the hassle. When took in to account repairs, tax, empty periods where I had to pay the council tax it actually cost me about 5k.

Now mortgage free and it's a nice feeling. I own the land and the stuff on it, it's mine and should always be mine. 

In reply to gravy:

> Is that because he earns more commission that way?

He's a decent egg. There have been times he has recommended something other than with him so I'm going to give him the BOTD.

In reply to Babika:

Second this and a vote for First Direct. I saved huge amounts too with the offset given the lousy interest rates. I've left £200 in mine for exactly this kind of reason to get funds if required, though I'd rather not.

To Blue Straggler, I'd say (almost) pay it off as others say. Huge weight off your mind.

In reply to Blue Straggler:

regarding the suggestion to put a deposit down on a buy to let - thanks but can barely keep on top of maintaining my own house let alone another property ! My parents have one and I am pretty sure it is a loss-maker. We aren’t cut out for this sort of investment 

 mutt 14 Jan 2021
In reply to Blue Straggler:

I'm in a similar situation 30k left and substantial overpayments. I decided, given the situation in the economy at present to remortgage that amount for 10years. The last thing I need right now is unemployment and large mortgage payments. I wonder whether it's really worth overpaying when interest rates are likely to go negative in the very near future. As others have said, pension gives you tax relief immediately or alternatively enjoy the money now whilst you have your health. Spend it responsibly with the environment in the forefront pls

 Brown 14 Jan 2021
In reply to Blue Straggler:

I'm a comudgen and left a token amount left on my mortgage so that it would cost the bank money.

I'm reveling in the fact that the pennies I pay a month can't possibly cover the cost to them. I feel it makes up for all the unauthorized overdraft fees of my youth.

I also understand there is an element of protection against fraudulent charges being placed on the property as well due to the first charge holder having to agree.

 PaulW 14 Jan 2021
In reply to Blue Straggler:

Perhaps i didn't think it through as deeply as some but when I could i paid off my mortgage.

The feeling of security, the whatever happens i have somewhere to live, was to me worth far more than the few £ I could have saved possibly by being more financially astute

In reply to PaulW:

Exactly my position! Some things aren’t measurable / tangible in hard cash terms 

In reply to mutt:

> enjoy the money now whilst you have your health. Spend it responsibly with the environment in the forefront pls

Thanks, I am already doing that ahead of any overpayments 😃

 Welsh Kate 14 Jan 2021
In reply to Blue Straggler:

I paid off my mortgage last month. The feeling of fully owning my own home and being debt-free is great. My current account's getting a bit of a boost and the pension will get a monthly boost after that. Better investment

In reply to Welsh Kate:

Cheers and well done. May I ask if there was any reason you didn’t leave £100 in it as mentioned throughout  the thread ? 

 RobAJones 14 Jan 2021
In reply to Blue Straggler:

I didn't, but can see what they are saying if you wanted to easily borrow money, for say, an extension. I also didn't close the mortgage account as they wanted to charge me £50 for the privilege, so I said they could keep the account open with nothing in if they wanted. That might have caught up  with me now as I'm due to collect my endowment in March, but they are concerned I still need to use it to pay off a mortgage. 

 Hooo 14 Jan 2021
In reply to Blue Straggler:

A few years ago I got an inheritance that would allow me to pay off my mortgage. Based on my "risk profile", my IFA recommended I do just that, so I did. I'm not a canny investor, so I just do what he says. It is a nice feeling to actually own my home. There are no deeds to store, it's all digital now. I pay what would have been the mortgage each month into a stocks and shares ISA, which has done well. I think it's worked out better than trying to find an investment for the inheritance, and it's involved zero effort.

 Big Bruva 14 Jan 2021

To all those gloating about their brimming pension pots, I hope to never see you posting negative comments about arms sales, Asian sweat shops or CO2 emissions, coz that's where all your lovely $$$s are coming from! 

 Ian W 14 Jan 2021
In reply to Big Bruva:

None of mine are in those companies; no baccy, no arms. Mainly tech stocks. Much cleaner than your average autoenrol pension, if you are interested.

 Hooo 14 Jan 2021
In reply to Big Bruva:

So do you not have anything invested for your retirement then?

 smollett 14 Jan 2021
In reply to Big Bruva:

It depends where you put it. There are plenty of ethical investment providers out there. Do a bit of research and you can still invest with a clean conscience 

 RobAJones 14 Jan 2021
In reply to Big Bruva:

Thanks, makes a change from someone complaining about my public sector DB pension. 

 Welsh Kate 14 Jan 2021
In reply to Blue Straggler:

Well, I wasn't that far off completing the full 25 year term anyway.

 Hooo 14 Jan 2021
In reply to RobAJones:

 In your case all your lovely $$$ are coming from us hard working taxpayers.

*Just to be clear, this is a joke. I don't begrudge anyone a public sector pension.

In reply to Big Bruva:

> To all those gloating about their brimming pension pots, I hope to never see you posting negative comments about arms sales, Asian sweat shops or CO2 emissions, coz that's where all your lovely $$$s are coming from! 

You mean my shares in Global Domination Enterprises Inc. and Cluster Munitions 'R' Us aren't ethical?

 Bilberry 14 Jan 2021
In reply to Blue Straggler:

I haven't read the thread fully, but a casual skim didn't show up a mention of credit rating.

Reducing your mortgage to £10 and maintaining the £0.01/month (or whatever) is good for the rating if it has been bashed in some way in the past.  It also saves the close out fee that may be avoided by leaving until full term.

However, if credit rating is solid the freedom of clearing *that* file from your drawer is worth the close out fee.

In reply to Big Bruva:

> To all those gloating

You are writing to nobody, as nobody is gloating. Congratulations however for the first negative post. I expected negativity and accusations of gloating far far earlier actually. 

In reply to Bilberry:

Thanks, my credit rating is good but you’ve given another reason to not close it out. I’ll keep £100 on it 

In reply to Blue Straggler:

> You are writing to nobody, as nobody is gloating.

You are so polite to this guy with this extraordinary, self-aggrandising user name. And what an effing cheek he has to tell us we're 'gloating'!

In reply to Gordon Stainforth:

I am polite three days a week 😃

In reply to Blue Straggler:

That's good. That's one more day than I am.

 Big Bruva 15 Jan 2021
In reply to Ian W:

> None of mine are in those companies; no baccy, no arms. Mainly tech stocks. Much cleaner than your average autoenrol pension, if you are interested.

Well done. I singled out pension pots because they're basically the battery farms of trading. People should do like you and invest ethically.

Edit: unless of course by 'pension pot' people mean a portfolio of companies they've chosen to invest in, like you, rather than a 'pension scheme'.

Post edited at 07:21
 Wainers44 15 Jan 2021
In reply to Big Bruva:

> .....arms sales, Asian sweat shops or CO2 emissions, coz that's where all your lovely $$$s are coming from! 

Actually that sounds an interesting investment opportunity.  Does that fund have a name? Are you a financial advisor?

 Big Bruva 15 Jan 2021
In reply to Blue Straggler:

I admit 'gloating' was a bit harsh! Wasn't said in an angry voice ;)

 Big Bruva 15 Jan 2021
In reply to Wainers44:

>  Does that fund have a name?

Big Bruva Inc.

 Big Bruva 15 Jan 2021
In reply to RobAJones:

> Thanks, makes a change from someone complaining about my public sector DB pension. 

That was included!

 Wainers44 15 Jan 2021
In reply to Big Bruva:

> >  Does that fund have a name?

> Big Bruva Inc.

Damn, just checked but as most of my ill gotten gains went from a DB scheme into the government pension protection fund when my employer went squit I can't get my hands on it. Actually that probably means I am already invested in that fund?

 Big Bruva 15 Jan 2021
In reply to Hooo:

> So do you not have anything invested for your retirement then?

I spent my whole climbing life looking up at the next pitch and thinking: "It'll be alright". That's pretty much my retirement strategy too! Guess I'll be working for quite a few years yet...

 Tall Oak 15 Jan 2021

Interesting blog ladies and gents. 

As a segway from mortgages and into ethical pensions, it was over the Crimbo period that the Guardian reported if (to paraphrase) "if you want to save the world, move your pension over". Before this I never really thought much about pensions or even money or even where it is invested; I just see a 'fun' fact sheet where someone tells me what my pension is currently worth and the mystical-ball evaluation what it could be worth in the 'future'. 

I took the time (and I should I know) to quiz Scottish Widows about their pensions pot(s) and what ethical pots they could advise me. I was deflated in all honesty that of the, roughly, 80 pension pots I could choose from, only one, and I mean one, was termed ethical. Though from further inquiring into their sole ethical pot it seemed the word ethical is subjective - I certainly looked at the companies they were investing in and deflated - "that cannot be right?"

Now I am sure in true BBC balance Scottish Widows would likely wish to defend this, but my opinion is jaded and now I think its time to move on. So, a healthy question to you good folk:

For average Joe who is looking to reinvest in a ethical pension pot, could anyone provide some starter information, or name a provider with a reputation of what I define as ethical - no arms, slavery, wars...

 gravy 15 Jan 2021
In reply to TheDrunkenBakers:

Well if he seems like a "good egg" then I'm sure his motivation couldn't possibly be his commission!

In reply to gravy:

Well,  I suppose everyone has to earn a living and I can (and do) call him for advice on things which don't earn him a penny.


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