Paying off a mortgage

[ScumOfTheRoad]

I am still working but paying off a mortgage. I have a long term fixed interest rate which is due to end in two years.
I can pay off 10% without penalty, which I intend to do. At the end of the mortgage I thankfully might be in a position to pay it off in a lump sum. However there are penalties for early repayment. Does anyone know what the situation is at the end of a mortgage?

[ElyDave]

Check the terms, they can be specific, but in my experience after the fixed, or offer period and you are back on variable rate, the penalties disappear

[PaulF]

Yes as Dave says check your agreement but in my experience there are only penalties at the end of the fixed period.

[rogerzilla]

There's usually a redemption or "sealing" fee, which should be less than £100.

[rafletcher]

You’ll also get the deeds. Some folk leave £100 on the mortgage so the secure storage of deed remains with the lender.

[CrinklyLion]

You’ll also get the deeds. Some folk leave £100 on the mortgage so the secure storage of deed remains with the lender.

The deeds are held electronically in most cases now.

[Canardly]

Some people leave some small debt on a mortgage to term in order to maintain a healthy credit history for say, when they become economically inactive (retired).

[Wowbagger]

I’m retired but definitely economically active: my savings are dwindling rapidly!

[mllePB]

You’ll also get the deeds. Some folk leave £100 on the mortgage so the secure storage of deed remains with the lender.

The deeds are held electronically in most cases now.

HM Land Registry look after the lot electronically. Anyone can get an electronic copy for £3 (or ££ more if using a scammer middleman site).

[ian]

There are some benefits to keeping a small amount active, mainly if you plan to borrow again, otherwise you're starting afresh with an entirely new loan and have to leap all the new borrower hurdles. Even though we could have paid ours off, we keep a nominal loan going for this reason as we're vaguely thinking of moving at some point. As said, it's also good for your credit history.

[Mrs Pingu]

When we paid off our last Nationwide mortage they left £1 on it without being asked to.

[robgul]

As Roger says there is an admin fee when the mortgage is paid off . . .  the ability to pay off an amount without penalty is good, but it's also worth looking at the penalty should you want (be able) to pay off more . . . . 

We sold one of our BTL properties (and redeemed the mortgage, obviously) and with some of the funds released paid off more than 10% on the other BTL property morgage - the amount was pretty low and made sense to take the hit against the cost of borrowing etc.  [That may be case specific for us, but it's worth working out the sums]

[hellymedic]

I decided on a flexible mortgage.
Chucked any spare cash at it and got shot of it as soon as I could.
No redemption fee.
I don't do debt and was very relieved when it was behind me.
I am lucky...

[ScumOfTheRoad]

Thankyou all for responses.

[MikeFromLFE]

I decided on a flexible mortgage.
Chucked any spare cash at it and got shot of it as soon as I could.
No redemption fee.
I don't do debt and was very relieved when it was behind me.
I am lucky...

That was my approach. I had a 'retirement plan' (that didn't work out as expected) that included overpaying the mortgage to pay it off before I retired.
Again, I was fortunate in being able to do that. It was a huge weight off our shoulders.

[rogerzilla]

I had 8 months left in 2014 but had to start again (albeit with a 40% deposit) at the age of 44.  Not ideal, but I do have the money to pay it off sitting in the DC pension plan I use as tax-free savings.  There's no point paying off the mortgage a few years early to save 4% interest, from income taxed at 43.25%!

[ian]

We might be mostly debt-free now – looks at house prices – we'll be borrowing more if we move again unless I find a spare million down the back of the sofa or a Russian oligarch needs me to launder a few sanction stains out of their cash. We've never tried hard to clear it, other than the 10% over-payment each year. As Roger says, if you can afford the monthly payment, at the current interest rates (and more so with current climbing inflation), there are better things you can do with your money. We just locked in our remaining debt for five years at about 2% fixed. Inflation is probably paying off more than we are.

[citoyen]

Interesting reading this old thread, some of it is pertinent to my current situation...

Our mortgage comes to term next September. It's part repayment, part interest only. Because reasons, we don't currently have the cash in reserve to pay off the interest only part.

This leaves us with two options:
1. Remortgage
2. Take a lump sum out of my wife's pension pot to pay off the outstanding amount

I'm not sure how viable option 1 is right now. Aside from the general turmoil in the mortgage market, I'll be the wrong side of 50 by next September, and the current job is not a permanent employment contract, so I don't know if I would even get a mortgage. Wife has not been working full time for some years due to long-term illness and is also the wrong side of 50, so she's a non-starter.

Also, given that interest rates are on the increase, is a mortgage really a good idea right now? Current thinking is that if we pay it off out of my wife's pension, we can then start putting aside the amount we would have paid into a mortgage every month back into savings - even if we invest it very safely, I think we'll be better off financially in the long term. (If we invested at the same rate as our current monthly mortgage payments, we would repay the full amount inside 7 years.)

Definitely a bit of a risk involved, given the lack of job security, but that's true in any scenario, and I'm probably missing something obvious that makes this a bad idea.

If the worst comes to the worst, we can sell the house - the interest only part of the mortgage was about 10% of the property value 10 years ago, so we have plenty of equity even if house prices take a hit over the next year.

I think we need to seek proper professional financial advice before making any firm decisions though.

[De Sisti]

I decided on a flexible mortgage.
Chucked any spare cash at it and got shot of it as soon as I could.
No redemption fee.
I don't do debt and was very relieved when it was behind me.
I am lucky...

I decided to pay off my mortgage at the earliest opportunity. I was lucky enough (a fluke really)
to go onto shift-work during the last 3 years of employment. This meant my final-salary pension
would be based on the shift pay. I'd enough of the working environment and decided to retire a year early.

Like Helly, I didn't want any debt, so am fortunate that I've no loans or credit card debt, and don't
intend to move from my current property.

Oh, I use my credit card and pay off any balance asap, so my credit history remains good.

[ScumOfTheRoad]

Careful of taking a lump sum out of a pension pot. This is FINE if the person is ready to retire or is already retired.
However if the person is currently contributing to the plan the taking of the lump sum triggers no more tax relief.

Please check on this before taking action - I am in no way a financial adviser. I just read that somewhere as one of the pitfalls of managing pensions.

[citoyen]

Yes, definitely need to take proper professional advice on this.

My understanding is that if you're over 55, you can take up to 25% of your pension pot tax free. Anything you take out beyond that is taxed as income (calculated in aggregate with any other income).

[Pickled Onion]

I'm not sure how viable option 1 is right now. Aside from the general turmoil in the mortgage market, I'll be the wrong side of 50 by next September, and the current job is not a permanent employment contract, so I don't know if I would even get a mortgage. Wife has not been working full time for some years due to long-term illness and is also the wrong side of 50, so she's a non-starter.

It's certainly viable. Yes, most high st. brokers will show you the door but there are specialist brokers who know exactly which lenders will accommodate contractors and freelancers. I remortgaged several times with one of them, most recently this year and I'm very much the wrong side of 50.

If I'm understanding you correctly, you'd be looking to borrow somewhat less than 10% of the value of your property over something like 10 years. That sounds like something a lot of lenders would be happy with. But equally, given that it's a relatively small amount you'd need to consider the impact of fees on the total cost. It would be worth approaching your current lender for options as they may offer a mortgage on the 10% based on the previous valuation (as even if a new valuation said it's now 5% it won't affect the rate).

As for the mortgage market being in turmoil: no-one knows what it will be like next September. Projections indicate rates will drop after next spring, but projections are always wrong. But having paid off the vast majority of the cost of the house, your monthly payments will be a lot less than they are now.

FTAOD: none of the above constitutes advice.

[robgul]

Fees have been mentioned - go direct to the lender not a shark broker (Building Societies seem most amenable) and there are usually no-fee deals available (or at worst a modest fee of about £200 - not the £1,999 that seems common)

[Pickled Onion]

Fees have been mentioned - go direct to the lender not a shark broker (Building Societies seem most amenable) and there are usually no-fee deals available (or at worst a modest fee of about £200 - not the £1,999 that seems common)

Agreed, though citoyen's specific circumstances are likely to make a specialist broker worthwhile.

[Adam]

Yes, definitely need to take proper professional advice on this.

My understanding is that if you're over 55, you can take up to 25% of your pension pot tax free. Anything you take out beyond that is taxed as income (calculated in aggregate with any other income).

Correct, and if you do take out more than than the 25% tax free amount, it then restricts the total you (and any employer) is then allowed to pay in as ongoing pension contributions, to no more than £4,000 pa.  Although in any event, you'd have to think why you'd still be paying in, if you're taking money out!

From 2028, the earliest age you can access a pension increases from 55 to 57.