To pay off mortgage or not to pay...that is the question!

[knowall]

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...

[Oneeyedvic]

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.

[stevie21]

If you can change without major cost to one of those current account mortgages then they can often be used as the equivalent of a high interest *tax free* savings account : the tax free bit of it makes it particularly attractive.
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.

[Harley]

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

[Loosehead]

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!

[Miss Zippy]

Agree with what's been said. All IFAs these days will advise you to pay off debts before accumulating significant savings (though it is recommended you have savings equivalent to 6m of your net salary put by for emergencies). Mortgages are the biggest debts most people have and, where means allow, you should strive to get them paid off as quickly as possible. Mortgages appear to be 'cheap loans', but an average standard rate mortgage taken out over the standard 25 year term means you end up paying back more than twice the original loan value, so hardly cheap in the long run. 

[knowall]

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.

[vicars]

? This way the lender pays to keep the deeds which will cost you �x per year with a bank or solicitor. (Deeds are now being dealt with electronically but this is still a useful service until you sell the property). You will also keep your credit rating going which is good and if you need to raise money on a mortgage you will have a much greater choice of re-mortgages as opposed to getting a brand new mortgage. Definitely pay it all off except for a fiver.

[vicars]

I somehow deleted the first part which reads something like - why not pay it all off except for �5? Also, the costs of a re-mortgage can be much higher than going for a brand new mortgage.

[erimus1]

As you only have a short term left on your mortgage, I would doubt that there are any redemption penalties as such, although there can be additional penalties for early repayment. Check out what these are, and how much you will be paying back on top of th �11,000, and compare that with the cumilative interest would be on that sum over the 5 year period - simple calculation - shouldn't think there would be that mucj in it though, so maybe your time would be better spent looking into how you should invest your money.
Good luck.