Paying off mortgage and credit rating

[barb1314]

I wonder if anyone can help with this. We will have our mortgage down to approx £4000 by January 2012 having made massive overpayments for years (12 years early) We could just about pay it off completely but a few people have warned me that no mortgage equals bad credit rating. The only other debt we have is a small credit card balance. So if we needed a loan in the future we wouldn't get one? Are we better reducing the payments right down (the bank have said it'll be £35) and paying it off slowly or have I been told incorrect information.
Does anyone experience or advice.Many thanks.

[EcclesCake]

I might be talking absolute rot but as I understand it is good to keep a small balance on your mortgage as it is the cheapest and easiest way of borrowing.

If you fancy a new kitchen/bathroom/conservatory extending your mortgage is the easiest way of doing it.

That was certainly the case a few years ago, given the current economic climate I might be talking out of my flue!

[Maydup]

I'd have it paid off and the deeds in your hand.

Unless of course you're planning to borrow money again soon, in which case remortgage now and borrow it that way.

[puzzled54]

If you keep, say £100, on the mortgage, you will pay less than £1 per month, they will keep the deeds for you, and you can take out a loan on the mortgage again if you want to, as that is usually the cheapest way to borrow.

[AndyMDL]

Paid mine off in 12 years and still seem to have a good rating. Like you my only debts now are on the credit card and that is cleared every month.

Andy

[cathfromsaron]

we kept £500 on ours to keep the line of credit open, and it is acheaper way to borrow back in future.

your rating may 'change' if you are no longer regularly paying the repayments on any loan, but it won't disappear or black you. plus when/if you fill in loan requests in future, make sure they know you have an asset!!

[pretty_snowdrop]

My advice is to pay it off early if thats what you want to do , it will have no effect on your credit rating. It is correct that you need some form credit to have a good credit rating, but a credit card and a overdraft will be enough. It will actually show on your credit file that you had a mortgage and it was paid off. Once you have paid the mortgage you can always secure a loan on your property or remortage if you need extra funds.

[chas2008]

no mortgage = bad credit rating , its not really a bad rating they just consider you more of a risk , this applies to never having a mortgage, having a mortgage & paying it off shouldnt be a problem.

[boxtops]

Having taken advice on this recently, I'm of the opinion that leaving a very small balance is a good buffer for the future. If you want to borrow more money, or move and take out a new mortgage, it's very much easier if you are an existing borrower. If you've paid the mortgage off but then need to borrow again, you would have to start from square one as you are no longer an existing customer. I'd do what you're doing - drop it right down, but keep it ticking over. It'll all be capital repayments by now so interest rates isn't too much of an issue.

[Nosha123]

I know someone who paid off all but £1000 on their mortgage as they had been advised to ensure their credit rating shows they have a mortgage.
If you have a mortgage then a creditor can immediately see if you have any payment problems in your history.
Its not exactly bad practice to pay it off - but people who lend money like to lend to people who borrow or owe money.. so if you have no mortgage and no credit cards. they tend to look at you a bit suspiciously and cant tell how good or bad you might be to lend to. Does that help?

[MarkRae]

According to my financial advisor, keeping a small amount of mortgage makes not one iota of difference to your credit rating, as it doesn't disappear from your credit score. Therefore, lenders will be able to see that you have had a mortgage and paid it off - they will also be able to see if you had any arrears in the past etc.

On the other side of the coin, as it were, what definitely will improve your credit rating is small and regular spending on a credit card which are always paid off in full every month. This demonstrates "normal" debt patterns and also financial stability.

Unless, of course, you're actually applying for a new credit card as people who always pay off their outstanding balance every month aren't credit companies' target market since they earn next to no revenue from them in monthly interest... :-)

[barb1314]

Thanks so much for all your helpful answers.I hadn't realised that a 'paid off' mortgage would still show up on our rating so that's good news. All we've thought of for the last few years is being able to go in and pay it all off. Hard work and all that! I think though we may keep a small amount on the balance in case we need to borrow in the next few years. We are both self employed now so you never know (and all the hassle that comes if we need to apply all over again) Brilliant advice so thanks again Answerbankers.

[MarkRae]

To be strictly accurate, Experian will keep details of settled accounts (including mortgages) on your credit report for six years from the date of settlement. After that, they will automatically disappear.

However, lack of a current or recently settled mortgage won't have any significant impact on your credit score.

As for remortgaging, unless you needed to borrow a huge amount, the difference between the interest you'd pay on a remortgage and that on a loan secured on your property would be negligible in today's economic climate...

[barb1314]

Thanks Mark,that's very helpful to know.

[hc4361]

No mortgage = owns house outright = lots of equity = very good credit rating.

99% of householders are registered at the Land Registry so the Deeds are irrelevant. My building society send mine as soon as they'd registered the Title at the Land Registry even though the mortgage wasn't paid off.

Pay the mortgage off. It is easy and cheap to remortgage in the future if you need cash.