Pay off mortgage now or wait?
Discussion
Been trying to work this out but it just fries my brain, got enough to pay the mortgage off now but trying to work out if it's cheaper to do it now or wait, it's split between early repayment charges vs interest.
All numbers are rounded up or down:
Mortgage balance £31,400
Interest rate 3.18%
Monthly payment £290
Early repayment charge at the moment is approx £950, charges are currently 3%, reducing by 1% per year every October until 2027 where the fixed term ends. This was my original intended date to pay it off, avoiding the charges.
The yearly 10% allowance for early repayments which resets every January has already been used this year.
Offsetting this slightly is just over £20k in an ISA which is currently at 3.5%, reducing to one point something percent in August as the higher percentage only applies for the first year.
Also a few thousand in bonds which so far have earned nothing. This will likely be withdrawn and leave some in the ISA instead.
So what I'm trying to work out, is the ideal time to clear the mortgage
Now, or:
August where the interest rate on the ISA drops?
October when the ERC reduces to 2%
January where there is a 10% allowance for early payments
The following October, ERC at 1%
or the October after that, no ERC.
Of course as time goes on, there is interest being paid, but it is less each month.
Paying it off as soon as possible would be nice, but if it's going to be significantly cheaper to wait then I'd rather wait.
All numbers are rounded up or down:
Mortgage balance £31,400
Interest rate 3.18%
Monthly payment £290
Early repayment charge at the moment is approx £950, charges are currently 3%, reducing by 1% per year every October until 2027 where the fixed term ends. This was my original intended date to pay it off, avoiding the charges.
The yearly 10% allowance for early repayments which resets every January has already been used this year.
Offsetting this slightly is just over £20k in an ISA which is currently at 3.5%, reducing to one point something percent in August as the higher percentage only applies for the first year.
Also a few thousand in bonds which so far have earned nothing. This will likely be withdrawn and leave some in the ISA instead.
So what I'm trying to work out, is the ideal time to clear the mortgage
Now, or:
August where the interest rate on the ISA drops?
October when the ERC reduces to 2%
January where there is a 10% allowance for early payments
The following October, ERC at 1%
or the October after that, no ERC.
Of course as time goes on, there is interest being paid, but it is less each month.
Paying it off as soon as possible would be nice, but if it's going to be significantly cheaper to wait then I'd rather wait.
It makes no sense overpaying.
Your rate is lower than you can get with premium bonds or cash ISA.
You'll be paying an early repayment fee.
You lose additional liquidity, should there be a disaster at some point.
I'd personally pay the minimum until the end of the term, at which point pay any additional off fee free.
Your rate is lower than you can get with premium bonds or cash ISA.
You'll be paying an early repayment fee.
You lose additional liquidity, should there be a disaster at some point.
I'd personally pay the minimum until the end of the term, at which point pay any additional off fee free.
Have I missed something because a couple of comments here and elsewhere have suggested that my savings are paying more than what I'm being charged in interest, but that's definitely not the case.
This month, for example, was £70 something mortgage interest paid, and £50 ISA interest received. Are people missing that there's £31k on the mortgage, and only £20k in the ISA, so even though the rates are better, the overall amount is worse?
The ISA was actually a better rate at the time of opening it, but of course rates have dropped since then. And bonds have returned absolutely nothing so far.
This month, for example, was £70 something mortgage interest paid, and £50 ISA interest received. Are people missing that there's £31k on the mortgage, and only £20k in the ISA, so even though the rates are better, the overall amount is worse?
The ISA was actually a better rate at the time of opening it, but of course rates have dropped since then. And bonds have returned absolutely nothing so far.
Edited by s91 on Saturday 22 March 17:25
I paid my mortgage off last year 13 years early. Whether it made financial sense or not I don't know nor care but it made emotional sense knowing it was all paid for.
The money I was paying on the mortgage I am now investing and earning more interest than I was paying at the time. If I was bothered to check I probably could have done the same previously but knowing my house is all mine and if life goes upside down then I am safe in my house was and still is far more inportant than anyting else.
The money I was paying on the mortgage I am now investing and earning more interest than I was paying at the time. If I was bothered to check I probably could have done the same previously but knowing my house is all mine and if life goes upside down then I am safe in my house was and still is far more inportant than anyting else.
Psychologically it makes sense to pay it off, it's a great feeling.
Financially, it makes no sense at all on the figures quoted, and you've only got a couple of years to wait before you get the psychological boost.
I wouldn't do it, but money is there to make you happy, and if you think it'll make you happy, do it.
Financially, it makes no sense at all on the figures quoted, and you've only got a couple of years to wait before you get the psychological boost.
I wouldn't do it, but money is there to make you happy, and if you think it'll make you happy, do it.
I agree with the above comments of being mortgage free, I'm sure someone more financially minded could have invested the money more wisely, but at least being mortgage free in your early 30's means potentially plenty of time to make good use of the money in future that would have gone on mortgage payments, can now go into investments/pension. I just want to run the numbers first and see if there's a significant difference between early repayment charges/interest etc
The question of moving to a different ISA with a higher rate - yes, although I went with the one I've got because I can withdraw the money at any time.
The question of moving to a different ISA with a higher rate - yes, although I went with the one I've got because I can withdraw the money at any time.
Edited by s91 on Saturday 22 March 20:53
What was your house value growth since the beginning of your current mortgage ?Check that, calculate the rate you have been paying including the inflation, so you would understand 'real return'. We have had average nearly 4.3% Inflation(annual) last 5 years, so it would be interesting to see how your property price also changed.
s91 said:
I agree with the above comments of being mortgage free, I'm sure someone more financially minded could have invested the money more wisely, but at least being mortgage free in your early 30's means potentially plenty of time to make good use of the money in future that would have gone on mortgage payments, can now go into investments/pension. I just want to run the numbers first and see if there's a significant difference between early repayment charges/interest etc
The question of moving to a different ISA with a higher rate - yes, although I went with the one I've got because I can withdraw the money at any time.
I was mid thirties when I cleared mine. I would personally clear it, I genuinely felt like a different person knowing it had sorted my future housing out(pending nursing home).The question of moving to a different ISA with a higher rate - yes, although I went with the one I've got because I can withdraw the money at any time.
Edited by s91 on Saturday 22 March 20:53
ooid said:
What was your house value growth since the beginning of your current mortgage ?Check that, calculate the rate you have been paying including the inflation, so you would understand 'real return'. We have had average nearly 4.3% Inflation(annual) last 5 years, so it would be interesting to see how your property price also changed.
I personally don't think that's an issue. If you became ill and couldn't work you only have to pay the basics, the house price could half and it wouldn't affect you.s91 said:
Have I missed something because a couple of comments here and elsewhere have suggested that my savings are paying more than what I'm being charged in interest, but that's definitely not the case.
This month, for example, was £70 something mortgage interest paid, and £50 ISA interest received. Are people missing that there's £31k on the mortgage, and only £20k in the ISA, so even though the rates are better, the overall amount is worse?
The ISA was actually a better rate at the time of opening it, but of course rates have dropped since then. And bonds have returned absolutely nothing so far.
Think of it a different way, your £20k that's in your ISA is returning a better result than it would be if the same £20k was used to pay off your mortgage.This month, for example, was £70 something mortgage interest paid, and £50 ISA interest received. Are people missing that there's £31k on the mortgage, and only £20k in the ISA, so even though the rates are better, the overall amount is worse?
The ISA was actually a better rate at the time of opening it, but of course rates have dropped since then. And bonds have returned absolutely nothing so far.
Edited by s91 on Saturday 22 March 17:25
Unless you've got lots and lots of savings that outweigh the amount left on the mortgage then i'd just stick with the mortgage as is, maybe overpaying by the 10% allowance. If you had a home emergency, or lost your income etc, you need liquid funds to live... you can't easily get the money back once you've used it to pay off the mortgage.
GROK says:
• Cheapest Option: Waiting until October 2027 minimizes your net cost (£26,870), saving £5,472 vs. paying now. You avoid ERC entirely, and the ISA earns £940 to offset interest.
• Trade-Off: Waiting 2.5 years means paying £2,700 in mortgage interest, which might feel like a burden if you value being debt-free sooner.
• Middle Ground: January 2026 leverages the 10% allowance, cutting costs to £30,551 (saves £1,791 vs. now) and clears the mortgage in under a year. Interest paid is only ~£970, and you’re done by early 2026.
• Sooner Option: October 2025 (2% ERC) saves £1,379 vs. now (£30,963 net) and clears it in 7 months, with £700 interest.
Ideal Time?
• If Cost is King: Wait until October 2027. It’s the lowest net outlay by far.
• If Balancing Cost & Freedom: Go for January 2026. You save significantly (£1,791) and pay off in 9 months, avoiding years of payments.
• If You Want It Done Soon: October 2025 is a solid compromise.
• Cheapest Option: Waiting until October 2027 minimizes your net cost (£26,870), saving £5,472 vs. paying now. You avoid ERC entirely, and the ISA earns £940 to offset interest.
• Trade-Off: Waiting 2.5 years means paying £2,700 in mortgage interest, which might feel like a burden if you value being debt-free sooner.
• Middle Ground: January 2026 leverages the 10% allowance, cutting costs to £30,551 (saves £1,791 vs. now) and clears the mortgage in under a year. Interest paid is only ~£970, and you’re done by early 2026.
• Sooner Option: October 2025 (2% ERC) saves £1,379 vs. now (£30,963 net) and clears it in 7 months, with £700 interest.
Ideal Time?
• If Cost is King: Wait until October 2027. It’s the lowest net outlay by far.
• If Balancing Cost & Freedom: Go for January 2026. You save significantly (£1,791) and pay off in 9 months, avoiding years of payments.
• If You Want It Done Soon: October 2025 is a solid compromise.
Personally. I would wait.
5 years ago I was eating into mortgage and debt I have with very little savings thinking that it was a great idea.
BOOM COVID.
Ended up redundant over night and our company went under so didn’t get the government scheme. Managed to just hold on to our property by taking advantage of credit card money transfers and cap in hand to parents.
Now I actually owe about £20k on credit cards at 0% until next year have £240k mortgage and £25k in savings.
Yes I could clear the credit cards but having that just in case savings makes me feel better.
If you think you can build savings up again quickly go for it.
Yes I get you will clear the mortgage completely but £0 savings feels risky. Still got to eat/heat it and have something for an unexpected house maintenance bill/boiler/roof etc etc.
5 years ago I was eating into mortgage and debt I have with very little savings thinking that it was a great idea.
BOOM COVID.
Ended up redundant over night and our company went under so didn’t get the government scheme. Managed to just hold on to our property by taking advantage of credit card money transfers and cap in hand to parents.
Now I actually owe about £20k on credit cards at 0% until next year have £240k mortgage and £25k in savings.
Yes I could clear the credit cards but having that just in case savings makes me feel better.
If you think you can build savings up again quickly go for it.
Yes I get you will clear the mortgage completely but £0 savings feels risky. Still got to eat/heat it and have something for an unexpected house maintenance bill/boiler/roof etc etc.
Aiminghigh123 said:
Personally. I would wait.
5 years ago I was eating into mortgage and debt I have with very little savings thinking that it was a great idea.
BOOM COVID.
Ended up redundant over night and our company went under so didn’t get the government scheme. Managed to just hold on to our property by taking advantage of credit card money transfers and cap in hand to parents.
Now I actually owe about £20k on credit cards at 0% until next year have £240k mortgage and £25k in savings.
Yes I could clear the credit cards but having that just in case savings makes me feel better.
If you think you can build savings up again quickly go for it.
Yes I get you will clear the mortgage completely but £0 savings feels risky. Still got to eat/heat it and have something for an unexpected house maintenance bill/boiler/roof etc etc.
You do realise interest is paid on debt? What's the point in having savings to pay interest on your mortgage?5 years ago I was eating into mortgage and debt I have with very little savings thinking that it was a great idea.
BOOM COVID.
Ended up redundant over night and our company went under so didn’t get the government scheme. Managed to just hold on to our property by taking advantage of credit card money transfers and cap in hand to parents.
Now I actually owe about £20k on credit cards at 0% until next year have £240k mortgage and £25k in savings.
Yes I could clear the credit cards but having that just in case savings makes me feel better.
If you think you can build savings up again quickly go for it.
Yes I get you will clear the mortgage completely but £0 savings feels risky. Still got to eat/heat it and have something for an unexpected house maintenance bill/boiler/roof etc etc.
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