Early redemption of mortgage- open to offers?

C

Carpenter

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I have a lump sum due to me in the next few weeks and in the current economic climate etc it seems I could do a lot worse with this money than to use it to clear my mortgage. The outstanding balance on the mortgage is about €36k. I know I will need to contact the lender to find out the "redemption value" but my query is this: is this "redemption value" open to negotiation/ is there any room for haggling, or would I just be wasting my time? I ask this particularly in the light of having previously had a complaint against the bank in question upheld by the financial regulator in the past. The bank in question was found to be "guilty" of maladministration. I think I'd quite like the idea of haggling with the local bank manager! Any thoughts?
 
Carpenter said:
is this "redemption value" open to negotiation/ is there any room for haggling
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Extremely unlikely.
or would I just be wasting my time?
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No harm in asking. Worst that can happen is they laugh and say "no".
If this issue was already dealt with by the financial regulator then I don't really see how it's relevant here.
 
The only time a bank will accept less than the amount due is where there is a situation where it is otherwise unlikely they will recover anymore- so usually for people with large debts, often defaulting on loans etc. I don't think you would qualify.
 
What is the advantage of clearing your mortgage?

Are you not better off to keep some mortgage so as to benefit from tax relief on the interest payments?

And use at least some of the lump sum to invest?
 
eamonn123456 - What is there out there at the moment to invest in. By clearing the mortgage is an investment in itself. Otherwise what might look like a good investment just may become a huge headache. The times we are in at the mo., the best thing is to clear debt. And Banks don't and won't do a deal if they think you can afford it.
 
eamonn123456 said:
Are you not better off to keep some mortgage so as to benefit from tax relief on the interest payments?
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Why? Even after tax relief each €1 of interest charged is still costing you €0.80. There is no point per se in keeping a debt outstanding just to save a maximum of €0.20 in the €1 on the interest charged.
 
ClubMan said:
Why? Even after tax relief each €1 of interest charged is still costing you €0.80. There is no point per se in keeping a debt outstanding just to save a maximum of €0.20 in the €1 on the interest charged.
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Agreed! My mind is made up to clear the mortgage and divert the (otherwise monthly mortgage) payment into a savings account until I have considered alternative investment options.
 
mercman, clubman, i hear what you are saying.

My post was badly worded. I completely understand how important it is not to pay interest unnecessarily.

I guess what I am saying is, and depending on one's circumstances, it is not always the right thing to do to pay off or pay down your mortgage

e.g. if you have other investments you could make to balance your portfolio (and I am not going to be drawn on which ones, that's a whole other story);

or

in order to keep some cash available, even on a month's notice or whatever in a bank account, for emergencies or in case a really good investment opportunity comes up (and in these volatile times, that could happen, esp for anyone taking a long view).

I know you will be paying interest on your mortgage - but at least you get some relief.

It's (one of) the very cheapest form(s) of credit.

I am just trying to say, one does not have to pay off one's mortgage as the be-all and end-all.

I currently am buying a house (not an expensive one by most standards) and *could* potentially pay cash. However I am going to take out a (relatively small) mortgage for the reasons outlined above, and I think its the right thing to do.

However, if the OP has much more than 36k to play with, then of course, by all means pay off the mortgage, just don't do it for the sake of it, and don't leave yourself cash poor because of it, especially in the current environment of job-losses etc.
 
eamonn123456 said:
I currently am buying a house (not an expensive one by most standards) and *could* potentially pay cash. However I am going to take out a (relatively small) mortgage for the reasons outlined above, and I think its the right thing to do.
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But why not do what the original poster is planning to do (and what I have done years ago) - obviate the need for debt and then redirect what would have been the loan repayments into other investments on an ongoing basis?
 
That's a good point, and is indeed one strategy.

Another strategy is to be mortgaged to the hilt, with lots of cash in one form or other (even if effectively its not yours).

Both strategies have pros and cons.

One is low maintenance but low on opportunity if, e.g. you found a particular investment or set of investments that you wanted to invest heavily in, in lump sums over a short period (bearing in mind all risks inherent in that).

The other is by contrast high maintenance but high on opportunity.

You would want to be confident of your job / income. But you are in a strong position to swoop if some unmissable, time critical, opportunity came up (with the normal caveats blah blah).

If you pay off your mortgage, and leave yourself precariously cash poor, it doesnt take much of a shock to get you overdrawn / not paying off your credit card.

You pay much higher interest, and you get no relief.

Plus its a pain, and costs money, to go back and take out a mortgage again if things don't right themselves again.


Personally, I would take the middle ground.
Don't mortgage to the hilt because of the risks in that. Neither be cash poor.

Have a small mortgage if possible, get tax relief, and so have spare disposable money to drip feed into investments that make sense,
plus have cash on deposit, and be ready to make lump investments if and when they make sense.
 
Interesting debate; as outlined elsewhere my job was made redundant last week thus my desire to clear the small mortgage. I have no other borrowings and eliminating the mortgage altogether allows me plenty of time to secure the job I really want without putting unnecessary pressure on myself and my wife to be earning again. There is one other saving which wasn't mentioned- mortgage protection insurance; the monthly cost of this makes the benefit of interest relief even less compelling an argument. I will still have a small cash reserve after clearing the mortgage and it certainly be my desire to redirect (the equivalent of) the monthly mortgage payment into a savings/ investment vehicle suited to our needs.
 
Carpenter, given your current status (sorry to hear of it btw) would you not be better keeping that cash liquid and available in case you remain without an income for longer than anticipated? Of course, you can use the lump sum to redeem your mortgage once you have a secure monthly income stream coming in, but I would think you might be better off playing it cautiously for the time being.
 
Coincidentally I cleared our mortgage the week that I was unexpectedly made redundant a few years back. I was still glad that I did it. No monthly mortgage repayments and qualification for Unemployment Benefit while unemployed for a few months meant that things were actually quite comfortable. Clearing the mortgage did not eat up all the savings but neither did I have to dip into them while unemployed.
 
Not sure if it is relevant to anyone, but just FYI, I decided, based on some good points made here by a few people, that I too am going to go mortgage-free. Am I eating my words - well, pass me the salt ;-)

Having thought some more about my own situation, I realised I can afford the 200k-odd for the house purchase and still have enough emergency cash and enough cash for investment now and over the next couple of years if something good comes up.

As pointed out here, no point having a mortgage for the sake of it, or for the tax break! I figure that saving 4.5% tax-free on 200k is better than many investments I could make at the moment. I will also look for some other higher return investments to balance my portfolio of assets / investments / cash.

IF for any reason I ever need more cash I guess I will take the hit on conveyancing fees and get a mortgage. The interest saved up to that point will more than cover any expenses.

Thanks to Clubman and Mercman for making me think again
 
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