To clear balance mortgage or fix rate for remaining term

J

Jack & Jill

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Hi, we have 4.5 years remaining on a small variable rate mortgage with AIB.
We note the interest rate will shortly increase from 3.3% to 3.95%. We’re now in a position to pay off the remaining balance (<€25k) but also mindful of need to keep “rainy day” funds.
The option to go fixed rate won’t reduce the interest payable by any appreciable amount it appears.
Advise welcome as to whether we continue as per mortgage schedule or pay off.
Thanks !
 
I would just clear it. Your 25k would do well to get 4%, and you could start building your rainy day fund monthly rather than paying your mortgage. There are no real extra costs with paying it off, unless you want to pay to store the deeds.
 
Do you benefit from free banking with an AIB current account because of the mortgage?
 
RedOnion said:
Do you benefit from free banking with an AIB current account because of the mortgage?
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They would probably save more than any day to day banking charges by no longer having to pay mortgage protection life insurance premiums associated with the mortgage.

Even if they didn't there are other banks out there that offer lower or no transaction charges.

Keeping a mortgage going just to benefit from free banking doesn't make much sense to me.
 
While it would be nice to be debt free it's only half the story here. You've a small mortgage that hopefully you'll find manageable regardless of where rates will go.

The other half of the question is how much do you need your rainy day fund? how precious is your employment or health? Can you afford to live on one income/is there a second income? Have you income protection? Is the car/roof going to need replacing in the next couple years? These are just a few questions you should ask yourself before you consider raiding the fund.

There are very good reasons to keep a rainy day fund and remember getting rid of the mortgage won't stop the dark clouds massing in the future.
 
You will have no mortgage.
You will have no mortgage repayments.
You can build up your emergency fund.
And even if the emergency hits before you have the cash for it, you can probably pay for it with your credit card.

Unless you are planning to spend €25k in the next year , then you should clear your mortgage.

Brendan
 
I would spent 24k on the mortgage - and then just pay off the remaining 1k over the remaining 4.5 years so that you still can avail of the free banking and the bank stores the deeds for you during that period.

You can defacto already stop the mortgage life insurance now
 
Don't automatically stop the mortgage life insurance. If you are in good health and the amount covered is small, and the premium is high, it might be worth stopping. But if you have a health issue, the life insurance might be good value and worth keeping.

There is nothing complicated about keeping your deeds in your own house. Mark them as "Important do not throw out". The bank is more likely to misplace them than you are to lose them through a fire or through theft.

I suppose saving €120 a year in bank charges is a good return on €1,000 left on your mortgage.

But I would have an instinct to tidy up and simplify my affairs.

Brendan
 
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