24 Jun 2012 3:39 PM:
I agree with the golden rule.That is: if you have surplus savings then pay off the mortgage providing the savings rate of return in real terms(taking account of tax on the savings income) is lower than the interest you are paying for your mortgage.
There are of course some variations,like early redemption costs, and if like me you have a Spanish mortgage in euros but your savings are in sterling in the UK.Then you have to look at the foreign exchange rate; the costs of transferring sterling to Spain;the interest payable on the mortgage in Spain;and the interest rate and tax on your savings in the UK.
As has been pointed out, the uncertainty of the euro is another factor.If I thought Spain would come out the eurozone and revert to the peseta then I would not pay off my mortgage early. I am sure if this happened,the value of the pound would go up against the re-introduced peseta because the euro is being kept high against the pound due to the strength of the German economy.Take Spain away from Germany and the re-introduced peseta would plummet.Overnight my mortgage would be cheaper in real terms.
However,it now seems that Spains exit from the euro is unlikely and that Germany,the IMF et al will ensure that Spain stays in the Euro.(But there are no guarantees!)
So I have been hedging my bets by taking advantage of the 1.24 exchange rate by partly paying off my mortgage (in my case I can pay 25% p.a. of the mortgage capital without incurring a penalty).
But now I worry that the rate of exchange will go up to 1.30 soon and I will have lost out by jumping too early!!!
Is there no end to this anxiety!!!! But I am lucky that I can make choices,and even if some are wrong it is not the end of the world.
So you literally pay your money and take your chances.
Thread:
Paying off an existing mortgage
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