Should You Pay Off Your Mortgage Early?
If you have a mortgage, you may be wondering whether there are any benefits in paying it off earlier. While some people believe it’s the best way forward in today’s uncertain economy, others think there’s very little point. So, how do you decide? Here are a few questions to ask yourself to help make a final decision.
Do I Have More Costly Debts?
Store cards and credit cards usually charge very high-interest rates, so if you have high balances on those, it’s best to pay those off before you consider paying off your mortgage early. Unsecured loans may also have an interest rate significantly higher than that of your home loan, so pay those off first, too.
Do I Have a Pension?
Pensions are one of the most tax-efficient ways to save since the government will top up the contributions you make with tax relief. If you have no pension but have some spare money, you should consider paying into one rather than using those savings to pay your mortgage off early.
If you have dependents, you should consider investing in life assurance before paying off your mortgage so you can have the peace of mind that comes with knowing your loved ones will be financially taken care of after you pass away.
Is It Possible to Get a Savings Rate That Is Higher Than the Mortgage’s Interest Rate?
In some cases, it’s more sensible to put spare money into savings rather than paying off your mortgage. If you’re able to find a savings account offering a higher interest rate than that you’re being charged on your home loan, you should definitely consider this as an option, especially savings accounts like ISAs, which offer tax-free returns.
Is There Anything I Should Consider About Paying Off My Mortgage Early?
There are a few things you should keep in mind if you’re considering paying off your mortgage early:
Keep some of your money back – ensure you’ve saved sufficient funds to support yourself financially for a minimum of 3 months before you even consider paying off your mortgage early.
Check whether you’ll be charged for mortgage overpayments. Some mortgage lenders will charge extra if you pay your loan off early or make monthly payments higher than the agreed monthly limit, although others will allow you to make overpayments of up to 10% per year with no penalties.
Check whether you have an offset or flexible mortgage. These mortgage types allow overpayments with the flexibility to draw the money back should you need it with no charges.
Why Overpay Your Mortgage?
If you make mortgage overpayments, you won’t just have less money to pay back in the future, but you will also be able to pay the mortgage off more quickly. Also, if you overpay at a time when the interest rate is low, your mortgage will be smaller when higher interest rates kick in.
If you do decide to pay off your mortgage early, you might be looking at purchasing a second home, if this is the case we can provide you with a free conveyancing quote for your next move.