Paying a Mortgage Off Early: Top Pros and Cons

Paying a mortgage off early: Top pros and cons

The age-old question – ‘Is it worth paying a mortgage off early?’ is one that many homeowners have been confronted with.  Whether the plan is to make regular overpayments or a lump sum payment, it’s important to look at the long-term impact. Although there is no right or wrong answer, there are many ways to determine the best option for you. Here is a few important pros and cons for UK homeowners to consider:

Paying a mortgage off early. The pros:

 

  • You can save a fortune in interest

If your mortgage interest rate is higher than your savings rate, paying a mortgage off early can save you £1,000s in interest. With current savings rates continuing to fall “to new historically low levels” paying a mortgage off early is likely to be a good option for most in the UK so long as there is no likelihood of penalties.

 

  • You’ll have a shorter mortgage term

One benefit of overpaying your mortgage payments is that it is likely to shorten your overall mortgage term. This gives you the flexibility to choose when you’d like to complete your mortgage payments altogether and become debt-free sooner. For example:

On a £150,000 mortgage at 5% with 25 years remaining, paying off a £5,000 lump sum reduces the interest by £11,500 and means you repay 18 months earlier.

 

Paying a mortgage off early. The cons:

 

  • You may be subject to penalties

 

Paying a mortgage off early can also have adverse outcomes. Depending on the type of mortgage you have, overpaying can be costly. As a rule of thumb, most banks and building societies allow you to overpay up to 10% of your outstanding loan amount every year without penalty. But of course, you’ll need to clarify this with your lender to avoid any surprises.  

 

  • It may be more beneficial to keep savings for a rainy day

Although it’s normally advised to use savings to pay off debt. When it comes to substantial debt like mortgages, it may be more beneficial to keep your savings for an emergency fund.. Especially if you incur penalties for overpayments. This helps you to avoid getting into more debt in the case of an emergency and gives you a cushion to fall back on should you need it.

 

I hope these tips have helped you make a decision on whether or not to pay your mortgage off early. For more property, business and wealth tips and strategies, take a look at my blog page here  

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