Paying Off Your Mortgage Early: Is It Worth It?

In some cases, the amount of interest you’ll pay can force your expenses above the property’s initial value over the life of your mortgage deal. For example, if you took out a £200,000 loan over the course of 25 years at a rate of 2%, your repayments would be £848 a month. Over the course of your mortgage term, you’d pay £254,400 back to your lender. By choosing to pay your mortgage off early, whether it’s by making regular overpayments or by paying off a lump sum, you can save a considerable amount of money.

Why should I pay my mortgage early?

Paying off your mortgage early can have countless financial benefits. For example, if you have a £100,000 mortgage over a 25-year period with an interest rate of 6%, overpaying by £100 a month could save you interest payments of over £26,000 and reduce your mortgage term by more than 6 years. Once your mortgage is paid off, you’ll own your property outright and your living expenses will therefore decrease.

Should I overpay if I’m in debt?

If you have credit card debt or you’ve taken out loans for things other than your home, overpaying on your mortgage might not be the best financial move for you. For example, there’s little point in overpaying on a mortgage of 6% if you owe 12% interest on a credit card. By seeking the support of a financial advisor, you can determine which option is best for you.

Is it better to overpay my mortgage than put money in savings?

If you can save more money by overpaying your mortgage than you can earn through savings, you’re probably better off doing the former. However, it’s wise to have sufficient funds in savings accounts in the event of an emergency. If you were to lose your job or face an unexpected expense, having money in savings can give you peace of mind. Although overpaying your mortgage can be a wise financial move, you can’t just remove the money you’ve already paid whenever you need it. You could potentially remortgage your property to free up equity, but this is rarely a fast process. As a result, if you don’t have any savings, you may be forced to take out a loan in an emergency.

How much can I overpay?

Most lenders will allow you to pay 10% of your mortgage balance as an overpayment each year. So whether you wish to increase your monthly repayments following a pay rise or you receive some inheritance and want to pay off a lump sum, check with your mortgage provider to ensure fees won’t be incurred.

Should I overpay my mortgage instead of investing?

Whether you overpay your mortgage or invest largely depends on your attitude to risk. If you’re very risk averse, overpaying your mortgage once you have a solid emergency fund might be the best option. However, if you’re willing to take risks and happy to tie your money up for at least 5 years, research your investment options to make the most of excess funds. Before making any large or risky financial decisions, it’s often wise to seek the advice of a financial advisor. They’ll use their expertise to help you find the right move for your personal circumstances. To learn more about paying off your mortgage early, please get in touch with the mortgage experts at TaylorMade.