The question of paying off your mortgage early or just continuing as normal is always in fashion.
The big thing we are all trying to avoid is interest and if interest rates are high then paying off your mortgage early is a good thing. If they are low then the opportunity cost is far greater as you could use your money for other things which might return a profit or better savings.
In this brief guide we will consider when you should pay off your mortgage and what the benefits are.
When deciding if to pay off your mortgage you should consider:
Paying off your mortgage to relieve the financial burden on your family if you die is a good idea but an easier idea is to simply get a life insurance policy which will cover the cost of your mortgage and still leave some money for your family
Before you pay off your mortgage you should consider if you have other debts that have higher interest rates or are costing you more per month. This could be credit cards, personal loans or even car finance which you should be able to refinance.
Is there a savings product there with an interest rate higher than your mortgage rate? This is something you should consider as if you can earn more than your debt is costing you per year then you should take this option.There might also be some tax benefits with this option.
If you already have a pension then the benefits of paying into your pension such as the government and employer contributions will far outweigh paying down your mortgage. This isn't always the case but you should certainly take it into account and seek independent financial advice.
If you don't have suitable savings to live off after paying off your mortgage then you should reconsider this.
You should also consider if your current mortgage has any early repayment charges which you may be liable for by paying it off. Some mortgage lenders will let you overpay up to 10% of your mortgage per year after which they will charge you a fee for further overpayments.
If you have a flexible mortgage or offset mortgage then you will be able to overpay your mortgage without any fees and even make withdrawals(further borrowing ) from your mortgage when you want without any fees.
Should you just remortgage?
If you manage your mortgage with a mortgage management platform then you will be told instantly on when you can switch your mortgage to a cheaper rate. Mortgage management platforms don't just tell you when you can save by switching your mortgage but they will also let you know if you can save in interest repayments by overpaying your monthly mortgage repayment. Overpaying your mortgage doesn't only mean you pay less interest it also means your mortgage term is reduced significantly.
You can't just over pay your mortgage you need to be able to time it right to get the maximum savings. This involves knowing when interest is charged, if daily, weekly or monthly and timing the right amount to pay and the amount of payments to get the maximum savings on interest.
This is why a mortgage management platform is key as it does all of this work for you.