Does paying off a mortgage early make sense?

If you have been saving more money recently or received inheritance, you may have considered paying off your mortgage early. There are advantages and disadvantages to doing this so it is important to do your research beforehand. We discuss below the pros and cons of paying off a mortgage early before the loan term is up.

You become debt-free

One of the main advantages of paying off a mortgage early is that you become debt-free. However, there may be costs involved, so even if you have enough to pay it in full, speak to a mortgage adviser to make sure you will be able to afford it. We understand that your mortgage is a big debt however if you have other debts such as credit card debts or car finance it may be more beneficial to pay these off first. Mortgages usually have lower interest rates than other credit lines, so the interest on your smaller loans may cost you more.

No more monthly payments

Paying off your mortgage means that you will no longer have regular monthly payments. This will result in you have extra money each month which you can put towards more holidays or into savings for a rainy day. One of the main disadvantages of paying your mortgage early is you can incur an early repayment fee that can be thousands of pounds. Sometimes it can be worth paying this fee as you will save you the interest costs in the long run. You must do your research into this though, especially if you are nearing the end of your mortgage term anyway.

Reduces your total loan cost

Paying off your mortgage early, reduces your overall loan cost. This is because you will save a significant amount on the interest that makes up part of your payment agreement. This means you won’t have to pay interest on the months you no longer need to pay, saving thousands of pounds as well as ending your mortgage years earlier. The disadvantage of this can be if you don’t have a comfortable pension pot saved for your retirement. It could be worth making a large contribution to your pension plan to take advantage of the tax benefits this may provide.

Thinking about all the options available to you can become complex and will depend on the financial markets. Speaking to us and receiving financial advice before you decide whether to invest your money or pay off your mortgage could really help you.

*Your home may be repossessed if you do not keep up repayment on your mortgage. 

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