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Should I pay my mortgage off early or save?
If you're a homeowner, your mortgage payment will likely be your biggest monthly expense. According to ONS data on family spending, the average household pays £1485 in mortgage payments, repairs and maintenance¹.
And mortgages are likely to continue to squeeze household budgets. For over a decade, borrowing rates have been kept low, sometimes below 1%. However, they now stand at 5% or above, increasing substantially since the beginning of 2022.
According to the Institute for Fiscal Studies (IFS), more than 1 million households² could lose at least 20% of their disposable income due to the expected surge in mortgage costs before the next election.
This has led some clients to ask, 'Should I pay my mortgage off early or save?' They want to know the value of channelling money intended for general savings or their pension into mortgage payments to get ahead of the curve.
There is no simple answer. It depends entirely on your circumstances and how big a millstone you consider your mortgage to be. And as your Financial Adviser, I can guide you through your decision-making. There are a few points to weigh up:
- Overpaying on your mortgage could save you hundreds or thousands of pounds, depending on the interest rates and the remaining term.
- Redirecting money intended for your savings into mortgage payments will reduce the future value of your savings, investments and potentially your retirement funds. For instance, pension contributions usually benefit from tax relief from HMRC, which can help you grow your retirement savings quicker.
- If you've got a fixed-rate mortgage, you might be limited in what you can overpay; for some, it's only around 10% of the mortgage value.
- Being free from mortgage payments will significantly boost your monthly cash flow – money you can invest, save, or put into your pension from that point.
- The satisfaction and relief of being mortgage-free ASAP by channelling what you would have saved into mortgage overpayments may be worth more to you than a better long-term savings return.
Your relationship with your mortgage and the priority you place on minimising it compared to growing your savings and pension is very personal. I can help advise you so you can confidently make the right decisions for you and your family's circumstances.
Why not contact me today for a no-obligation meeting?
Your home may be repossessed if you do not keep up repayments on your mortgage.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
¹NimbleFins analysis of data from Office for National Statistic, Gov.uk, viewed on 16th January 2024
²Institute for Fiscal Studies, viewed on 16th January 2024
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