Should I Pay Off My Mortgage?

Written by Karen Bryan

Judging whether you should pay off your mortgage can be complex and may partly depend on your attitude to debt. With the current low base rates as long as you are on a low repayment mortgage interest rate, it may not make financial sense to pay off part or all of your mortgage. Particularly if you could receive at higher rate of interest on your savings, especially in a tax free Cash ISA, than you are paying for your mortgage. Also if you have other debts which are charging a higher rate of interest than your mortgage, you should pay these debts of first.

If you are paying a higher rate of interest for your mortgage than you are getting on any savings and you have a mortgage which allows you to make additional payments without any penalties, you could start paying any excess money into your mortgage account every month or year. The more you pay back on your mortgage, the less interest you will pay in total.

If there are penalties for early repayments, or your mortgage rate is lower than the interest rate you get on your savings, you could put any extra money into a savings account earmarked to pay off your mortgage, either when the interest rate balance changes and/or when you are about to retire.

Paying off your mortgage early is a good way to enable you to practise frugal living. It also opens up the possibility of being able to retire early; if you own your home outright, you won’t have to make mortgage payments out of your retirement income. If you examine your current spending the chances are that your mortgage interest and/or repayments are taking a large slice out of your monthly income. If your retirement income is half of what it was when you were working, imagine having to keep up paying for your mortgage out of this lower retirement income.

However there is also the option of paying more into your pension instead of paying off your mortgage. The advantage of this is that, in the UK, you get relief on payment up to 100% of your pay, to a limit of £50.000. I am paying into a personal pension but with the current low value of shares, I’m very unsure of when I’ll be able to retire.

You need to bear in mind that once you pay off your mortgage, you have lost the flexibility of having your savings in cash, as your savings are now tied up in property. Now that could be a good thing as you wont’ be tempted to spend any of your savings but it could be a bad thing if you need to access some cash.

You should always shop around to find the best mortgage deal to ensure that you pay as little in interest as possible and research into where to save to get the highest rate of return of your savings. As soon as your current mortgage deal comes to an end, start searching for the best current offers. Many financial institutions are hoping that you can’t bothered to move to another supplier.