For most of us a mortgage is likely to be the biggest debt we ever have to pay off.
If you come into a lump sum of money – from getting lucky at the bingo or discovering a priceless heirloom in the attic – or land a better paid position via s1jobs, it can be tempting to overpay your mortgage each month or pay a lump sum to lower or cancel the overall debt.
But should you?
The final answer, of course, depends on your individual circumstances.
But there are some key questions to ask yourself before deciding.
How much will I save in interest by overpaying?
Lowering your overall debt, either by paying off a lump sum or by increasing the amount of your monthly payment, will lower the amount of interest you pay on your mortgage.
This could reduce the term of your mortgage by months or even years.
Alternatively, you can shop around for re-mortgage deals and speak to your current lender about reducing the term of your current mortgage.
Will I incur any charges?
While some types of mortgage will permit overpayments, others will incur repayment charges.
If you check the small print, you may notice there’s a limit on the amount of overpayment of say 5 or 10 per cent over the year.
If this is the case, you’ll need to confirm when the 12-month period runs from.
Do I have other debt?
While your mortgage will likely be your largest debt, it probably won’t be your most expensive in terms of the interest rate you’re paying.
So check the interest rate you’re paying on credit cards, unsecured loans or finance agreements for a car or large purchase.
If you have extra money, use it to reduce the debt with the highest interest rate first.
Could you get a better return elsewhere?
Paying extra into a pension or high interest savings account could actually reap you higher rewards than paying off your mortgage debt faster.
Once you’re retired – yes, it may seem a long way away but the earlier you start planning for it the better – your mortgage will most likely be paid off anyway.
A better pension could transform your standard of living.
So, to sum up, paying off your mortgage early could be the most savvy decision you ever make. But do your research and compare how paying off other debt or investing elsewhere would benefit you now and in the future.
You can also find excellent and impartial advice on all aspects of home ownership right here on s1homes.