Mortgage repayments are one of the most stressful financial responsibilities in a person’s life.
However, paying off your mortgage early is not always the best idea.
Whether you should consider doing so depends on a number of different factors.
In the blog below, we have outlined what these might be.
Advantages of paying off your mortgage early
Peace of mind
Firstly, paying off your mortgage early can provide significant peace of mind.
Repaying a mortgage is one of the biggest stresses in any person’s life. So, if you can get it paid off early, it relieves a huge amount of stress.
Saving on interest charges
Paying off your mortgage early also provides long-term financial advantages, because you can save money on future interest payments.
Depending on how early you are able to pay off your mortgage, it could potentially save you thousands of pounds.
Achieving full ownership
Thirdly, you will own the property outright if you pay off your mortgage early.
This means that there is no chance of your losing the house.
And when the time comes to sell (if you choose to do so in the near future) more of the money raised from the sale will be going straight into your pocket.
Disadvantages of paying off your mortgage early
Early repayment charge
Firstly, you can sometimes be charged for early mortgage repayment.
If the repayment goes over your agreed monthly limit, then there can be a penalty. You should check your mortgage deal to find out if this will be the case .
But as a general rule, lenders will let you overpay up to 10% a year without penalties.
Diverting capital from higher interest debts
If you have other debts, then sometimes using your finances to pay off your mortgage early may not be the smart decision.
This is because some smaller debts could be at a higher level of interest, meaning that you are better off focusing on repaying those debts.
Diverting funds from other areas
Finally, when you dedicate a significant sum of money to paying off your mortgage early, it typically means that you have less funds to put aside for other things, such as early retirement, or an emergency fund.
Methods for paying off your mortgage early
There is more than one way to pay off your mortgage early. Three of the most common methods of achieving this include:
Increasing your monthly repayments
Mortgage lenders often allow you to overpay by up to 10% of the remaining balance a year without incurring a penalty.
Paying a lump sum
Paying a lump sum can be a quick way of getting your mortgage repayments ‘out of your hair’. However, gathering enough funds to make this possible is extremely difficult for most people.
Reducing your mortgage term
Reducing your mortgage terms means that your monthly mortgage repayments would increase, but it could sometimes work out cheaper than paying the early repayment penalty.
Other ways
Keep in mind that there are additional ways to pay off your mortgage early, such as switching to an offset mortgage.
You should conduct thorough research on all the possibilities before deciding on the best route, and should also speak to independent experts who can guide you.
