Category: Mortgages

Mortgages

Is it Worth Repaying your Mortgage Early?

A mortgage is a very long term debt often lasting twenty five years. Although the interest rate can be lower than short term loans, because you pay it back over such a long time, the cost of the loan can be really big. This obviously can depend on the interest rate but you can end up paying double for your home by the time that you have repaid the loan and in real terms, that is a lot of money. This is why a lot of people consider repaying it early.

It can be a difficult decision though and it is worth considering it hard before you do it. It will be lovely to have that feeling that you now own your home and not the lender and that you no longer have that big mortgage debt hanging over you. The feeling of freedom could be massive for many people. A lot of people do not like the idea of being in any debt and although a mortgage debt is considered to be good debt and you normally get something positive out of it that will end up making you money, it still does not sit well with everyone. It is worth remembering thought that you will get that feeling eventually even if you do not pay it off early, as long as you do pay it off by the end of the mortgage term.

A big advantage of paying it off early is obviously the money that you will save. Although you may have to pay an admin fee to pay it off early, it is likely to be very small compared with how much you will need to pay for the extra years of interest payments on the mortgage. It is very unlikely that if you save the money instead, you will get a better return compared to how much you will save on mortgage interest payments. This is because banks lend money at a higher rate than they pay out in interest. If you invest the money, you could make more back, but you will take a risk. An investment could lose value as well as gain value and this means that you could find that when it is time to pay off the mortgage, there is not enough money to pay it off with. This has happened to a lot of people in the past who had interest only mortgages with endowments and they found that they were not making enough money on their investment to pay off the mortgage and had to bump it up towards the end of the mortgage term. Whether this happens will depend on the economy as well as interest rates, the stock market and the funds that you choose to invest in. There are many unknowns here so it is always wise to do a lot of research and possibly talk to a financial advisor before investing.

If you pay the mortgage off early, then you may possibly regret it later if you suddenly get short of money and wish that you had held onto it. It is therefore wise to make sure that you have some extra money put by before you pay it off so that you can cover any expenses that come along. Some people recommend that you have a few months’ salary others recommend a years, it really depends on whether you think there is a risk that you will lose their job and how many bread winners there are in the home. Consider how high your monthly expenditure is and how much money you will need in order to manage and how many months money you feel you will need to put by just in case. You need to think about whether you would rather spend the money on the mortgage and no longer have that debt or use the money now, perhaps on a holiday or other things and wait to pay the mortgage off when it is due.

You may feel pressure to pay back early because it is a debt but it is worth remembering that although it is an expense, you will normally be making money just by having a property. This is because ein the long term property values increase and they tend to increase more than the cost of the interest on a mortgage and it means that you will always be gaining some money, although it will not be as much as if you were not paying out on a mortgage too.
So generally paying off the mortgage early would be seen as a good idea. It will save money in the long run in most cases and lift the burden of debt. However it is important t time it right and make sure that you cannot make more money by investing the money elsewhere and you need to have some funds to fall back on in an emergency.