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Should you pay off UK mortgage early?

A few years back there was a superb television series on BBC2 entitled Pay Off Your Mortgage in Two Years.

It looked at several families and with some good advice and a lot of hard work they aimed to pay off there mortgage. But it begs the question why should you pay off your mortgage, and if you do have a lump sum does it make sense to end your mortgage early?

There are two ways of thinking in the UK:

  • Pay off your mortgage quick as its a loan around your neck.
  • Don’t pay it off in total, just overpay (if your mortgage allows it) the loan to the point of making it so small that the interest is minimal, in that way you get the deeds looked after for free.

So what is the correct way to deal with such a pleasant dilema? In both cases we are talking about a repayment mortgage, not an endowment.

Should you pay off UK mortgage early

Choice Do you pay off UK mortgage

Advantages of paying off your mortgage

It will reduced your monthly cost of living.

You will have more disposable income if its paid off.

 

Disadvantages of paying of your mortgage early

A mortgage is probably one of the cheapest loans available, so over-payment without paying the mortgage off in full is a great way of keeping a large amount of money on hand for a quick low interest loan (assuming your mortgage company allows this)

Some say there is a tax advantage keeping a small amount outstanding on your mortgage, I beleive this is an old idea that is no longer true.

Advisors suggest that keep your mortgage open for its full term and it will provide you with the security of knowing the lenders are keeping the house deeds safe. This makes some sense as some suggest just keep your mortgage to £1 and paying a few pence interest a year is a very cheap way of having the deeds safe.

Conclusion

No one can really make the correct decision for you as only you know your terms and conditions, only you know how much the money is that is outstanding, how much you can afford to overpay, remember that inflation makes the debt get smaller quicker as the years pass, so even that can have an effect on your decision.

The general thinking is mortgage rates are low at the moment (2011) and savings interest is lower still, now is a very good time to pay off as much as you can off your house loan. Then, when interest rates rise you will have less of a financial burden.

Mortgage rates can change as can rates for savers and investors, for most of my mortgage years, over payment of my mortgage it is always the best form of saving, but this can change.

posted by Zane in Guide,Lending and have No Comments

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