Should you pay off your mortgage early?

Clearing the mortgage account is a dream for so many homeowners. But, with research revealing that more than half of borrowers will still have a mortgage as they approach retirement, a dream is how paying off the mortgage early will remain for lots of people. 

Longer mortgage terms, greater later life lending and rising costs of living are making it increasingly difficult to become mortgage-free. But, is it really all it’s cracked up to be? In this blog post, we explore the pros and cons of paying off your mortgage early.

The pros of paying off your mortgage early

Whether you obtained your mortgage from a bank, building society, or a mortgage broker like us, the monthly repayments can be a bitter pill to swallow, especially if you’re going from living with your parents to buying a property of your own. Mortgage repayments are a major monthly expense, which makes paying off your mortgage early and saying “goodbye” to this outgoing even more attractive.

Making extra mortgage payments can help you save big on interest too. If your mortgage debt is paid earlier, you’ll pay far less interest. You’ll also enjoy greater financial security, with no need to worry about spiralling interest rates or missed mortgage repayments. By paying off your mortgage, you’ll own all of your own home, which means the equity can be drawn on now or later to help increase your financial flexibility and freedom further.

The cons of clearing your mortgage account

Unfortunately, there are several drawbacks to repaying your mortgage earlier than planned, especially if you do so via a lump sum payment.

There may be penalties and charges incurred when paying early. Using all your savings to pay off your mortgage will also leave you cash poor, making funds a lot more difficult to access for emergencies. You could miss out on various tax benefits too.

There’s a common misconception that clearing your mortgage account can improve your credit rating. The impact it has on your credit score however depends entirely on your circumstances as Forbes explains:

“Your credit score is unlikely to change much after you pay off your mortgage. Your payment history and the amount owed have already been factored into your credit score for several years. However, if you’re paying off a large lump sum (maybe you got an inheritance or work bonus), the effect on your credit score may be more noticeable.”

Should I pay off my mortgage early?

Deciding whether or not to pay off your mortgage is a very personal affair, and a decision that should be based on your circumstances. There may be another financially savvy route to reducing debt that makes much more sense. Some individuals for example choose to invest their savings instead, while others focus on minimising short term debt.

Finding the best solution for you and your finances is what we’d recommend. Chat through your options with a professional who can help by contacting our team today.