Oh mortgages……. We spend our early years trying to get one and the rest of our lives trying to pay them off! But there’s one thing that anyone who’s had a mortgage during the last 6 years can be grateful for, And that’s low interest rates.
In October 2008 the base rate was 4.5% but it dropped quickly down to the historic 0.5% and has stayed there for an unbelievable 6 years! Meaning that mortgages over the last 6 years have been more affordable than at any other point in history.
I’m often asked: should I be taking this opportunity to pay more off my mortgage? To make over payments? Well, there are obvious benefits to doing that. Overpaying could mean that you pay off your mortgage earlier, or that you have a much smaller amount outstanding, if and when rates begin to rise again.
But it’s worth considering a couple of other things too.
Your mortgage is probably your cheapest debt. So if you have other significant debts (credit cards, loans, etc) then it can make good financial sense to pay those first.
You may want to consider adding to your pension. That’s a great way of putting money aside, getting tax relief and again, may work out more financially rewarding in the long term than overpaying on your mortgage.
Finally, don’t forget that you’re often charged by your lender for overpaying above a certain amount (usually around 10% of the loan outstanding) so always take that into consideration.
But all things considered – if you can overpay then you’ll have a smaller mortgage. And that can only be a good thing!