Should you pay off your mortgage early?

When you own a home, the thought of a mortgage hanging over your head for decades can be daunting for many people — and it’s natural to want to pay off your mortgage as soon as possible. Should you save or pay off your mortgage early? Answer these questions to help you decide.

1. Do you have any other more expensive debts?

Expensive debts are those which cost a lot to pay off over time.Credit cards for example, charge a high rate of interest over the course of a year. Other examples might include unsecured loans, where the interest rate is significantly higher than the cost of your mortgage borrowing.

Always pay off more expensive debts before thinking about reducing your mortgage.

2. Are you putting money into a pension scheme?

Pensions are a tax-efficient way to save because your contributions are eligible to get tax relief at marginal rate of tax ie if you pay 100€ to your pension, it will cost you 60€ after tax relief.

And, if you have a company scheme your employer might pay into the scheme too.

If you don’t have a pension and have money to spare, it’s important to think about paying into one. The earlier you start, the sooner your retirement pot will start to grow.

So, think about this before deciding to use your savings to pay down your mortgage early.

3. Could your family cope financially if you died?

Do you have dependants? The cost of putting in place life assurance is relatively low – if you’ve not got this already and have a family or other dependents, then now’s the time to think about it. Talk to us we can help you to choose the right plan for you.

4. Keep some money in reserve

Ensure you have saved enough money to keep you going for at least three months before paying off your mortgage early.

5.Are there any penalties for repaying the mortgage early? 

If you are on a fixed rate or discounted mortgage, there might be significant costs for paying it off early.

6. Investing the money instead

You may invest your surplus cash instead and get a better return than the interest rate you are paying. Be mindful though that you are taking an increased level of risk by investing in order to beat your interest rate. You also have to take taxes into consideration. To beat a 3% interest rate, you need to return 5.08% or 4.48% if paying taxes on gains at 41% or 33% respectively.

If you have any questions, please contact us directly at info@financechoice.ie. 

 Warning: If you do not keep up your repayments you may lose your home.