With this unstable economy, others propose that paying off all your debts is always wise, while some others may argue that your mortgage is a type of debt that could be delayed since the interests are so low and you’ll be better off saving the money instead. Here, we are going to help you weigh your options out.
But first, ask yourself if:
You have other higher-interest debts. Your credit cards and payday loans, for instance, are types of debts that are more expensive to pay off over time, so it would be wise to settle them once and for all. Other types of unsecured debts are typically more expensive than mortgage as well. Make sure to pay these off first before working out on your mortgage reduction.
You are saving money on a pension scheme. If you’re saving up for your retirement, a pension is a good idea because it gives you access to a tax-deferred pot in the future. In cases where the scheme was set up in the workplace, you could also benefit from your employer’s contribution (which is free money by the way). Now if you don’t have a pension pot yet, it’s time to think about getting one before you put your spare cash into mortgage repayments. The earlier you start with a pension scheme, the sooner you can build your retirement money, and watch what the magic of compounding can do to that cash!
Your family can financially manage if you die. If you have a family or other dependents that would suffer financially at the event of your loss, it would be wise to get a life insurance policy to secure their future.
You can get higher returns in savings than the interest rates of your mortgage. Now if you’ve got your family’s future and your own sorted out, it’s time to decide whether putting your money into a savings account would pay you a higher interest rate than what you’re being charged for your mortgage. If that’s the case, it mostly makes sense to save that money and build your wealth.
Have Some Emergency Money on Hand
Before you think about paying off your mortgage, make sure you have some money in reserve that could keep you sustained for at least three months if something were to happen. Have this money saved in an instant access account.
Check if You Will Be Charged for Mortgage Overpayments
While there are offset or flexible mortgages which allow you to make overpayments without being charged, it may be worth reducing your mortgage balance. However, in some policies, there may be charges involved with paying your mortgage beyond the agreed monthly limit, so this may cost you more that what you would have saved.