For almost two years now, 20 months to be precise, the base interest rate set by the Bank of England has remained at a record low of just 0.5%. Those people who find themselves with both a mortgage and savings can be left wondering if their savings would be better used to pay off the mortgage instead of sat in a bank account. The answer to this question will be personal to you but here are our top tips to help decide:
Mortgage Interest Rate
Consider what interest rate you may be paying on your mortgage at the moment. If it is a low rate, then you are probably unlikely to get that low rate again in the future so rather than pay off the mortgage altogether it could be an idea to keep some borrowing at least on this rate because it is cheap borrowing.
Great Long-Term Savings
Paying off a chunk of the mortgage could be a far better use of your money if it is sat in a low-interest savings account. Even the higher rates of interest at this time may not be that tempting and in many cases, may require you to tie your money in. When you make overpayments on your mortgage, you could save yourself thousands in interest and shave years off your mortgage.
Emergency Buffer
Although it can be an excellent idea to make overpayments on your mortgage if you can afford them, bear in mind how difficult or time-consuming it might be to try to borrow that back if you later need it. Consider how much you need for any unforeseen emergencies. Whether it’s a broken boiler or an unfortunate redundancy, consider how long your savings would last if you needed to survive on them.
