As mortgage rates are at their lowest in years, some experts advise borrowers to overpay on their mortgage, to reduce the term and the amount owed. Others disagree and say it isn’t worth paying more every month. So, what should you do if you have a little spare cash each month?
If you have other debts which have a higher rate of interest, you are better off clearing them first. Once you have paid unsecured loans, credit cards and other debts off, don’t take on any more debt unless you really have to.
Make sure you have a pension scheme before paying extra on your mortgage. As the government gives tax relief on pension payments, this is an efficient way to prepare for retirement. You may want to consider paying extra into an existing pension fund, to make sure your finances are ready for retiring.
If you have savings, consider the interest rate you receive. As interest on most savings accounts is relatively low, you may be better off paying more onto your mortgage. However, if you find a savings plan which pays a higher rate of interest, consider keeping your money as savings.
Always make sure that you have around three months of money saved in case of emergency. Don’t consider overpaying a mortgage until you have this amount saved. You will also have to consider whether the lender will charge a penalty for overpaying. Before making a decision, consult a CeMAP trained mortgage adviser.
