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Should you use savings to pay off mortgage debt?

People in the UK are constantly advised from early childhood to save money, from parents to the government as well as banks and building societies. However, does it always pay to save money, or should you consider paying off your mortgage?

The interest paid on most debts, including credit cards, loans and a mortgage, is higher than that paid on savings accounts. A mortgage is usually the cheapest debt and often has the highest amount outstanding. When other, more expensive debts have been paid off, it makes financial sense to consider paying off some of the mortgage. Consider what the interest rate is on the mortgage loan and compare to the interest you can receive on a savings account. If you are paying more in interest on the mortgage, start overpaying to reduce the debt.

Overpaying on a mortgage can help you to repay the debt early while paying thousands less in interest. If you had a repayment mortgage of £100,000 over 20 years at 3.5%, but paid an extra £50 a month, you would have paid off the debt two years earlier and saved £4,700. If you would rather have the security of a savings account, consider an offset mortgage so that you know the money is available, but you only pay interest on the amount owing less your savings. For instance, if you have a mortgage of £90,000 and savings of £5,000, you only pay interest on £85,000.

It is important to select the most suitable option when taking on a mortgage, and an adviser who has taken a CeMAP course can help you make the right choice.

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