Should I pay off my mortgage early or invest?

You may find yourself in the fortunate position where you are able to pay off your mortgage early. However, if you are in this position, you may be torn between repaying your mortgage or investing it. Each option can be beneficial, but for different people – it just depends on your individual circumstances, the level of risk you are willing to take and how much you value your financial security.

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Can you afford to take the risk?

If you’re considering investing your money rather than pay off your mortgage early, it’s important to consider that investments carry an element of risk, but equally as well, repaying a mortgage doesn’t come without its downsides. Before you make a definitive, you should consider these key things…

Are you paying into a pension scheme?

If you don’t already have a pension scheme or if you have one but are only making minimum contributions, it could be better off put into a pension scheme if you have any money to spare, rather than pay off your mortgage early.
Pensions are a tax-efficient way to save money, as the government tops up contributions with tax relief. If you’re part of a company pension, your employer will also be contributing to your pot.

Got any outstanding debt?

If you have any other expensive debt, you might be better off paying these off first before you start thinking about paying off your mortgage early.

Credit cards, store cards, car loans and other types of unsecured borrowing often charge interest rates which are significantly higher than that of your mortgage, so it could work in your favour to pay these off first if you have the spare cash.

Can you get a savings rate higher than your mortgage interest?

It may be possible to find a savings account that pays higher rates of interest than what you’re being charged on your mortgage, meaning that you could potentially make more money than you’d save by overpaying.

It could be more expensive to pay your mortgage early

You’ve heard all about them, Early Repayment Charges (ERCs) are all very real and come into play if you repay your mortgage early or make an overpayment that’s more than your agreed monthly limit.

Although many lenders allow you to overpay up to 10% a year without penalties, early repayment charges can potentially add up to thousands of pounds, depending on how much you overpay.

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