When you’re setting your financial and lifestyle goals, paying off your mortgage is likely to be at or near the top of the list.
So it’s reasonable to start thinking about whether you could overpay slightly every month in order to pay it off more quickly.
But there are many variables to consider beforehand to be sure it’s the right decision for you.
Firstly, does this approach help or hinder your wider financial plan and fit in with your goals?
Your mortgage is just one single element of a much bigger financial picture, so overpaying may not be the best use of the funds you have available.
For example, could investing this money be more lucrative? Could you use it to pay down debts with higher interest rates, such as credit card debt, and ultimately save more money in the long run?
Could you be using this surplus money to create an emergency fund instead, so you have a financial safety net in case of unexpected events, such as a job loss or accidental damage to your home?
So if you’re thinking about diverting extra funds to pay off your mortgage more quickly, it’s really important to look at your finances in the round, so you can be sure you’re taking the right course of action.
Another issue to consider is the terms of your mortgage agreement.
Your lender might impose penalties for overpaying within a certain period of time or over a particular limit.
You should therefore make sure you know exactly what your mortgage agreement states regarding overpayments, so you’re aware of any potential penalties, and if the interest savings you could get from overpaying ultimately outweigh these costs.
In the right circumstances, overpaying your mortgage can have many benefits.
For example, you could lower how much interest will be charged if you can reduce your overall balance earlier on – which could add up to big savings over many years.
And of course, paying off your mortgage early can bring you great peace of mind, and you can move forward without the burden of monthly payments and with the confidence that you own your property outright.
But whether it’s the right step for you depends on many different factors, from your current financial circumstances to your longer-term financial goals.
A professional financial adviser can work with you to determine if overpaying your mortgage is appropriate, taking a holistic look at your finances to see if you could get better returns or use money more effectively elsewhere.
If you have any questions about how best to manage your finances and work towards your goals, please don’t hesitate to get in touch with us, and we’ll be happy to speak with you.