Is it Better to Save or Pay off a Mortgage?

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Some keys with a house on the keyring

There’s a double sized edge to each and every sword and low interest rates may mean low mortgage rates, however they also mean terrible returns on savings.

So, the question a lot of people are asking themselves is whether it’s better to overpay their mortgage than continue to save. However, even if it seems like a good idea on a basic mathematical level, there are often spanners in the works that can make it less lucrative. So, we’re going to look at some of the things to consider.

Rates for Savings

Saving rates may not be as high as they could be and this means that you may be not getting the return you should. Look for the highest rates that there are and then try and see if these beat the mortgage rate you are getting. A lot of people can improve on their saving rates with a little research and it’s worth a look for sure.

Overpayment Penalties

Sure, in a lot of ways it doesn’t make a lot of sense, but overpayment rates exist and they can be quite hefty. These can be especially high on fixed rate deals or those that offered discounts initially. The lender needs you to pay at the full amount to get back their money and so they will instigate large repayment penalties to do this. This means that they obviously earn more and it costs you more to repay. However, a lot of mortgage lenders do allow a 10% rate of overpayment without penalty. Saying that it’s best to check first as you may end up having to pay substantive extra costs that may outweigh the positives of paying early.

Debts

Perhaps you have other debts in the form of credit cards and loans. While going mortgage free seems like a great idea, it doesn’t mean that it’s the best option. The higher rates on these other options often mean that it’s best to pay them off first and then follow on paying off your mortgage. Clearing these first often means more money in your pocket in the long term. If you’re considering selling and looking for those who can buy a house fast for market valueremortgaging could be a better option.

Emergency

It’s nice to have some money in case of emergencies and this may be a better call than paying back you loan. Though it depends as if you’ve excessively high rates of interest you may be in trouble. It’s all down to you own situation and the credit you have. For instance if you overpay the extra cast you need for an emergency is gone and this means using credit cards to pay for problems. This can be more costly and be a significant problem as it costs you a lot more and also is a larger risk.

Re-mortgage

A lot of people find that Remortgaging is a far better way to get a better rate and also sort out mortgage repayment. It’s often the case you can get a better deal for overpayment too. So, why not consider this and take a look around.

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