If you are in the fortunate position whereby you have managed to put aside a decent amount of savings, you may be wondering if it’s time to dip into these savings to overpay on your mortgage.
With interest rates at an all time low, it may be the case that there is a better use for your savings than collecting dust in an almost stagnant savings account. However, there are a few variables that you should take into account.
Your first move should be to check the interest rate on your mortgage and compare this with the interest rate on your savings so you can work out what you stand to gain by transferring across. Currently the average 30-year fixed mortgage rate stands at 2.99% whereas the current average interest rate on a savings account is 0.05%. These figures are very much in favour of paying off as much of your mortgage early as you can reasonably afford.
However, it is also worth checking what the limits of your lender are, most mortgage providers will limit the amount of money you can overpay by and anything outside of this amount will incur a penalty fee.
You should also be considering whether you have an ‘emergency fund’ to fall back on and whether you currently have any other debts. Your emergency fund should be equal to six months salary after tax at a minimum. You should also assess other ways to put the money to good use, such as investing it into making your home more energy efficient, another way to save you money in the long run and a benefit to the planet.
It is also worth considering that paying off your mortgage can make it easier to move home as you will not have to deal with a mortgage company or pay their fees.
If in doubt, speak to your financial advisor or find a local financial advisor near you.