to pay, or not to pay off the mortgage

As the end of your mortgage term comes nearer there may be the possibility to repay the mortgage earlier than the original term. Is this ever a sensible thing to consider?

The advantages are clear, to no longer have what was probably your biggest ever debt leaving you with a feeling of financial freedom. To also not have to make monthly payments on your mortgage, which leaves you with more money in your pocket each month. You’ll also be saving as you won’t be paying interest each month on the mortgage loan.

But what are the disadvantages?

The money will now be gone from your bank account and won’t be there if you need to pay for anything unexpectedly. As a minimum ensure you keep an emergency fund to cover at least 3 months of your normal expenditure so you could manage in the short-term should the unexpected happen.

You have used your money to buy security in your house, which you would have gained in a number of years anyway. If you used the money to invest instead you may get a higher return and still be able to repay your mortgage early in the future.

When you owed money on your mortgage you were borrowing money to invest in property. The cost of interest on your monthly mortgage payment was effectively offset by any growth in your property value. Now your mortgage has gone you need to be careful where you store the monthly amount you would have been paying. It would be too easy to spend it. Even the most well intentions to place it in a savings account can leave you worse off as interest rates are so low. Once you have sufficient emergency funds you need to ensure your money continues to work hard for you by considering investing it.

Owing money does give you a small improvement to your credit score. On paper it shows providers are happy to lend you money, which can mean it’s easier to obtain an additional loan should you need it.

 Clearly it is a very personal choice.

Whatever you decide remember to ensure your hard earned money continues to work hard for you!

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