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Should I pay off my mortgage or save?

If you’re a homeowner, you may have asked yourself the question, “is it better to pay off my mortgage or save?”. It’s a valid question, and there are a number of things to consider. On this page, you’ll find out what those considerations might be, the benefits of paying off your mortgage early and whether you’ll be better off if you pay off your mortgage or save.

Is it better to pay off my mortgage or save?

When deciding whether to pay off your mortgage or save, it’s important to consider what makes the most sense for your current financial situation. A key thing to think about is the interest rate you’re paying on your mortgage, and how that rate might compare to the interest you could earn from your savings. 

In principle, if you’re offered a higher interest rate on a savings account than the rate you pay on your mortgage, it could mean it’s best for you to save. However, if you’re paying a higher interest rate on your mortgage than you could earn from a savings account, it might be best to pay off your mortgage first.

What are the benefits of paying off my mortgage early?

There are pros and cons to paying off your mortgage early. A mortgage is probably the largest debt you have. You’ll typically be paying it off over many years, and this means you might be paying large sums of interest. Paying off your mortgage early can help reduce how much interest you’ll pay, but you’ll also need to balance paying off your mortgage early with paying off any other debts you might have.

Budget planning is an effective way to understand what you can (and can’t) afford to do. Start with our simple budget planner to figure out whether it’s best for you to pay off your mortgage early or save.

What are the benefits of saving vs. paying off my mortgage?

In times of low interest rates, it’s often difficult to maximise your savings. During these times, it might be best to overpay on your mortgage so you can pay your home off more quickly. If you decide to pay off your mortgage rather than save, you’ll need to check the terms of your mortgage agreement as overpaying can sometimes incur penalties.

If you can earn a better interest rate on your savings than the interest rate you’re paying on your mortgage, it’s worth considering putting more into your savings rather than overpaying on your mortgage. If you decide to save, you’ll also need to consider which type of savings account is best for you. Notice accounts and fixed rate bonds both typically provide competitive rates of interest on lump sum deposits. 

Whichever type of savings account you choose, it’s always worth having an emergency fund to fall back on in the event that something unexpected happens. If you’re building an emergency fund, it’s important to consider how quickly you might need to access it, as this will determine what type of savings account you use to grow your fund. For example, you might want to save into either an easy access account or a notice account, both of which offer you the flexibility of being able to access your money quickly and easily.

Is it better to pay off my mortgage or save for retirement?

Another consideration is whether it’s best for you to pay off your mortgage or save for retirement. Again, it depends on your personal circumstances, but you may want to consider starting to save for retirement as early as possible. 

The more you can invest in your pension, the more interest you’ll earn, especially if you’re saving into a pension which offers compound interest, and the more money you’ll have when you reach retirement. 

Start saving with Raisin UK

If you want to quickly and easily open savings accounts from a range of banks, simply register for a Raisin UK Account and log in to apply online for free today. 

If you have any further questions, our UK-based Customer Services Team is happy to help.

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