Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Mortgage rates are the highest they’ve been for years. And as the Bank of England kept interest rates at 5.25% for the sixth time running on 9 May, the hopes that interest rates might at long last pivot were kicked down the line.

With interest rates staying higher for even longer than expected, you might be wondering if it’s worth paying off some - or all - of your mortgage.

The case for paying down or paying off your mortgage

Paying your mortgage off - Your house is almost certainly going to be the most expensive purchase you’ll make in your lifetime. And because mortgages tend to be large loans that last a couple of decades or longer, you could save thousands of pounds in mortgage repayments by paying your mortgage off.

Paying more towards your mortgage or paying down your mortgage - by paying more than the agreed amount, your total mortgage will be less so you’ll pay less interest. And as the balance reduces more quickly, it’s likely you’ll be able to pay your mortgage off sooner. If you need to remortgage in that time - as the amount you owe reduces - your loan to valuation rate will be lower, which means you may be able to negotiate a better mortgage rate. All of which means you’ll save significant sums in the long run.

Are there any pitfalls to paying your mortgage off early?

Maybe the term pitfall is a little strong, but there are definitely things you should consider. Before leaping into a mortgage-free world, ask yourself the following:

  • Are there penalties for paying off your mortgage? Know what you’re getting into. Your mortgage may have an annual overpayment allowance. Anything over and above that is likely to incur an early repayment charge. You should think about whether the pros for paying your mortgage off early outweigh the cons.
  • Do you have any money set aside for emergencies? If you don’t have three to six months of savings set aside for emergencies, you should factor this in before paying extra off on your mortgage. Then if you’re hit with an unexpected bill, you won’t have to borrow money unnecessarily.
  • Do you have other expensive debts to pay off? Loans, credit cards and overdrafts often have higher interest rates than a mortgage. It probably makes sense to pay these off before paying down your mortgage.
  • Are there any other upcoming large costs you need to think about? Perhaps you’ve dependants whether that’s elderly parents or children - who are relying on you financially as well as emotionally. It’s worth ringfencing some cash for their needs to ensure you don’t struggle further down the line.
  • How secure is your job? Little in life is certain, so you may want a buffer in case you find yourself between jobs.

If you’ve got spare cash, how else can you get it to work harder for you?

There’s a good case for paying off some, or all, of your mortgage. It can certainly help alleviate one of the largest financial pressures many of us have right now. But it’s important to ensure you’re mindful of the future too.

Interest rates may work for savers at the moment, but - at some point - they will come down. Investing any spare cash you might have could give it the potential to grow over time. Although it could fall in value too. Our financial advisers can help you with a personal recommendation if you have over £100k to invest. Equally, if you’re holding over £250k in investments (including your pension) and they’re dotted around different companies, if you brought them all to Fidelity you’d qualify for our Wealth Management service, where you get your own dedicated relationship manager to guide you.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not normally be possible until you reach age 55 (57 from 2028). It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from one of Fidelity’s advisers or an authorised financial adviser of your choice. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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