Should you repay your mortgage early?

I read a lot at the moment about the way we repay our mortgages, and that we should be doing all we can to clear them as soon as possible, and certainly before we stop work.

I’m not convinced that’s necessarily a good idea, and it seems as though the banks and building societies involved in lending money for mortgage purposes might agree with me, given that many of them seem to be increasing the maximum age by which they expect loans to be repaid.

The reason for this change is that people are living longer and retiring later and so will have income beyond their early sixties, or are not buying a house until later and the same term on loan will mean they are still paying that mortgage when they are older.

The other reason that people might want to put off paying off their mortgages until later is that they have other things to do with their cash, and loans are really quite cheap at the moment, although thats; unlikely to always be the case.

Collectively we have millions of pounds tied up in our homes and it’s money that we can’t use unless we look at some sort of equity release scheme if we have already paid off our mortgage, or don’t pay our mortgage off if we still have one.

At one level it’s a straightforward financial decision. If you have money being invested that is earning you 5% and your mortgage is costing you 2% then why would you use the high earning money to repay a low cost loan? If your investments continue to earn 5% while mortgage rates rise to 7% then you might want to reconsider.

What you do need to make sure of is that you are going to have the money every month to continue to make repayments, so it’s important to look at pension planning at the same time as you look at your mortgage planing, so that you don’t find yourself with a mortgage to pay but no income to pay it with.

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