Should overpaying your mortgage be a serious consideration if people have the cash, as they could save tens of thousands of pounds in interest over the years, but an expert has suggested alternative benefits of paying into one's pension. Under different circumstances, both financial strategies could make a person richer. A significant number of mortgage lenders let people overpay by 10 percent of their outstanding mortgage balance each year without an early repayment fee. In the long term, this may reduce one's monthly repayments and/or shorten the length of their mortgage. Carla Morris, financial advisor at RBC Brewin Dolphin, said: Although this is a benefit, people may also consider investing extra cash in a pension.
She said that putting a larger lump sum into a retirement pension could make a significant difference to your overall pot at retirement and it could be a tax-efficient way to save the money. An additional tax relief of up to 20 percent or 25 percent can be awarded to higher-rate taxpayers.
The combination of rising mortgage rates and the increasing cost of living has made it more important to be in control of your finances and have transparency of one's financial situation. If someone has debt in addition to their mortgage, this could be at a much higher rate than their mortgage, so prioritizing paying that down will free up extra cash to pay for the mortgage once it's cleared. If payments have increased, they could try to reduce the mortgage balance, using savings, investment or the tax-free lump sum from their pension, but doing this could affect their future plans.