Make money by paying off your mortgage?
We don’t expect a lot from Bitterwallet readers, and with good reason, but we do expect you to be able to fathom that 4.5% is more than 2.5%. However, apparently twice as many people choose to put money into a savings account ( with 2.5% representing a good rate in the current climate) rather than overpay on their mortgage, saving an estimated 4.5% in interest charges.
New research of over 1,000 mortgage-holders by First Direct found that 42 per cent regularly pay into a savings account, whilst only 21 per cent regularly make an overpayment on their mortgage.
The bank suggests that one reason for this could be that many mortgage holders are not aware of the current status of their loan. Just under a third don’t know what the interest rate is, whilst 43 per cent don’t know what the total cost of their mortgage including interest is. A quarter don’t even know whether they could make an overpayment if they wanted to. We know that all Bitterwallet readers are fully conversant with the facts of their own mortgage of course, but there are some oblivious people out there.
Of course, in real life things are not all average, and you may be lucky enough to have a mortgage at 2.5% and a savings account at 3%. Or you may want to have immediate access to your savings in case you need to rush out and buy a bargain. Or something.
Naturally, First Direct are trying to sell their offset mortgages by publishing this research, but it is a valid point to be made. If you do have savings sitting around doing nothing, it is likely to save you more money in the long run if you pay off some or all of your mortgage rather than scrabbling for poor savings rates.
Worse, if you have other lending, particularly at super-high rates like 14% plus credit cards, it is pure madness to hold savings instead of reducing the balance on these cards- most emergency purchases you would ever need to make can be put on a credit card and you could save (=pocket) an extra 10% or more in saved net interest charges.
Just a thought.