With spring springing and a new financial year rolling in, now could be the perfect time for some financial spring cleaning. If you’re a homeowner, you may be thinking about whether or not to try to make overpayments on your mortgage. Here are some points you might want to consider?
How’s your cash-flow?
If you’re on a variable income, then you might want to wait a while before deciding if you’re in a position to make overpayments on your mortgage. This is particularly true if you’re self-employed.
Employees may have to wait for payments such as commission and overtime. They should, however, know exactly when they can expect them. The self-employed can set payment terms. Realistically, however, clients may not always stick to them. This can be for a variety of reasons from problems with their cash flow to lack of time to process the invoice.
On that note, if you are self-employed, now might be a very good time to review your invoicing and credit-control processes. You might also want to look at what payment methods you accept and consider whether they’re delivering the best value for money.
Do you have savings?
If you have income protection insurance, then you need to check the processing time for claims. Ask yourself how you would keep going during this period. If universal credit is your safety net, then the current waiting time is around five weeks. Again, you need to ask yourself how you would keep going during this period.
It’s also worth noting that having just the minimum in emergency savings basically leaves you with little to no room to manoeuvre. This could pose serious issues if your claim was delayed for any reason.
In addition to having an emergency fund, it might also be useful to have savings for predictable expenses. This can mean anything from a new pair of shoes to a new washing machine. On that note, it’s advisable to think realistically about how much useful life your big-ticket items have left in them. This can influence your saving goals.
Do you have insurance?
You may be prepared to risk the loss of some of your possessions. Are you, however, ready to risk the loss or your health and its consequences? How about legal bills if someone accuses you (or your children) of causing them some form of damage?
Have you dealt with other debts?
If you have other debts, then it may be sensible to tackle them ahead of your mortgage. In simple terms, the higher the interest rate on a debt, the more you should prioritize paying it off. The one, potential, exception to this rule of thumb is accounts with small balances. You might want to pay these off first so you can close them and move on.
Could you get a better deal for your money?
If you’re in the fortunate position of having good cash-flow, savings, insurance and no debt, then your next step is to think about where you would get the best return for your money. This question really has two aspects. These are the emotional aspect and the practical aspect.
Emotionally, you may very much like the idea of being totally debt-free and owning your own home outright. If this is how you feel, then overpaying your mortgage may be the right course of action for you.
Be aware, however, that interest rates are extremely low just now. This means that, at present, you might be able to get a much better return for your money through investment. That said, investment returns are not guaranteed, whereas a mortgage is a commitment you need to meet if you want to keep your home.
For savings and investments, we act as introducers only
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
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