Should I invest a lump sum or pay off some of my mortgage?
One of the biggest financial decisions that a homeowner may face is whether to pay off some of their mortgage early or invest a lump sum. Both choices offer advantages and disadvantages.
The right decision for you will depend on your individual circumstances.
Below are some steps you should take to help you decide.
Step 1: Assess your overall financial position
Before you make a decision regarding paying off some of your mortgage or investing excess funds, you should review your overall position. You should make sure that you have an easily accessible emergency fund in place covering 6 months of expenses and also make sure that you have no high interest debt or credit cards which should be paid off first.
Step 2: Review your mortgage terms
The next thing you need to review is your mortgage terms. If you have a low mortgage interest rate then it is highly likely it will be more beneficial to invest your money as your funds will hopefully grow in value higher than your mortgage interest rate which means that you are making more money by investing.
You also need to check with your lender as some lenders will charge you a penalty for overpaying your mortgage early.
Step 3: Consider a balanced approach
You don’t have to only choose one option. Some homeowners split their excess income between making overpayments monthly off their mortgage and also investing a lump sum. This strategy allows you to benefit from potential market growth while reducing your mortgage debt over time.
Another solution could be investing a lump sum for 5 years and hopefully achieving greater long-term returns than your mortgage interest rate and then using this lump sum along with the growth to pay a large chunk off your mortgage.
Step 4: Speak to a financial adviser
There’s no ‘one size fits all’ answer to the ‘invest or pay off mortgage’ question. Before you make any big decisions, you should speak to a finacnial adviser who can review your financial position and advise you on the best option for you.
Book a no-obligation meeting now or call us on 0117 456 5921.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
SJP Approved 01/09/2025