Nobody wants to be saddled with debts into retirement if they can help it. For many people, the goal of getting rid of their biggest debt, which is often a mortgage, is the one they aim for. But meeting your financial obligations, and putting a later life savings plan into place, requires careful planning to make your money work harder for you. So, as you consider your financial strategy, here are some tips to help you find the right balance.
#1 Wipe out expensive debts first
We are living in a time of historically low interest rates, and your mortgage should reflect that. With that in mind, look at all the other debts you owe and discover which ones are costing you the most. Tackle your most expensive debts first and get them paid off as fast as you can. Pay particular attention to the time line of each debt, and if there are any penalties for paying it off early. It’s important to maintain a good credit score throughout your life because, while you may hope your borrowing days are behind you in retirement, you never know if you may need to apply for lending in the future.
#2 Set up a contingency fund
But before you pay anything off, make sure you have a contingency fund in place in case of any nasty surprises. We’d recommend that you have at least three months of salary to hand should anything unexpected happen, giving you the peace of mind that you have a buffer in place. It’s no good being debt free but unable to access the funds you need in the case of a cash flow emergency so plan for that eventuality.
#3 Monitor your mortgage
It’s vital that you source the best mortgage for you, and that means shopping around when this debt comes up for renewal. Our advice is to always find your next mortgage through an independent adviser, as they will have access to the deals that aren’t available on the high street or in the public domain. Trained advisers not only have access to the whole of the market, but they can also help you navigate hidden fees, caveats and guarantees.
#4 Be clever with a lump sum
If you find yourself with a lump sum of money, there may be a temptation to pay off a chunk, or the whole of your mortgage with it. However, this may not work best for your financial goals. Speak to an experienced investment adviser and discover what long-term investment funds could yield for you. If you have the capability to leave the sum in the fund for many years, you could achieve good results and make your money work harder for you. It is important to get the balance right.
#5 Overpay strategically
You can save a lot of money on mortgage repayments if you overpay the loan strategically. Most mortgages allow you to overpay a certain amount throughout the term of the loan, but you must follow their rules to the letter. Lenders generally charge a penalty for an overpayment that exceeds their allowance, and you don’t want to get caught out. Seek advice on how to work within their parameters, and save yourself a lot of money in interest.
If you’d like to take advice on how to achieve the right balance for you, please get in touch. Our team are ready to help you on 01638 429975 or email us [email protected]